UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2002.
or
( ) Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from to .
Commission File #333-78445
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PENNSYLVANIA COMMERCE BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1834776
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 Senate Avenue, P.O. Box 8599, Camp Hill, Pennsylvania 17011-8599
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(Address of principal executive offices)
Registrant's telephone number, including area code: (717) 975-5630
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Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $1.00 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X )
1
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
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The aggregate market value of voting stock held by non-affiliates of
the registrant as of the last business day of the Company's most recently
completed second fiscal quarter, June 30, 2002 is $54,186,902.
The number of shares of the registrant's common stock, par value $1.00
per share, outstanding as of February 28, 2003 was 2,126,614.
DOCUMENTS INCORPORATED BY REFERENCE:
Part II incorporates certain information by reference from the
registrant's Annual Report to Shareholders for the fiscal year ended December
31, 2002 (the "Annual Report"). Part III incorporates certain information by
reference from the registrant's Proxy Statement for the Annual Meeting of
Shareholders.
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2
PENNSYLVANIA COMMERCE BANCORP, INC.
FORM 10-K CROSS-REFERENCE INDEX
Page
Part I.
Item 1. Business.................................................................4
Item 2. Properties..............................................................10
Item 3. Legal Proceedings.......................................................11
Item 4. Submission of Matters to a Vote of Security Holders (This item is
omitted since no matters were submitted to a vote of security holders
during the fourth quarter of 2002.)
Part II.
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.................................................................11
Item 6. Selected Financial Data.................................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (The information required by this
item is incorporated by reference from the Company's 2002 Annual
Report.) ...............................................................14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk (The
information required by this item is incorporated by reference from the
Company's 2002 Annual Report.) .........................................14
Item 8. Financial Statements and Supplementary Data (The information required by
this item is incorporated by reference from the Company's 2002 Annual
Report.) ...............................................................14
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure (This item is omitted since
it is not applicable.) .................................................14
Part III.
Item 10. Directors and Executive Officers of the Registrant .....................14
Item 11. Executive Compensation .................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management..........14
Item 13. Certain Relationships and Related Transactions
The information required by Part III has been omitted since it
will be contained in the Company's definitive proxy statement to
be filed pursuant to Regulation 14A for the election of
directors at the Company's 2003 Annual Meeting.
Part IV.
Item 14. Controls and Procedures.................................................14
Item 15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ................................................15
Signatures ......................................................................16
3
Part I.
Item 1. Business
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Forward-Looking Statements
Pennsylvania Commerce Bancorp, Inc. (the "Company") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's filings with the Securities and Exchange Commission
(including the Annual Report and this Form 10-K and the exhibits hereto and
thereto), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties and are subject to change based on various factors (some of which
are beyond the Company's control). The words "may", "could", "should", "would",
"believe", "anticipate", "estimate", "expect", "intend", "plan" and similar
expressions are intended to identify forward-looking statements. The following
factors, among others, could cause the Company's financial performance to differ
materially from that expressed in such forward-looking statements: the strength
of the United States economy in general and the strength of the local economies
in which the Company conducts operations; the effects of, and changes in, trade,
monetary and fiscal policies, including interest rate policies of the Board of
Governors of the Federal Reserve System (the "FRB"); inflation; interest rates,
market and monetary fluctuations; the timely development of competitive new
products and services by the Company and the acceptance of such products and
services by customers; the willingness of customers to substitute competitors'
products and services for the Company's products and services and vice versa;
the impact of changes in financial services' laws and regulations (including
laws concerning taxes, banking, securities and insurance); technological
changes; future acquisitions; the expense savings and revenue enhancements from
acquisitions being less than expected; the growth and profitability of the
Company's noninterest or fee income being less than expected; unanticipated
regulatory or judicial proceedings; changes in consumer spending and saving
habits; and the success of the Company at managing the risks involved in the
foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
General
Pennsylvania Commerce Bancorp, Inc. (the "Company") is a Pennsylvania
business corporation, which is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). The
Company was incorporated on April 23, 1999 and became an active bank holding
company on July 1, 1999 through the acquisition of 100% of the outstanding
shares of Commerce Bank/Harrisburg, N.A. On June 15, 2000, the Company issued $5
million of 11.00% Trust Capital Securities through Commerce Harrisburg Capital
Trust I, a newly formed Delaware business trust subsidiary of the Company.
