SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarter ended March 31, 2003
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______________ to
______________
Commission File #0-12874
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[LOGO OMITTED]
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
Commerce Atrium, 1701 Route 70 East, Cherry Hill, New Jersey 08034-5400
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(Address of Principal Executive Offices) (Zip Code)
(856) 751-9000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No __
--
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practical date.
Common Stock 69,110,715
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(Title of Class) (No. of Shares Outstanding
as of 5/8/03)
COMMERCE BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
March 31, 2003 and December 31, 2002.......................................................1
Consolidated Statements of Income (unaudited)
Three months ended March 31, 2003 and
March 31, 2002.............................................................................2
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2003 and
March 31, 2002.............................................................................3
Consolidated Statement of Changes in Stockholders' Equity (unaudited)
Three months ended March 31, 2003..........................................................4
Notes to Consolidated Financial Statements (unaudited).....................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.........................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................17
Item 4. Control and Procedures....................................................................17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................19
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
------------------------------------------------------------------------------------------------
March 31, December 31,
---------------------------------
(dollars in thousands) 2003 2002
------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 832,821 $ 811,434
Federal funds sold 61,000 0
------------- ---------------
Cash and cash equivalents 893,821 811,434
Loans held for sale 55,230 96,920
Trading securities 205,631 326,479
Securities available for sale 8,852,908 7,806,779
Securities held to maturity 927,562 763,026
(market value 03/03-$957,414; 12/02-$791,889)
Loans
5,993,427 5,822,589
Less allowance for loan losses 94,731 90,733
------------- ---------------
5,898,696 5,731,856
Bank premises and equipment, net 556,945 499,189
Other assets 407,330 368,298
------------- ---------------
$17,798,123 $ 16,403,981
------------- ---------------
Liabilities Deposits:
Demand:
Interest-bearing $ 6,097,976 $ 5,635,351
Noninterest-bearing 3,626,661 3,243,091
Savings 3,331,131 2,861,677
Time 3,176,133 2,808,722
------------- ---------------
Total deposits 16,231,901 14,548,841
Other borrowed money 109,622 391,641
Other liabilities 303,039 345,489
Convertible Trust Capital Securities - Commerce Capital
Trust II 200,000 200,000
============= ===============
16,844,562 15,485,971
Stockholders' Common stock, 69,071,627 shares
Equity issued (68,043,171 shares in 2002) 69,072 68,043
Capital in excess of par or stated value 565,246 538,795
Retained earnings 231,280 199,604
Accumulated other comprehensive income 93,208 113,614
------------- ---------------
958,806 920,056
Less treasury stock, at cost, 286,358 shares
issued (209,794 shares in 2002) 5,245 2,046
------------- ---------------
Total stockholders' equity 953,561 918,010
------------- ---------------
$17,798,123 $ 16,403,981
============= ===============
See accompanying notes.
1
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
-----------------------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------------------
(dollars in thousands, except per share amounts) 2003 2002
-----------------------------------------------------------------------------------------------
Interest Interest and fees on loans $ 93,121 $81,823
income Interest on investments 113,661 86,217
Other interest 79 164
-------------- --------------
Total interest income 206,861 168,204
-------------- --------------
Interest Interest on deposits:
expense Demand 12,397 12,908
Savings 6,355 7,078
Time 16,846 21,281
-------------- --------------
Total interest on deposits 35,598 41,267
Interest on other borrowed money 914 426
Interest on long-term debt 3,020 2,432
-------------- --------------
Total interest expense 39,532 44,125
-------------- --------------
Net interest income 167,329 124,079
Provision for loan losses 6,900 6,900
-------------- --------------
Net interest income after provision for loan losses 160,429 117,179
Noninterest Deposit charges and service fees 34,842 28,963
income Other operating income 41,360 26,927
Net investment securities losses (136)
-------------- --------------
Total noninterest income 76,066 55,890
-------------- --------------
Noninterest Salaries and benefits 82,082 60,145
expense Occupancy 20,488 12,098
Furniture and equipment 21,226 15,105
Office 9,186 6,916
Marketing 5,276 4,861
Other 33,863 26,796
-------------- --------------
Total noninterest expenses 172,121 125,921
-------------- --------------
Income before income taxes 64,374 47,148
Provision for federal and state income taxes 21,484 15,398
-------------- --------------
Net income $ 42,890 $ 31,750
============= ==============
Net income per common and common equivalent share:
Basic $ 0.63 $ 0.48
Diluted $ 0.60 $ 0.45
Average common and common equivalent shares outstanding:
Basic 68,318 65,995
Diluted 71,785 70,033
Cash dividends, common stock $ 0.17 $ 0.15
See accompanying notes.
