Letter to Shareholders

Transcription

1 2014 Annual Report

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3 2014 Annual Report

4 2014: a year of progress for your bank. Letter to Shareholders Some results speak for themselves, and some we need to explain. While I don t think we are at the point of our results speaking for themselves, we are getting closer. For 2014 we produced significantly increased profits, further reduced classified assets, and continued investing in the franchise to increase shareholder value. Profits topped the $1 million mark. The commercial loan portfolio grew nearly 15%. Classified assets dropped below 1%. We opened a Saukville loan production office Profits topped the $1 million mark Growth Classified assets dropped below 1%. The commercial loan portfolio grew nearly 15%. in August. In November, we moved into our new full-service building in Cedarburg. Throughout the year we added new technologies like Mobile Banking and Xpress Pay. Those are just a few highlights that you will read more about in this report. I ve previously reported via s, letters, and shareholder meetings that every employee of Commerce State Bank is committed to, and works diligently to produce

5 results for our shareholders. What is most exciting to us about 2014 is that the financial results are finally catching up with our tireless efforts. That is really positive. It is easy to say we need to make more profit for the size of our bank, and we do need to make more profit. It is another to say we need to make more and to do it. We are not yet where we need to be, but we made significant progress in Results are improved, and we expect them to continue improving as we head into The strategy we communicated and outlined during the 2013 shareholder meeting remains our focus: Over the course of a 3-7 year period, augment organic growth by seeking out acquisition opportunities; continue to grow the bank, and ultimately seek out a merger partner that will result in us having a publicly traded stock Highlights New technologies New mortgage loan production office in Saukville New Cedarburg Building We continue to execute on that strategy to deliver strong growth and strong financial results going forward, with the ultimate goal of delivering increased shareholder value. Sincerely, Joe Fazio, III Chairman of the Board Chief Executive Officer

6 CFO Insight The financial philosophy of Commerce Financial Holdings Inc. is to enhance shareholder value. To support that philosophy, the Board of Directors and Management continue to focus on increasing profitability, maintaining strong capital levels, and earning new relationships in the markets we serve. Profitability Earnings increased in 2014 to $1,038,374. This increase occurred as the company s improved asset quality allowed for an overall reduction of contributions to loan loss reserve. The company made contributions of $676,000 to loan loss in 2014 compared to $2,509,000 in The loan loss reserve had a balance of $4,232,898 or 1.44% of the outstanding loan portfolio. Other Real Estate Owned (OREO) property was reduced to $2,709,325 down from $5,546,101 in The company decided to aggressively reduce the OREO portfolio in By doing that, the company incurred $ 1,561,660 in one-time OREO losses and expenses. BOOK VALUE (dollars) Capital The capital of the company at year-end was $27,637,070 with a book value of $ Commerce State Bank continues to have a strong capital position posting a Tier One Capital/Asset ratio of 9.31% and Total Risk Based Capital Ratio of 11.70% at year-end. 9.31% 11.70% Capital/Asset Ratio Total Risk Based Capital Ratio CAPITAL (millions)

7 Earning Relationships Assets increased to $354,041,192 from $319,239,761 in The growth has come from commercial lending and deposits gathered from the markets we serve. Lending to small-sized and medium-sized businesses remains our core competency with $268,094,809 or 91% of the loan portfolio attributed to commercial lending. The loan portfolio grew 15.30%. ASSETS (millions) Deposits have also experienced strong growth year-over-year. Our total deposits grew 11.65% or $33,266,071. The company believes increasing our market share in core non-interest bearing deposits will produce the best long-term franchise value for our shareholders. In 2014, we continued to invest in our Business Cash Management technology and team to assist in the acquisition of these deposits. DEPOSITS (millions) LOANS (millions)

8 1 Staying disciplined on credit underwriting and pricing Focus 2 Providing a superior client experience to encourage brand loyalty. 3 Expanding loan and deposit market share in Washington, Ozaukee, and Waukesha counties. 4 Maintaining a well capitalized organization while expanding the share value. 5 Growing our net income while minimizing our organizational risks. 6 Improving on the bank efficiency ratio. Dave Borchardt Chief Financial Officer Chief Operating Officer

9 Product Rollouts in 2014 Mobile Banking Deposit Checks Pay Bills Check Balances Review Transactions Make Transfers Xpress Pay Send $$$ Quickly and Safely 1. Log into your online banking or mobile banking account 2. Click Pay People 3. Enter an address or mobile number 4. Recipient receives notification to claim funds