Proceeds of this offering were invested in Commerce Bank/Harrisburg, N.A., the
company's wholly owned banking subsidiary. All $5 million of the Trust Capital
Securities qualify as Tier 1 capital for regulatory capital purposes. On
4
September 28, 2001, the Company issued $8 million of 10.00% Trust Capital
Securities through Commerce Harrisburg Capital Trust II ("Trust II"), a newly
formed Delaware business trust subsidiary of the Company. Proceeds of this
offering were invested in Commerce Bank/Harrisburg, N.A., the company's wholly
owned banking subsidiary. All $8 million of the Trust Capital Securities qualify
as Tier 1 capital for regulatory capital purposes. Except as otherwise
indicated, all references herein to the Company include Commerce
Bank/Harrisburg, N.A. (also referred to as "Commerce" or the "Bank"), Commerce
Harrisburg Capital Trust I and Commerce Harrisburg Capital Trust II.
The Company is a member of the Commerce Bancorp, Inc. Network (the
"Network") and has the exclusive right to use the "Commerce Bank" name and the
"America's Most Convenient Bank" logo within its primary service area. The
Network provides certain marketing and support services to the Bank.
As of December 31, 2002, the Company had approximately $787 million in
assets, $727 million in deposits, $379 million in total loans (including loans
held for sale), and $43 million in stockholders' equity. The Bank is a member of
the Federal Reserve System (FRB) and substantially all of the Bank's deposits
are insured up to applicable limits by the Bank Insurance Fund (BIF) of the
Federal Deposit Insurance Corporation (FDIC) to the fullest extent permitted by
law.
The Company's principal executive offices are located at 100 Senate
Avenue, Camp Hill, Pennsylvania 17011, and its telephone number is (717)
975-5630.
As of December 31, 2002, the Company had 502 employees, of which 382
were full-time employees. Management believes the Company's relationship with
its employees is good.
Commerce Bank/Harrisburg
On July 13, 1984, Commerce Bank/Harrisburg (Commerce) filed an
application to establish a state-chartered banking institution with the
Pennsylvania Department of Banking. On September 7, 1984, Commerce was granted
preliminary approval of its application, and on September 11, 1984, was
incorporated as a Pennsylvania state-chartered banking institution under the
laws of the Commonwealth of Pennsylvania. The Bank opened for business on June
1, 1985.
On October 7, 1994, Commerce was converted from a Pennsylvania
state-chartered banking institution to a national banking association under the
laws of the United States of America and changed its name to "Commerce
Bank/Harrisburg, National Association." The Bank's conversion was consummated
pursuant to preliminary and conditional approval of the conversion granted by
the Office of the Comptroller of the Currency (OCC) on July 5, 1994 in response
to a letter of intent to convert to a national bank filed by the Bank with the
OCC on April 6, 1994.
Commerce provides a full range of retail and commercial banking
services for consumers and small and mid-sized companies. The Bank's lending and
investment activities are funded principally by retail deposits gathered through
its retail branch office network.
Service Area
The Bank offers its lending and depository services from its Corporate
Office in Camp Hill, Pennsylvania, and its seventeen full-service branch offices
located in Cumberland, Dauphin, York, and Lebanon Counties, Pennsylvania.