2
COMMERCE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
----------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------------------
(dollars in thousands) 2003 2002
----------------------------------------------------------------------------------------------------
Operating Net income $ 42,890 $ 31,750
activities Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 6,900 6,900
Provision for depreciation, amortization and accretion 27,459 13,531
Losses on sales of securities available for sale (136)
Proceeds from sales of loans held for sale 421,783 290,945
Originations of loans held for sale (380,093) (257,300)
Net decrease in trading securities 120,848 39,625
(Increase) decrease in other assets (31,746) 19,189
Decrease in other liabilities (42,450) (45,032)
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 165,455 97,980
Investing Proceeds from the sales of securities available for sale 752,512 275,325
activities Proceeds from the maturity of securities available for sale 1,087,641 396,716
Proceeds from the maturity of securities held to maturity 135,436 135,619
Purchase of securities available for sale (2,929,021) (1,752,379)
Purchase of securities held to maturity (299,839) (17,823)
Net increase in loans (222,739) (327,303)
Proceeds from sales of loans 48,999 6,677
Capital expenditures (70,165) (38,045)
----------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,497,176) (1,319,585)
Financing Net increase in demand and savings deposits 1,315,649 682,787
activities Net increase in time deposits 367,411 452,482
Net decrease in other borrowed money (282,019) (182,987)
Proceeds from Trust Capital Securities 200,000
Dividends paid (11,213) (9,846)
Proceeds from issuance of common stock under
dividend reinvestment and other stock plans 25,588 16,950
Other (1,308)
----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,414,108 1,159,386
Increase (decrease) in cash and cash equivalents 82,387 (62,219)
Cash and cash equivalents at beginning of year 811,434 557,738
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 893,821 $ 495,519
====================================================================================================
Supplemental disclosures of cash flow information: Cash paid
during the period for:
Interest $ 39,586 $ 43,053
----------------------------------------------------------------------------------------------------
See accompanying notes.
3
COMMERCE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Three months ended March 31, 2003
(in thousands)
------------------------------------------------------------------------------------------------------------------------------------
Capital in Accumulated
Excess of Other
Common Par or Retained Treasury Comprehensive
Stock Stated Value Earnings Stock Income Total
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2002 $68,043 $538,795 $199,604 $(2,046) $ 113,614 $918,010
Net income 42,890 42,890
Other comprehensive income, net of tax
Unrealized loss on securities (pre-tax $20,722) (13,983) (13,983)
Reclassification adjustment (pre-tax $9,881) (6,423) (6,423)
-------------
Other comprehensive income (20,406)
Total comprehensive income 22,484
Cash dividends paid (11,213) (11,213)
Shares issued under dividend reinvestment
and compensation and benefit plans (985 shares) 985 24,603 25,588
Acquisition of insurance brokerage agency (44 shares) 44 1,848 1,892
Other (1) (3,199) (3,200)
------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2003 $69,072 $565,246 $231,280 $(5,245) $ 93,208 $953,561
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
4
COMMERCE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Consolidated Financial Statements
The consolidated financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations. The accompanying condensed consolidated financial
statements reflect all adjustments which are, in the opinion of management,
necessary to reflect a fair statement of the results for the interim periods
presented. Such adjustments are of a normal recurring nature.
These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and the notes thereto included in the
registrant's Annual Report on Form 10-K for the year ended December 31, 2002.
The results for the three months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2003.
The consolidated financial statements include the accounts of Commerce Bancorp,
Inc. and all of its subsidiaries, including Commerce Bank, N.A. (Commerce NJ),
Commerce Bank/Pennsylvania, N.A., Commerce Bank/Shore, N.A., Commerce
Bank/North, Commerce Bank/Delaware, N.A., Commerce Insurance Services, Inc.
(CIS), Commerce Capital Trust II, and Commerce Capital Markets, Inc. (CCMI). All
material intercompany transactions have been eliminated. Certain amounts from
prior years have been reclassified to conform with 2003 presentation.
B. Commitments
In the normal course of business, there are various outstanding commitments to
extend credit, such as letters of credit and unadvanced loan commitments, which
are not reflected in the accompanying consolidated financial statements.
Management does not anticipate any material losses as a result of these
transactions.
C. Comprehensive Income
Total comprehensive income, which for the Company included net income and
changes in unrealized gains and losses on the Company's available for sale
securities, amounted to $22.5 million and $6.6 million, respectively, for the
three months ended March 31, 2003 and 2002.