10 Growing in Cedarburg The Journey of Our New Building April May June July August September

11 November October It Always It Always Seems Seems Impossible Until Until It s It s December Done. - Nelson Nelson Mandela Mannddela Growing in Saukville Small town customer service goes a long way with us. Commerce State Bank delivered every step of the way, making for a frictionless home buying experience. -Jennifer and Gary Knaub Port Washington, Wisconsin Our Saukville Loan Production Office Linda Chesak AVP, Retail Lending

12 Commerce State Bank Events Commerce State Bank hosts events and seminars throughout the year to help businesses. Cedarburg Grand Opening Celebration (above l to r) Katie Rabuck- CSB, Jon Willems- CSB, Patricia Thome- Council Member, Joe Fazio- CEO, CSB, Kip Kinzel- Cedarburg Mayor, Kristine HageChamber of Commerce Executive Director, Art Filter- Council Member, Mike O Keefe- Council Member, Sue Miller-CSB, Mary Sheffield- Economic Development (right l to r) Jack Enea- Attorney at Whyte Hirschboeck Dudek, S.C., Fred D Amato- Vice President at WFA Staffing Group, Dave Borchardt- Co-Founder & CFO at Commerce State Bank West Bend Holiday Open House Open House Shops Local businesses set up shops in the offices for networking and promoting their business.

13 security people district leadership wellness learning committed human happy asset group capacity activities content quality services awareness cooperative unity organizations favorable meeting accessibility neighborhood strength opportunity Network connect resource work collaborate organizational area marketing design participate information communities development business aptness building collaboration depth resolution welfare health glad robust education wellbeing program prosper community Saukville Chamber Golf Outing Networking events at Miller Park Lakefront Brewery Networking Event (l to r) Mark Blau- Owner, Saukville Meats, Mark Vey- Mark A Vey Agency, LLC, Dawn Wagner- Village of Saukville Administrator, John Ross- Vice President Credit Manager at Commerce State Bank

14 Client Testimonials Kind words can be short and easy to speak, but their echos Endless. are truly - Mother Teresa e

15 encourage someone thank the custodian start a kindness campaign hold a foodbank drive take time to really listen to a friend be more positive post inspiring quotes speak kindly hold the door open write a thank you note send a gratitude give a genuine compliment write a positive note on a sticky and post it be grateful surprise another with a treat volunteer do something kind for the environment bake cookies for someone write a letter do a chore without being asked start a kindness club pick up litter forgive someone hold a fundraiser Random Acts of Commerce Commerce State Bank randomly surprises people with our Random Acts of Commerce Program I walked into Out & Out in Cedarburg and lunch was on Commerce State Bank. I ve never had an experience like this and it was totally unexpected! - Randy Will from Port Washington What a Pay It Forward day! My husband and I helped another in the community prior to having lunch at The Chocolate Factory in Cedarburg when all of a sudden Commerce State Bank employees surprised us with lunch. It was a rewarding and wonderful feeling they provided us! - Mr. and Mrs. Domagalski from Cedarburg I have never had an experience like this in my lifetime. It was a wonderful surprise! - Gloria Bosben from Grafton Business Partnership Cards