5
Retail and Commercial Banking Activities
The Bank provides a broad range of retail banking services and products
including free personal checking accounts and business checking accounts
(subject to a minimum balance), regular savings accounts, money market accounts,
interest checking accounts, fixed rate certificates of deposit, individual
retirement accounts, club accounts, debit card services, and safe deposit
facilities. Its services also include a full range of lending activities
including commercial construction and real estate loans, land development and
business loans, business lines of credit, consumer loan programs (including
installment loans for home improvement and the purchase of consumer goods and
automobiles), home equity and Visa Gold card revolving lines of credit,
overdraft checking protection, student loans and automated teller facilities.
The Bank also offers construction loans and permanent mortgages for homes.
Commerce is a participant in the Small Business Administration Loan Program and
is an approved lender for qualified applicants.
The Bank directs its commercial lending principally toward businesses
that require funds within the Bank's legal lending limit, as determined from
time to time, and that otherwise do business and/or are depositors with
Commerce. The Bank also participates in inter-bank credit arrangements in order
to take part in loans for amounts that are in excess of its lending limit or to
limit the concentration of lending to any individual. In consumer lending, the
Bank offers various types of loans, including revolving credit lines, automobile
loans, and home improvement loans.
The Company has focused its strategy for growth primarily on the
further development of its community-based retail-banking network. The objective
of this corporate strategy is to build earnings growth potential for the future
as the retail branch office network matures. The Company's branch concept uses a
prototype or standardized branch office building, convenient locations and
active marketing, all designed to attract retail deposits. Using this prototype
branch concept, the Company plans to open five new branch offices in each of the
next five years. It has been the Company's experience that each newly opened
branch office incurs operating losses during the first 12 to 15 months of
operations and becomes profitable thereafter. The Company's retail approach to
banking emphasizes a combination of long-term customer relationships, quick
responses to customer needs, active marketing, convenient locations, free
checking for customers maintaining certain minimum balances and extended hours
of operation.
The Company is not dependent on any one or more major customers.
Competitive Business Conditions / Competitive Position
The Company's current primary service area, the central Pennsylvania
area, including portions of Cumberland, Dauphin, York and Lebanon Counties, is
characterized by intense competition for banking business. The Bank competes
with local commercial banks as well as numerous regionally based commercial
banks, most of which have assets, capital, and lending limits larger than that
of Commerce. The Bank competes with respect to its lending activities as well as
in attracting demand, savings, and time deposits with other commercial banks,
savings banks, insurance companies, regulated small loan companies, credit
unions, and with issuers of commercial paper and other securities such as shares
in money market funds.
Other institutions may have the ability to finance wide-ranging
advertising campaigns, and to allocate investment assets to regions of highest
yield and demand. Many institutions offer services such as trust services and
international banking which Commerce does not directly offer (but which the Bank
may offer indirectly through other institutions). Many institutions, by virtue
of their greater
6
total capital, can have substantially higher lending limits than Commerce.
In commercial transactions, the Bank's legal lending limit to a single
borrower (approximately $8.8 million as of December 31, 2002) enables it to
compete effectively for the business of smaller companies. However, this legal
lending limit is considerably lower than that of various competing institutions
and thus may act as a constraint on the Bank's effectiveness in competing for
financing in excess of these limits.
In consumer transactions, the Bank believes it is able to compete on a
substantially equal basis with larger financial institutions because it offers
longer hours of operation, personalized service and competitive interest rates
on savings and time accounts with low minimum deposit requirements.
In order to compete with other financial institutions both within and
beyond its primary service area, the Bank uses, to the fullest extent possible,
the flexibility which independent status permits. This includes an emphasis on
specialized services for the small businessperson and professional contacts by
the Bank's officers, directors and employees, and the greatest possible efforts
to understand fully the financial situation of relatively small borrowers. The
size of such borrowers, in management's opinion, often inhibits close attention
to their needs by larger institutions. The Bank may seek to arrange for loans in
excess of its lending limit on a participation basis with other financial
institutions, including Commerce Bank, N.A. As of the end of 2002, all
participations totaled approximately $23.7 million. Participations are used to
more fully service customers whose loan demands exceed the Bank's lending limit.