D. Other
In accordance with accounting principles generally accepted in the United
States, when capitalizing costs for branch construction, the Company includes
the costs of purchasing the land, developing the site, constructing the building
(or leasehold improvements if the property is leased), and furniture, fixtures
and equipment necessary to equip the branch. Capital expenditures for branches
that have not yet opened are included in Other assets. All other pre-opening and
post-opening costs related to branches are expensed as incurred.
5
E. Segment Information
Selected segment information is as follows:
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
Community Parent/ Community Parent/
Banks Other Total Banks Other Total
-------------------------------------------------------------------------------------------------------------------------
Net interest income $ 168,229 $ (900)$ 167,329 $ 125,470 $ (1,391) $ 124,079
Provision for loan losses 6,900 - 6,900 6,900 - 6,900
-----------------------------------------------------------------------------------
Net interest income after provision 161,329 (900) 160,429 118,570 (1,391) 117,179
Noninterest income 49,995 26,071 76,066 36,048 19,842 55,890
Noninterest expense 149,450 22,671 172,121 107,852 18,069 125,921
-----------------------------------------------------------------------------------
Income before income taxes 61,874 2,500 64,374 46,766 382 47,148
Income tax expense 20,975 509 21,484 15,256 142 15,398
-----------------------------------------------------------------------------------
Net income $ 40,899 $ 1,991 $ 42,890 $ 31,510 $ 240 $ 31,750
===================================================================================
Average assets (in billions) $ 14,993 $ 1,839 $ 16,832 $ 10,495 $ 1,196 $ 11,691
===================================================================================
F. Recent Accounting Statement
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." This interpretation provides
guidance on how to identify a variable interest entity ("VIE") and determine
when the assets, liabilities, noncontrolling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. The new accounting provisions of this interpretation became
effective upon issuance for all new variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies to the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. While the impact is currently being assessed, management does not
expect the adoption of FIN 46 to have a material impact on the Company's results
of operations and financial position.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (FAS 148). This statement provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation and amends the
disclosure requirements of FAS No. 123, "Accounting for Stock-Based
Compensation." This statement is effective for fiscal years ending after
December 15, 2002 and did not have an impact on the financial condition or
operating results of the Company.
The Company will continue to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations to account for its stock-based
compensation plans. If the Company had accounted for stock options under the
fair value provisions of FAS 123, net income and net income per share would have
been as follows (in thousands, except per share amounts):
------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------
Pro forma net income $ 40,510 $ 29,643
Pro forma net income per share:
Basic $ 0.59 $ 0.45
Diluted 0.57 0.43
------------------------------------------------------------------------
6
The fair value of options granted in 2003 and 2002 was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rates of 3.00% to 4.41%, dividend yields
of 1.50% to 2.50%, volatility factors of the expected market price of the
Company's common stock of .304 and weighted average expected lives of the
options of 5.22 and 4.75 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
G. Trust Capital Securities
On March 11, 2002 the Company issued $200.0 million of 5.95% Convertible Trust
Capital Securities through Commerce Capital Trust II, a newly formed Delaware
business trust subsidiary of the Company. The Convertible Trust Capital
Securities mature in 2032. Holders of the Convertible Trust Capital Securities
may convert each security into 0.9478 shares of Company common stock, subject to
adjustment, if (1) the closing sale price of Company common stock for at least
20 trading days in a period of 30 consecutive trading days ending on the last
trading day of any calendar quarter beginning with the quarter ending June 30,
2002 is more than 110% of the Convertible Trust Capital Securities conversion
price ($52.75 at March 31, 2003) then in effect on the last day of such calendar
quarter, (2) the assigned credit rating by Moody's of the Convertible Trust
Capital Securities is at or below Bal, (3) the Convertible Trust Capital
Securities are called for redemption, or (4) specified corporate transactions
have occurred. All $200.0 million of the Convertible Trust Capital Securities
qualify as Tier 1 capital for regulatory capital purposes. As of March 31, 2003,
the Convertible Trust Capital Securities were not convertible. The net proceeds
of this offering were used for general corporate purposes, including the
redemption of the Company's $57.5 million of 8.75% Trust Capital Securities on
July 1, 2002 and the repayment of the Company's $23.0 million of 8 3/8%
subordinated notes on May 20, 2002.
H. Earnings Per Share
The calculation of earnings per share follows (in thousands, except for per
share amounts):
Three Months Ended
March 31,
-----------------------------------------
2003 2002
------------------ -------------------
Basic:
Net income $42,890 $31,750
================== ===================
Average common shares outstanding 68,318 65,995
================== ===================
Net income per share of common share $ 0.63 $ 0.48
================== ===================
Diluted:
Net income $42,890 $31,750
================== ===================
Average common shares outstanding 68,318 65,995
Additional shares considered in diluted
computation assuming:
Exercise of stock options 3,467 4,038
------------------ -------------------
Average number of shares outstanding
on a diluted basis 71,785 70,033
================== ===================
Net income per common share - diluted $ 0.60 $ 0.45
================== ===================
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operation
------------
Capital Resources
At March 31, 2003, stockholders' equity totaled $953.6 million or 5.36% of total
assets, compared to $918.0 million or 5.60% of total assets at December 31,
2002.