16 Board of Directors Brian Dix, age 49, has been a Director of the Bank since May of Brian is the President of Infinity Benefit Solutions, Inc. where he works with organizations to provide innovative solutions and professional direction to help clients accomplish their employee benefit objectives. Prior to purchasing Infinity, Brian was a financial representative with Northwestern Mutual for 23 years. Cory J. Davis, age 45, has been a Director of the Company and the Bank since Mr. Davis has been a financial advisor with Robert W. Baird & Co. since Mr. Davis holds Series 6, 7 and 63 securities licenses and Life and Health insurance licenses. David R. Borchardt, age 46, is the Bank s Chief Operating Officer, Chief Financial Officer, Treasurer and a Director of the Bank and Company. Prior to joining the Bank, from 2000 to 2005, Mr. Borchardt served as a Vice President of West Bend Savings Bank, where he was a commercial lender and developed a new location in Random Lake. From 1995 through 2000, Mr. Borchardt served as the Vice President of Lending, Compliance and Marketing for Wisconsin State Bank. His duties at Wisconsin State Bank included supervision of the lending department, loan training, sales meetings and management of marketing efforts. He has experience in all aspects of community banking, including compliance, lending, marketing, auditing and overall bank management. Mr. Borchardt holds a bachelor s degree in business administration from Concordia University and is a graduate of the Graduate School of Banking in Madison. bank holding company previously headquartered in Cedarburg, Wisconsin. As Chairman of The Bancorp, he led its turnaround and eventual profitable sale. Mr. Fazio has more than 30 years of management experience in the financial services and technology industries. From 1995 through 2002, Mr. Fazio served as a Vice President of Personal Trust Administration of M&I Marshall and Ilsley Trust Company, as well as Vice President of a subsidiary of Marshall & Ilsley Corporation, where he led marketing and electronic funds transfer sales. Mr. Fazio has multiple years of experience in leading, teaching and community involvement and has served as an elected local official. He holds a master of business administration from Edgewood College and a bachelor s degree in business administration from St. Norbert College. Kevin Volm, age 54, is the Bank s Chief Risk Officer, Secretary and a Director of the Bank and Company. Mr. Volm has 25 years of commercial banking experience. Prior to joining the Bank, Mr. Volm held the position of Community Bank President at M&I Bank of Mayville, from 1998 to His duties included overall management of the bank along with supervision of the business banking department and the bank s commercial loan portfolio. From 1996 through 1998, Mr. Volm served as Senior Vice President, Senior Lender and a Director of M&I Bank of Mayville. From 1991 through 1996, Mr. Volm was Vice President and Manager of Marshall & Ilsley First National Bank in West Bend. He holds a bachelor s degree in business administration from the University of Wisconsin-Milwaukee. David L. Stroik, age 66 has been a Director of the Bank since Mr. Stroik has been President and CEO of Zimmerman Architectural Studios, Inc. since He joined Zimmerman Architectural Studios in Mr. Stroik studied civil engineering at the University of Wisconsin Madison from 1967 through 1969 and graduated with a BS in Architectural Studies and a master s degree in Architectural & Urban Planning from the University of Wisconsin Milwaukee in 1972 and Mr. Stroik is the Treasurer of the Channel 10/36 Friends Milwaukee Public Television and serves as the Chairman of the Southeastern Wisconsin Regional Planning Commission. Jack Enea, age 52, has been a Director of the Company and the Bank since 2005 and serves as Chairman of the Board of the Company. Mr. Enea graduated from the University of Wisconsin - Madison in 1985 with a BA in Marketing and graduated from Marquette University Law School in 1989 with a Juris Doctor Degree. He interned with the Internal Revenue Service District Council before joining Arthur Andersen & Company full-time as a Tax Attorney. Mr. Enea is a shareholder with Whyte Hirschboeck Dudek, S.C. concentrating in estate planning, probate, taxation, business law and real estate. Mr. Enea is a member of the Washington County Bar Association, State Bar of Wisconsin and American Bar Association. In addition to having a law degree, Mr. Enea is a Certified Public Accountant. He serves on the Board of Directors for the Boys and Girls Club of Washington County and Boys and Girls Club of Greater Milwaukee. Joseph Fazio, III, age 53, is the Bank s Chairman of the Board, Chief Executive Officer and a Director of the Company. Mr. Fazio has served on the Board of Directors of The Bancorp, a Scott A. Tennies, age 57, has been a Director of the Company and the Bank since Mr. Tennies is the President and sole owner of Tennies Accounting and Business Services, CPAs. Mr. Tennies is a CPA and holds Series 6, 7 and 63 securities licenses. Thomas C. Hopp, age 52, is the Bank s President, Chief Lending Officer and a Director of the Bank and Company. Before joining the Bank, Mr. Hopp served as a Senior Vice President for West Bend Savings Bank from 1999 through 2005, where he was the senior commercial lender and a member of the bank s senior management team. In that role, he developed and expanded policies and procedures for commercial lending and supervised the credit department. Prior to joining the West Bend Savings Bank team, Mr. Hopp served as a Vice President for Commercial Lending for M&I Bank from 1995 through 1999, where he managed a commercial portfolio. Mr. Hopp holds a master s degree of business administration and a bachelor s degree of finance and marketing from the University of Wisconsin-Milwaukee. Van A. Mobley, Ph.D., age 46, has been a Director of the Bank since 2011 and a Director of the Corporation since Dr. Mobley is the Chair of the Department of Quantitative Analysis and the Associate Professor of History and Economics at Concordia University since Dr. Mobley was the managing partner of Do-Mo Capital Management form Dr. Mobley is the Village of Thiensville President since 2012 and was a Trustee from Dr. Mobley was Director of Community and Government Relations from and Assistant Professor of History & Economics from at Concordia University.