The Bank endeavors to be competitive with all competing financial
institutions in its primary service area with respect to interest rates paid on
time and savings deposits, its overdraft charges on deposit accounts, and
interest rates charged on loans.
Supervision and Regulation
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to bank holding companies and their
subsidiaries and provides certain specific information relevant to the Company.
The regulatory framework is intended primarily for the protection of depositors,
other customers and the Federal Deposit Insurance Funds and not for the
protection of security holders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. A change in
applicable statutes, regulations or regulatory policy may have a material effect
on the business of the company.
The Company
The Company is subject to the jurisdiction of the Securities and
Exchange Commission ("SEC") and of state securities commissions for matters
relating to the offering and sale of its securities and is subject to the SEC's
rules and regulations relating to periodic reporting, reporting to shareholders,
proxy solicitation and insider trading.
The Company is subject to the provisions of the Bank Holding Company
Act of 1956, as amended. The Company is subject to supervision and examination
by the Federal Reserve Board ("FRB"). Under the Bank Holding Company Act, the
Company must secure the prior approval of the FRB before it may own or control,
directly or indirectly, more than 5% of the voting shares or
7
substantially all of the assets of any institution, including another bank
(unless it already owns a majority of the voting stock of the bank).
Satisfactory financial condition, particularly with regard to capital
adequacy, and satisfactory Community Reinvestment Act ratings are generally
prerequisites to obtaining federal regulatory approval to make acquisitions.
Commerce is currently rated "satisfactory" under the Community Reinvestment Act.
The Company is required to file an annual report with the Federal
Reserve Board and any additional information that the Federal Reserve Board may
require pursuant to the Bank Holding Company Act. The Federal Reserve Board may
also make examinations of the Company and any or all of its subsidiaries.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit or provision for any property or service. Thus, an affiliate of the
Company, such as Commerce, may not condition the extension of credit, the lease
or sale of property or furnishing of any services on (i) the customer's
obtaining or providing some additional credit, property or services from or to
the Company or other subsidiaries of the Company, or (ii) the customer's
refraining from doing business with a competitor of Commerce, the Company or of
its subsidiaries. The Company, or Commerce may impose conditions to the extent
necessary to reasonably assure the soundness of credit extended.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on (i) any extension of credit
to the bank holding company or any of its subsidiaries, (ii) investments in the
stock or other securities of the bank holding company, and (iii) taking the
stock or securities of the bank holding company as collateral for loans to any
borrower.
The Bank
As a nationally chartered commercial banking association, the Bank is
subject to regulation, supervision and regular examination by the Office of the
Comptroller of the Currency (OCC) and is required to furnish quarterly reports
to the OCC. The Bank is a member of the Federal Reserve System. The Bank's
deposits are insured by the FDIC up to applicable legal limits. Some of the
aspects of the lending and deposit business of the Bank that are regulated by
these agencies include personal lending, mortgage lending and reserve
requirements. The Bank is also subject to numerous federal, state and local laws
and regulations which set forth specific restrictions and procedural
requirements with respect to the extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit transactions.
The approval of the OCC is required for the establishment of additional
branch offices. Since March 4, 1990, the Bank is able to establish branches
within any county in Pennsylvania.
Under the Change in Banking Control Act of 1978, subject to certain
exceptions, no person may acquire control of the Bank without giving at least
sixty days prior written notice to the OCC. Under this Act and its regulations,
control of the Bank is generally presumed to be the power to vote ten percent
(10%) or more of the Common Stock. The OCC is empowered to disapprove any such
acquisition of control.
The amount of funds that Commerce may lend to a single borrower is
limited generally under the National Bank Act to 15% of the aggregate of its
capital, surplus and undivided profits and capital securities (all as defined by
statute and regulation).
8
The OCC has authority under the Financial Institutions Supervisory Act
to prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to the
Company.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the Bank's business is particularly susceptible
to being affected by federal and state legislation and regulations, which may
affect the cost of doing business.