The table below presents the Company's and Commerce NJ's risk-based and leverage
ratios at March 31, 2003 and 2002:
Per Regulatory Guidelines
---------------------------------------------------
Actual Minimum "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------
March 31, 2003
Company
Risk based capital ratios:
Tier 1 $1,050,051 11.25% $373,411 4.00% $560,117 6.00%
Total capital 1,144,782 12.26 746,823 8.00 933,529 10.00
Leverage ratio 1,050,051 6.28 668,655 4.00 835,819 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $567,037 9.83% $230,644 4.00% $345,966 6.00%
Total capital 630,037 10.93 461,288 8.00 576,610 10.00
Leverage ratio 567,037 5.53 410,116 4.00 512,645 5.00
March 31, 2002
Company
Risk based capital ratios:
Tier 1 $876,379 12.84% $273,067 4.00% $409,601 6.00%
Total capital 990,846 14.51 546,135 8.00 682,668 10.00
Leverage ratio 876,379 7.51 466,568 4.00 583,210 5.00
Commerce NJ
Risk based capital ratios:
Tier 1 $406,225 9.70% $167,498 4.00% $251,247 6.00%
Total capital 452,595 10.81 334,996 8.00 418,744 10.00
Leverage ratio 406,225 6.00 270,739 4.00 338,424 5.00
At March 31, 2003, the Company's consolidated capital levels and each of the
Company's bank subsidiaries met the regulatory definition of a "well
capitalized" financial institution, i.e., a leverage capital ratio exceeding 5%,
a Tier 1 risk-based capital ratio exceeding 6%, and a total risk-based capital
ratio exceeding 10%. Management believes that as of March 31, 2003, the Company
and its subsidiaries meet all capital adequacy requirements to which they are
subject.
Deposits
--------
Total deposits at March 31, 2003 were $16.2 billion, up $4.9 billion, or 43%
over total deposits of $11.3 billion at March 31, 2002, and up by $1.7 billion,
or 12% from year-end 2002. Deposit growth during the first three months of 2003
included core deposit growth in all categories as well as growth from the public
sector. The Company experienced "same-store core deposit growth" of 29% at March
31, 2003 as compared to deposits a year ago for those branches open for more
than two years.
Interest Rate Sensitivity and Liquidity
---------------------------------------
The Company's risk of loss arising from adverse changes in the fair market value
of financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income, while maintaining acceptable
levels of interest rate risk. The Company's
8
Asset/Liability Committee (ALCO) is responsible for establishing policies to
limit exposure to interest rate risk, and to ensure procedures are established
to monitor compliance with these policies. The guidelines established by ALCO
are reviewed by the Company's Board of Directors.
Management believes the simulation of net interest income in different interest
rate environments to be the best indicator of the Company's interest rate risk.
Income simulation analysis captures not only the potential of all assets and
liabilities to mature or reprice, but also the probability that they will do so.
Income simulation also attends to the relative interest rate sensitivities of
these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net income over the next 24 months in a flat rate scenario versus net
income in alternative interest rate scenarios. Management continually reviews
and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate plus 200 and minus 100 basis point change during the next year,
with rates remaining constant in the second year. The Company's ALCO policy has
established that interest income sensitivity will be considered acceptable if
net income in the above interest rate scenario is within 15% of net income in
the flat rate scenario in the first year and within 30% over the two year time
frame. At March 31, 2003, the Company's income simulation model net income would
decrease by 2.35% and 4.65% in the first year and over a two year time frame,
respectively, if rates decreased as described above. At March 31 2002, the
Company's income simulation model was run assuming a 200 basis point decrease
and indicated net income would decrease by 2.64% and by 10.97% in the first year
and over a two year time frame, respectively. At March 31, 2003, the model
projects that net income would increase by 7.78% and increase 13.83% in the
first year and over a two year time frame, respectively, if rates increased as
described above as compared to a decrease by 0.88% and increase 4.88%,
respectively, at March 31, 2002. All of these net income projections are within
an acceptable level of interest rate risk pursuant to the policy established by
ALCO.