Recent Legislation
On November 12, 1999, the Gramm-Leach-Bliley Act (better known as the
Financial Services Modernization Act of 1999) became law. The law permits bank
holding companies to become financial holding companies and thereby affiliate
with securities firms and insurance companies and engage in other activities
that are financial in nature. A bank holding company may become a financial
holding company if each of its subsidiary banks is well capitalized, is well
managed and has at least a satisfactory rating under the Community Reinvestment
Act, by filing a declaration that the bank holding company wishes to become a
financial holding company. Also, no regulatory approval is required for a
financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve
Board. The Financial Services Modernization Act defines "financial in nature" to
include: securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency; merchant
banking activities; and activities that the Federal Reserve Board has determined
to be closely related to banking. A national bank also may engage, subject to
limitations on investment, in activities that are financial in nature, other
than insurance underwriting, insurance company portfolio investment, real estate
development and real estate investment, through a financial subsidiary of the
bank, if the bank is well capitalized, well managed and has at least a
satisfactory Community Reinvestment Act rating. Except for the increase in
competitive pressures faced by all banking organizations that is a likely
consequence of the Act, the Company believes that the legislation and
implementing regulations are likely to have a more immediate impact on large
regional and national institutions than on community-based institutions engaged
principally in traditional banking activities. Because the legislation permits
bank holding companies to engage in activities previously prohibited altogether
or severely restricted because of the risks they posed to the banking system,
implementing regulations impose strict and detailed prudential safeguards on
affiliations among banking and nonbanking companies in a holding company
organization.
The USA Patriot Act imposes additional obligations on U.S. financial
institutions, including banks, to implement policies, procedures and controls,
which are reasonably designed to detect and report instances of money laundering
and the financing of terrorism. In addition, provisions of the USA Patriot Act
require the federal financial institution regulatory agencies to consider the
effectiveness of a financial institution's anti-money laundering activities when
reviewing bank applications.
National Monetary Policy
In addition to being affected by general economic conditions, the
earnings and growth of the Company are affected by the policies of regulatory
authorities, including the OCC, the FRB and the FDIC. An important function of
the FRB is to regulate the money supply and credit conditions.
9
Among the instruments used to implement these objectives are open market
operations in U.S. Government securities, setting the discount rate, and changes
in reserve requirements against bank deposits. These instruments are used in
varying combinations to influence overall growth and distribution of credit,
bank loans, investments and deposits, and their use may also affect interest
rates charged on loans or paid on deposits.
The monetary policies and regulations of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. The effects of such policies upon the future
business, earnings, and growth of the Company cannot be predicted.
Environmental Laws
The costs and effects of compliance with environmental laws, federal,
state and local, on the Company are minimal.
Item 2. Properties
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The following table summarizes the Company's branch network by region.
Remote service facilities (stand-alone ATM's) are excluded.
Branch Offices
Branch Name Location Own /Lease Term Ending
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West Shore Region
Senate Avenue Office Camp Hill, Pennsylvania Lease 2005
Hampden Centre Mechanicsburg, Pennsylvania Lease 2008
Simpson Ferry Mechanicsburg, Pennsylvania Own
Carlisle Carlisle, Pennsylvania Own
Cedar Cliff Camp Hill, Pennsylvania Own
Wertzville Enola, Pennsylvania Lease 2021
Camp Hill Mall Camp Hill, Pennsylvania Lease 2022
Carlisle Commons Carlisle, Pennsylvania Lease 2022
East Shore Region
Colonial Park Harrisburg, Pennsylvania Lease 2007
Mountain Road Harrisburg, Pennsylvania Lease 2012
Hummelstown Hummelstown, Pennsylvania Own
Palmyra Palmyra, Pennsylvania Lease 2021
Downtown Harrisburg Harrisburg, Pennsylvania Own
York Region
York Crossing York, Pennsylvania Lease 2016
Queen Street York, Pennsylvania Own
Prospect Street York, Pennsylvania Lease 2017
Route 30 York, Pennsylvania Own
Red Lion Red Lion, Pennsylvania Own
Administration Offices & Loan Production Offices (LPO)
Office Name Location Own /Lease Term Ending
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Operations Center Mechanicsburg, Pennsylvania Lease 2008
Lemoyne LPO Lemoyne, Pennsylvania Lease 2004
York LPO York, Pennsylvania Lease 2003
Carlisle LPO Carlisle, Pennsylvania Lease 2003
10
Item 3. Legal Proceedings
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The Company is subject to certain legal proceedings and claims arising
in the ordinary course of business. It is management's opinion that the ultimate
resolution of these claims will not have a material adverse effect on the
Company's financial position and results of operations.
Part II.
Item 5. Market For Registrant's Common Equity
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and Related Shareholder Matters
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The Company's common stock trades on the NASDAQ Small Cap Market tier
of The NASDAQ Stock Market under the symbol COBH. The preferred stock is not
traded on any market.
The following table sets forth the prices for which common stock has
traded during the last two (2) fiscal years on the NASDAQ Small Cap Market. The
prices per share have been adjusted to reflect common stock dividends of 5% with
record dates of February 7, 2003 and February 11, 2002. As of February 28, 2003,
there were approximately 600 holders of record of the Company's common stock.
Sales Price
Quarter Ended: High Low
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December 31, 2002 $ 42.02 $ 32.99
September 30, 2002 46.00 35.48
June 30, 2002 51.43 39.33
March 31, 2002 40.00 33.79
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December 31, 2001 $ 34.92 $ 30.83
September 30, 2001 32.42 29.80
June 30, 2001 33.67 29.52
March 31, 2001 33.67 24.83
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Dividends and Dividend History
The Company distributed to stockholders 5% stock dividends in December
1992, and annually from 1994 through 2003, and anticipates the distribution of
stock dividends in the future. The Company also distributed to stockholders a
two-for-one stock split (payable in the form of a 100% stock dividend) on August
7, 1995. Neither the Company nor the Bank has declared or paid cash dividends on
its common stock since the Bank began operations in June 1985. The Board of
Directors intends to follow a policy of retaining earnings for the purpose of
increasing the Company's capital for the foreseeable future. Although the Board
of Directors anticipates establishing a cash dividend policy in the future, no
assurance can be given that cash dividends will be paid.
11
The holders of Common Stock of the Company are entitled to receive
dividends as may be declared by the Board of Directors with respect to the
Common Stock out of funds of the Company. While the Company is not subject to
certain restrictions on dividends and stock redemptions applicable to a bank,
the ability of the Company to pay dividends to the holders of its Common Stock
will depend to a large extent upon the amount of dividends paid by the Bank to
the Company.
The ability of the Company to pay dividends on its Common Stock in the
future will depend on the earnings and the financial condition of the Bank and
the Company. The Company's ability to pay dividends will be subject to the prior
payment by the Company of principal and interest on any debt obligations it may
incur in the future as well as other factors that may exist at the time.
Regulatory authorities restrict the amount of cash dividends the Bank
can declare without prior regulatory approval. Presently, the Bank cannot
declare a dividend in excess of its accumulated retained earnings.
Information on the Comapny's equity compensation plans is incorporated
by reference to the Company's definitive proxy statement for the 2003 annual
meeting of shareholders, which will be filed with the Securities and Exchange
Commission before April 30, 2003.
12
Item 6. Selected Financial Data
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Pennsylvania Commerce Bancorp, Inc.