In the event the Company's interest rate risk models indicate an unacceptable
level of risk, the Company could undertake a number of actions that would reduce
this risk, including the sale of a portion of its available for sale portfolio,
the use of risk management strategies such as interest rate swaps and caps, or
the extension of the maturities of its short-term borrowings.
Management also monitors interest rate risk by utilizing a market value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the Company's assets and liabilities, as well as any off
balance sheet items. The model calculates the market value of the Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate plus
200 and minus 100 basis point change in rates. The Company's ALCO policy
indicates that the level of interest rate risk is unacceptable if the immediate
plus 200 and minus 100 basis point change would result in the loss of 50% or
more of the excess of market value over book value in the current rate scenario.
At March 31, 2003, the market value of equity model indicates an acceptable
level of interest rate risk.
Liquidity involves the Company's ability to raise funds to support asset growth
or decrease assets to meet deposit withdrawals and other borrowing needs, to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis. The Company's liquidity needs are primarily met by growth in core
deposits, its cash and federal funds sold position, cash flow from its
amortizing investment and loan portfolios, as well as the use of short-term
borrowings, as required. If necessary, the Company has the ability to raise
liquidity through collateralized borrowings, FHLB advances, or the sale of its
available for sale investment portfolio. As of March 31, 2003 the Company had in
excess of $8.5 billion in immediately available liquidity which includes
securities that could be sold or used for collateralized borrowings, cash on
hand, and borrowing capacities under existing lines of credit. During the first
three months of 2003, deposit growth was used to fund growth in the loan
portfolio and purchase additional investment securities.
9
Short-Term Borrowings
---------------------
Short-term borrowings, or other borrowed money, consist primarily of securities
sold under agreements to repurchase and overnight lines of credit, and are used
to meet short term funding needs. During the first three months of 2003, the
Company reduced its short-term borrowings, primarily through increased deposits.
At March 31, 2003, short-term borrowings aggregated $109.6 million and had an
average rate of 1.14%, as compared to $391.6 million at an average rate of 1.55%
at December 31, 2002.
Interest Earning Assets
-----------------------
For the three month period ended March 31, 2003, interest earning assets
increased $1.3 billion from $14.8 billion to $16.1 billion. This increase was
primarily in investment securities and the loan portfolio as described below.
Loans
-----
During the first three months of 2003, loans increased $170.8 million from $5.8
billion to $6.0 billion. At March 31, 2003, loans represented 37% of total
deposits and 34% of total assets. All segments of the loan portfolio experienced
growth in the first three months of 2003, including loans secured by commercial
real estate properties, commercial loans, and consumer loans.
The following table summarizes the loan portfolio of the Company by type of loan
as of the dates shown.
March 31, December 31,
-----------------------------------------
2003 2002
-----------------------------------------
(dollars in thousands)
Commercial real estate:
Owner-occupied $ 1,333,390 $ 1,345,306
Investor developer 930,791 885,276
Construction 91,378 102,080
-----------------------------------------
2,355,559 2,332,662
Commercial:
Term 872,787 842,869
Line of credit 732,693 683,640
Demand 15,795 317
-----------------------------------------
1,621,275 1,526,826
Consumer:
Mortgages (1-4 family residential) 647,955 626,652
Installment 134,116 140,493
Home equity 1,183,594 1,139,589
Credit lines 50,928 56,367
-----------------------------------------
2,016,593 1,963,101
-----------------------------------------
Total loans $ 5,993,427 $ 5,822,589
=========================================
10
Investments
-----------
In total, for the first three months of 2003, securities increased $1.09 billion
from $8.9 billion to $10.0 billion. The available for sale portfolio increased
$1.05 billion to $8.9 billion at March 31, 2003 from $7.8 billion at December
31, 2002, and the securities held to maturity portfolio increased $164.5 million
to $927.6 million at March 31, 2003 from $763.0 million at year-end 2002. The
portfolio of trading securities decreased $120.8 million from year-end 2002 to
$205.6 million at March 31, 2003. At March 31, 2003, the average life of the
investment portfolio was approximately 3.3 years, and the duration was
approximately 2.7 years. At March 31, 2003, total securities represented 56% of
total assets.
The following table summarizes the book value of securities available for sale
and securities held to maturity by the Company as of the dates shown.
March 31, December 31,
---------------------------------
2003 2002
---------------------------------
(dollars in thousands)
U.S. Government agency and mortgage backed obligations $8,721,995 $7,659,737
Obligations of state and political subdivisions 32,325 23,185
Equity securities 14,592 24,054
Other 83,996 99,803
---------------------------------
Securities available for sale $8,852,908 $7,806,779
=================================
U.S. Government agency and mortgage backed obligations $711,122 $624,688
Obligations of state and political subdivisions 165,639 91,204
Other 50,801 47,134
---------------------------------
Securities held to maturity $927,562 $763,026
=================================
Net Income
----------
Net income for the first quarter of 2003 was $42.9 million, an increase of $11.1
million or 35% over the $31.8 million recorded for the first quarter of 2002. On
a per share basis, diluted net income for the first quarter of 2003 was $0.60
per common share compared to $0.45 per common share for the first quarter of
2002.