Selected Financial Data
Year Ended December 31,
(dollars in thousands, except per share data) 2002 2001 2000 1999 1998
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BALANCE SHEET DATA
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Total Assets $ 786,598 $ 609,890 $ 480,086 $ 378,913 $ 319,323
Loans held for sale 10,514 7,661 5,329 5,301 5,641
Loans receivable (gross) 368,881 342,674 290,252 216,105 167,121
Securities available for sale 205,436 104,722 90,633 82,522 95,439
Securities held to maturity 97,625 103,349 33,812 29,039 11,493
Federal funds sold 44,500 4,300 22,800 0 11,900
Deposits 726,955 561,738 446,583 348,546 297,737
Long-term debt and other borrowed money 0 0 0 8,300 0
Trust preferred securities 13,000 13,000 5,000 0 0
Stockholder's equity 42,812 32,593 26,668 20,378 20,445
INCOME STATEMENT
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Net interest income $ 27,701 $ 22,054 $ 17,477 $ 14,676 $ 11,276
Provision for loan losses 1,435 1,469 1,050 762 542
Noninterest income 7,707 6,607 5,362 4,558 4,061
Noninterest operating expenses 25,428 20,512 16,189 13,756 11,471
Income before income taxes 8,545 6,680 5,600 4,716 3,324
Net income 5,674 4,448 3,714 3,103 2,218
PER COMMON SHARE DATA
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Net income: Basic $ 2.71 $ 2.24 $ 1.90 $ 1.59 $ 1.13
Diluted 2.48 2.04 1.78 1.49 1.05
Book Value 19.73 15.97 13.29 10.16 10.25
SELECTED PERFORMANCE RATIOS
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Return on average assets 0.82 % 0.82 % 0.88 % 0.89 % 0.80 %
Return on average stockholders equity 14.86 14.85 16.59 15.18 11.50
Net interest margin 4.29 4.40 4.49 4.59 4.49
SELECTED LIQUIDITY AND CAPITAL RATIOS
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Average loans to average deposits 56.91 % 63.25 % 65.12 % 60.24 % 60.26 %
Average Stockholders' equity to average total assets 5.49 5.54 5.29 5.86 6.94
Risk based capital: Tier 1 11.16 10.22 9.90 9.91 10.83
Total 12.22 11.78 11.04 11.12 12.02
Leverage Capital 7.00 7.33 6.92 6.28 6.50
ASSET QUALITY
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Net charge-offs to average loans outstanding 0.23 % 0.21 % 0.06 % 0.08 % 0.01 %
Non-performing loans to total year-end loans 0.43 0.26 0.29 0.32 0.16
Non-performing assets to total year-end assets 0.22 0.15 0.18 0.18 0.09
Allowance for loan losses to total year-end loans 1.40 1.33 1.29 1.31 1.34
Allowance for loan losses to non-performing loans 321.83 518.72 448.02 415.35 808.70
13
Item 7. Management's Discussion and Analysis of
- -------------------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
The information required by this item is incorporated by reference from
the Company's 2002 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------------
The information required by this item is incorporated by reference from
the Company's 2002 Annual Report.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------------
The information required by this item is incorporated by reference from
the Company's 2002 Annual Report.
Item 9. Changes and Disagreements with Accountants on
- -----------------------------------------------------------
Accounting and Financial Disclosure
------------------------------------
This item is omitted since it is not applicable.
Part III.
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------------
Item 11. Executive Compensation
- --------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------
Information responsive to these items is incorporated by reference to
the Company's definitive proxy statement for the 2003 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission
before April 30, 2003.
Part IV.
Item 14. Controls and Procedures
- ---------------------------------------
Within the 90 days prior to the filing of this report, the Chief
Financial Officer, under the supervision of the Chief Executive Officer, has
evaluated the Company's disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed in the Company's periodic
reports is accumulated and communicated to management as appropriate to allow
timely decisions by management regarding required disclosure.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date that the Company completed its evaluation.
14
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
(a)(1) Financial Statements are incorporated by reference in Part II, Item 8
hereof:
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules (This item is omitted since
information required is either not applicable or is included in
the footnotes to the Annual Financial Statements.)
(a)(3) Exhibits:
3.1. Articles of Incorporation, of the Company as amended (A)
3.2. By - Laws, of the Company as amended
4. Commerce Harrisburg Capital Trust I and Commerce Harrisburg
Capital Trust II (Instruments defining the rights of the holders
of trust capital securities issued and sold by the Company are
not attached, as the amount of such securities is less than 10%
of the consolidated assets of the Company and its subsidiaries,
and the securities have not been registered. The Company agrees
to provide copies of such instruments to the SEC upon request.)
10.1. The Company's 1990 Directors Stock Option Plan (B)
10.2. The Company's 1996 Employee Stock Option Plan (C)
10.3. Warrant Agreement and Warrant No. 1 of Commerce
Bank/Harrisburg dated October 7, 1988
10.4. Amendment No. 1 to the Stock and Warrant Purchase Agreement
10.5. The Company's 2001 Directors Stock Option Plan (D)
11. Calculation of EPS
(The information required by this item appears in Note 13 of the
Consolidated Financial Statements of the Company's 2002 Annual
Report and is incorporated by reference herein.)
13. Pennsylvania Commerce Bancorp, Inc. 2002 Annual Report to
Shareholders
21. Subsidiaries of the Company (incorporated by reference from PART
I, Item 1. "BUSINESS" of this Report on Form 10-K.)
23. Consent of Beard Miller Company LLP.
99.1 Certification by Gary L. Nalbandian, CEO, under section 906 of the
Sarbanes Oxley Act
99.2 Certification by Mark A. Zody, CFO, under Section 906 of the
Sarbanes Oxley Act
(b) Reports on Form 8-K
There were no reports on Form 8-K filed in the fourth quarter of 2002.
(A) Incorporated by reference from Appendix "A" and Appendix "B", respectively,
of the Prospectus of the Company's Registration Statement on Form S-4 filed
with the SEC on May 14, 1999.
(B) Incorporated by reference from Exhibit 4 of the Company's Registration
Statement on Form S-4 filed with the SEC on July 1, 1999.
(C) Incorporated by reference from Exhibit 4 of the Company's Registration
Statement on Form S-4 filed with the SEC on July 1, 1999.
(D) Incorporated by reference from the Company's Definitive Proxy Statement for
its 2000 Annual Meeting of Shareholders, Appendix A thereto. Item 16.
15
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 31, 2003 Pennsylvania Commerce Bancorp, Inc,
By /s/ Gary L. Nalbandian
-------------------------------
Gary L. Nalbandian
Chairman and President
Date: March 31, 2003 By /s/ Mark A. Zody
----------------------------------
Mark A. Zody
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------------------------------- ------------------------------------------ -----------------------
/s/ Gary L. Nalbandian Chairman of the Board, President and March 31, 2003
- --------------------------------------------- Director (Principal Executive Officer)
Gary L. Nalbandian
/s/ Alan R. Hassman Director March 31, 2003
- ---------------------------------------------
Alan R. Hassman
March 31, 2003
/s/ Michael A. Serluco Director
- ---------------------------------------------
Michael A. Serluco
/s/ Samir J. Srouji, M.D. Director March 31, 2003
- ---------------------------------------------
Samir J. Srouji, M.D.
Director
/s/ James R. Adair March 31, 2003
- ---------------------------------------------
James R. Adair
/s/ Howell C. Mette Director March 31, 2003
- ---------------------------------------------
Howell C. Mette
/s/ Douglas S. Gelder Director March 31, 2003
- ---------------------------------------------
Douglas S. Gelder
16
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Gary L. Nalbandian, President and Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Pennsylvania Commerce
Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and c) presented in
this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date; 5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Gary L. Nalbandian
------------------------------------------
March 31, 2003 Gary L. Nalbandian
- -------------- President and Chief Executive Officer
Date
17
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark A. Zody, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Pennsylvania Commerce
Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and c) presented in
this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date; 5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
March 31, 2003
- ------------------------
Date /s/ Mark A. Zody
------------------------------------------
Mark A. Zody
Chief Financial Officer
18