Return on average assets (ROA) and return on average equity (ROE) for the first
quarter of 2003 were 1.02% and 17.94%, respectively, compared to 1.09% and
19.00%, respectively, for the same 2002 period.
Net Interest Income
-------------------
Net interest income totaled $167.3 million for the first quarter of 2003, an
increase of $43.3 million or 35% from $124.1 million in the first quarter of
2002. The improvement in net interest income was due primarily to volume
increases in the loan and investment portfolios.
The following table sets forth balance sheet items on a daily average basis for
the three months ended March 31, 2003, December 31, 2002 and March 31, 2002 and
presents the daily average interest earned on assets and paid on liabilities for
such periods.
11
Average Balances and Net Interest Income
-----------------------------------------------------------------------------------------------------
March 2003 December 2002 March 2002
---------------------------------- ------------------------------- ---------------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------- ------------------------------- ---------------------------------
Earning Assets
--------------------------------
Investment securities
Taxable $ 8,681,675 109,916 5.13% $ 8,033,417 $104,326 5.15% $ 5,511,447 $ 83,211 6.12%
Tax-exempt 140,307 2,545 7.36 113,895 1,820 6.34 110,293 1,665 6.12
Trading 270,299 3,215 4.82 272,107 4,068 5.93 189,651 2,960 6.33
------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Total investment securities 9,092,281 115,676 5.16 8,419,419 110,214 5.19 5,811,391 87,836 6.13
Federal funds sold 27,154 80 1.19 51,988 181 1.38 40,672 164 1.64
Loans
Commercial mortgages 2,177,008 35,125 6.54 2,241,044 37,009 6.55 1,828,586 31,304 6.94
Commercial 1,496,039 20,943 5.68 1,338,892 19,816 5.87 1,087,048 16,338 6.10
Consumer 2,075,256 33,719 6.59 1,963,307 33,928 6.86 1,656,000 30,936 7.58
Tax-exempt 258,614 5,129 8.04 195,972 4,517 9.14 233,669 4,992 8.66
------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Total loans 6,006,917 94,916 6.41 5,739,215 95,270 6.59 4,805,303 83,570 7.05
------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Total earning assets $15,126,352 $ 210,672 5.65% $ 14,210,622 $205,665 5.74% $10,657,366 $171,570 6.53%
============= ============= ===============
Sources of Funds
--------------------------------
Interest-bearing liabilities
Regular savings $ 3,021,219 $ 6,355 0.85% $2,809,817 $ 7,110 1.00% $2,044,873 $ 7,078 1.40%
N.O.W. accounts 403,415 813 0.82 393,844 919 0.93 300,742 1,053 1.42
Money market plus 5,472,788 11,584 0.86 5,048,365 12,375 0.97 3,459,619 11,855 1.39
Time deposits 2,148,534 13,731 2.59 2,054,038 14,376 2.78 1,673,580 16,004 3.88
Public funds 793,437 3,115 1.59 842,374 3,998 1.88 874,379 5,277 2.45
------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Total deposits 11,839,393 35,598 1.22 11,148,438 38,778 1.38 8,353,193 41,267 2.00
Other borrowed money 272,304 914 1.36 201,547 729 1.44 102,611 426 1.68
Long-term debt 200,000 3,020 6.12 200,000 3,022 5.99 127,167 2,432 7.76
------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Total deposits and
interest-bearing
liabilities 12,311,697 39,532 1.30 11,549,985 42,529 1.46 8,582,971 44,125 2.08
Noninterest-bearing funds (net) 2,814,655 2,660,637 2,074,395
------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Total sources to fund earning $ 15,126,352 39,532 1.06 $ 14,210,622 42,529 1.19 $ 10,657,366 44,125 1.68
assets ------------- ------------ ------- ------------ --------- -------- --------------- -------- --------
Net interest income and
margin tax-equivalent basis $ 171,140 4.59% $163,136 4.55% $127,445 4.85%
============ ======= ========= ======== ========= ========
Other Balances
--------------------------------
Cash and due from banks $ 865,209 $ 788,271 $ 510,269
Other assets 933,321 831,250 592,129
Total assets 16,831,542 15,741,365 11,690,615
Total deposits 15,033,367 14,170,281 10,684,272
Demand deposits (noninterest-
bearing) 3,193,974 3,021,843 2,331,079
Other liabilities 369,691 283,708 108,125
Stockholders' equity 956,180 885,829 668,440
Notes- Weighted average yields on tax-exempt obligations have been computed
on a tax-equivalent basis assuming a federal tax rate of 35%.
- Non-accrual loans have been included in the average loan balance
- Investment securities includes investments available for sale.
- Consumer loans include mortgage loans held for sale.
12
Noninterest Income
------------------
Noninterest income totaled $76.1 million for the first quarter of 2003, an
increase of $20.2 million or 36% from $55.9 million in the first quarter of
2002. The increase was due to increased deposit charges and service fees, which
rose $5.9 million over the first quarter of 2002 primarily due to higher
transaction volumes. In addition, other operating income increased $14.4 million
over the prior year, including increased revenues of $3.6 million from CCMI, the
Company's municipal public finance subsidiary and increased revenues of $2.7
million from CIS, the Company's insurance brokerage subsidiary.
Three Months Ended
------------------
3/31/03 3/31/02 % Increase
------- ------- ----------
(Dollars in thousands)
----------------------------------------------------------
Deposit charges & service fees $34,842 $28,963 20%
Other operating income:
Insurance 16,055 13,388 20
Capital markets 10,003 6,446 55
Loan brokerage fees 7,923 4,025 97
Other 7,379 3,068 141
----------------------------------------------------------
Total other 41,360 26,927 54%
Net investment securities losses (136)
----------------------------------------------------------
Total non-interest income $76,066 $55,890 36%
==========================================================
Noninterest Expense
-------------------
For the first quarter of 2003, noninterest expense totaled $172.1 million, an
increase of $46.2 million or 37% over the same period in 2002. Contributing to
this increase was new branch activity over the past twelve months, with the
number of branches increasing from 187 at March 31, 2002 to 226 at March 31,
2003. With the addition of these new offices, staff, facilities, and related
expenses rose accordingly. Other noninterest expenses rose $7.1 million over the
first quarter of 2002. This increase resulted primarily from higher bank
card-related service charges, increased business development expenses, and
increased provisions for non-credit-related losses.
The Company's operating efficiency ratio (noninterest expenses, less other real
estate expense, divided by net interest income plus noninterest income excluding
non-recurring gains) was 70.58% for the first three months of 2003 as compared
to 69.80% for the same 2002 period. The Company's efficiency ratio remains above
its peer group primarily due to its aggressive growth expansion activities.
Loan and Asset Quality
----------------------
Total non-performing assets (non-performing loans and other real estate,
excluding loans past due 90 days or more and still accruing interest) at March
31, 2003 were $22.5 million, or 0.13% of total assets compared to $17.8 million
or 0.11% of total assets at December 31, 2002 and $19.5 million or 0.16% of
total assets at March 31, 2002.
Total non-performing loans (non-accrual loans and restructured loans, excluding
loans past due 90 days or more and still accruing interest) at March 31, 2003
were $19.0 million or 0.32% of total loans compared to $14.2 million or 0.24% of
total loans at December 31, 2002 and $16.9 million or 0.34% of total loans at
March 31, 2002. At March 31, 2003, loans past due 90 days or more and still
accruing interest amounted to $376 thousand compared to $620 thousand at
December 31, 2002 and $484 thousand at March 31, 2002. Additional loans
considered as potential problem loans by the Company's internal loan review
department ($31.7 million at March 31, 2003) have been evaluated as to risk
exposure in determining the adequacy of the allowance for loan losses.
Other real estate (ORE) at March 31, 2003 totaled $3.6 million compared to $3.6
million at December 31, 2002 and $2.6 million at March 31, 2002. These
properties have been written down to the lower of cost or fair value less
disposition costs.
13
The following summary presents information regarding non-performing loans and
assets as of March 31, 2003 and the preceding four quarters (dollar amounts in
thousands).
March 31, December 31, September 30, June 30, March 31,
2003 2002 2002 2002 2002
---------------------------------------------------------------------------
Non-accrual loans:
Commercial $ 4,874 $ 5,412 $ 7,213 $7,581 $9,473
Consumer 6,388 2,734 2,147 1,557 1,537
Real estate:
Construction 131 131 181 181
Mortgage 7,721 5,891 5,754 5,778 5,695
---------------------------------------------------------------------------
Total non-accrual loans 18,983 14,168 15,245 15,097 16,886
---------------------------------------------------------------------------
Restructured loans:
Commercial 4 5 6 6 7
Consumer
Real estate:
Construction
Mortgage
---------------------------------------------------------------------------
Total restructured loans 4 5 6 6 7
---------------------------------------------------------------------------
Total non-performing loans 18,987 14,173 15,251 15,103 16,893
---------------------------------------------------------------------------
Other real estate 3,553 3,589 2,367 2,471 2,602
---------------------------------------------------------------------------
Total non-performing assets 22,540 17,762 17,618 17,574 19,495
---------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing 376 620 900 834 484
---------------------------------------------------------------------------
Total non-performing assets and
loans past due 90 days or more $22,916 $18,382 $18,518 $18,408 $19,979
===========================================================================
Total non-performing loans as a
percentage of total period-end loans 0.32% 0.24% 0.28% 0.29% 0.34%
Total non-performing assets as a
percentage of total period-end assets 0.13% 0.11% 0.11% 0.13% 0.16%
Total non-performing assets and loans
past due 90 days or more as a
percentage of total period-end assets 0.13% 0.11% 0.12% 0.13% 0.16%
Allowance for loan losses as a percentage
of total non-performing loans 499% 640% 560% 530% 428%
Allowance for loan losses as a percentage
of total period-end loans 1.58% 1.56% 1.54% 1.52% 1.47%
Total non-performing assets and loans
past due 90 days or more as a
percentage of stockholders' equity and
allowance for loan losses 2% 2% 2% 2% 3%
14
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data: (dollar amounts in thousands)
Year
Three Months Ended Ended
------------------------------
03/31/03 03/31/02 12/31/02
----------- ----------- ----------
Balance at beginning of period $90,733 $66,981 $66,981
Provisions charged to operating expenses 6,900 6,900 33,150
----------- ----------- ----------
97,633 73,881 100,131
Recoveries on loans charged-off:
Commercial 204 190 815
Consumer 131 115 339
Commercial real estate 1 176
----------- ----------- ----------
Total recoveries 335 306 1,330
Loans charged-off:
Commercial (1,868) (1,187) (7,181)
Consumer (1,365) (724) (3,514)
Commercial real estate (4) (23) (33)
----------- ----------- ----------
Total charge-offs (3,237) (1,934) (10,728)
----------- ----------- ----------
Net charge-offs (2,902) (1,628) (9,398)
----------- ----------- ----------
Balance at end of period $94,731 $72,253 $90,733
=========== =========== ===========
Net charge-offs as a percentage of
Average loans outstanding 0.19% 0.14% 0.18%
Net Reserve Additions $ 3,998 $ 5,272 $23,752
Forward-Looking Statements
--------------------------
The Company may from time to time make written or oral "forward-looking
statements", including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Form 10-Q), in its reports to
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.
15
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.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
-----------------------------------------------------------
See Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation, Interest Rate Sensitivity and Liquidity.
Item 4. Controls and Procedures
-------------------------
Quarterly evaluation of the Company's Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"). This evaluation
("Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that its Disclosure Controls or its
"internal controls and procedures for financial reporting" ("Internal Controls"
) will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded
that, subject to the limitations noted above, the Disclosure Controls are
effective to timely alert management to material information relating to the
Company during the period when its periodic reports are being prepared.
In accordance with SEC requirements, the CEO and CFO note that, since the date
of the Controls Evaluation to the date of this Quarterly Report, there have been
no significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
Exhibits
--------
Exhibit 10.34 Ground lease dated January 1, 2001, between Commerce NJ and
Willingboro Equities, L.L.C., relating to Commerce NJ's branch
office in Willingboro, New Jersey.
Exhibit 10.35 Ground lease dated November 27, 2001, between Commerce PA and
Warrington Equities, L.L.C., relating to Commerce PA's branch
office in Warrington, Pennsylvania.
Exhibit 99.1 906 Certification
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended March
31, 2003.
17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
----------------------------------------------
(Registrant)
May 14, 2003 /s/ DOUGLAS J. PAULS
------------------------------ ----------------------------------------------
(Date) DOUGLAS J. PAULS
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
18
CERTIFICATION
I, Vernon W. Hill, II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commerce Bancorp, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer 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 function):
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 officer and I have indicated in this
quarterly report whether or not 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.
Date: May 14, 2003
/s/ Vernon W. Hill, II
-----------------------
Vernon W. Hill, II
Chairman, President and Chief Executive
Officer
(principal executive officer)
19
CERTIFICATION
I, Douglas J. Pauls, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commerce Bancorp, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer 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 function):
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 officer and I have indicated in this
quarterly report whether or not 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.
Date: May 14, 2003
/s/ Douglas J. Pauls
-------------------------
Douglas J. Pauls
Senior Vice President and Chief Financial
Officer (principal financial officer)
20