17 Teamwork What is your greatest experience at Commerce State Bank? Commerce State Bank practices what it preaches to build the premier bank in Southeastern Wisconsin. We are client focused, passionate and value relationships. Jon - Jon Willems, Market President I appreciate the amazing support and knowledge of my supervisor. Commerce State Bank works together as a team and is a family like atmosphere. - Carol Ford, Asst Vice President, Retail Lending Carol I witnessed a good Samaritan helping out another person in the community and surprised him with a cup of coffee as part of our Random Acts of Commerce Program. He was so grateful that it made me realize it is all about people helping people in society. Sue - Sue Miller, Vice President Marketing & Business Development

18 The achievements of an organization a i n are the results of the combined effort of each individual. - Vince Lombardi Craig The bank places great importance on our role as advisors to our clients. I really enjoy working in an environment where that advisory role is valued, and the experience level at the bank is truly appreciated by the clients. The fact that our bank is also a relatively new, growing, successful business allows our clients to feel like we are growing something together. - Craig Plazak, Vice President, Commercial Lending My position gives me the chance to be part of a team of Credit Professionals that provide assistance to our clients and new prospects with meeting their financial goals. It is really satisfying for me to watch our clients grow their businesses and knowing that our team had a positive impact on their success. I am proud to be a part of the growth at Commerce State Bank. - Wendy Merz, Portfolio Analyst Wendy Peter The greatest experience is working with the employees, the team atmosphere and culture of the bank. - Peter Garancis, Vice President Information Technology

19 Independent Auditor s Report Independent Auditor s Report Board of Directors and Stockholders Commerce Financial Holdings, Inc. West Bend, Wisconsin We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheets of Commerce Financial Holdings, Inc. and Subsidiary as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for the years then ended, and in our report dated April 13, 2015, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Wipfli LLP April 13, 2015 Oak Brook, Illinois

20 Commerce Financial Holdings, Inc. and Subsidiary Consolidated Balance Sheets - December 31, 2014 and 2013 Assets Cash and due from banks $ 14,033,435 $ 13,157,778 Federal funds sold 1,760,219 1,828,327 Cash and cash equivalents $ 15,793,654 $ 14,986,105 Securities available for sale 21,989,871 25,850,594 Securities held to maturity 640, ,800 Loans, net 289,710, ,120,857 Premises and equipment, net 12,699,557 10,978,365 Federal Home Loan Bank stock 1,055, ,900 Accrued interest receivable 1,146,788 1,044,462 Foreclosed assets, net 2,709,325 5,546,101 Cash value of life insurance 6,405,619 6,187,210 Other assets 1,890,136 1,862,367 TOTAL ASSETS $ 354,041,192 $ 319,239,761 Liabilities and Stockholders Equity Liabilities: Non-interest-bearing deposits $ 25,855,639 $ 24,900,778 Interest-bearing deposits 293,064, ,753,293 Total deposits $ 318,920,142 $ 285,654,071 Subordinated debentures 5,535,000 5,535,000 Accrued interest payable 405, ,112 Other liabilities 1,543,773 1,062,028 Total liabilities $ 326,404,122 $ 292,632,211 Stockholders' equity: Preferred stock- $.01 par value: Authorized - 1,000,000 shares No issued or outstanding shares Common stock - $.01 par value: 0 0 Authorized - 10,000,000 shares Issued and outstanding - 1,032,396 and 1,030,492 at December 31, 2014 and 2013, respectively 10,339 10,324 Additional paid-in capital 23,998,986 23,894,327 Retained earnings 3,277,202 2,238,828 Accumulated other comprehensive income 350, ,071 Total stockholders' equity $ 27,637,070 $ 26,607,550 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 354,041,192 $ 319,239,761

21 Commerce Financial Holdings, Inc. and Subsidiary Consolidated Statements of Income - Years Ended December 31, 2014 and Interest and dividend income: Loans, including fees $ 12,920,770 $ 12,220,102 Securities: Taxable 416, ,169 Tax-exempt 382, ,851 Interest-bearing deposits 9,153 10,941 Other 8,816 10,926 Total interest and dividend income 13,737,336 13,114,989 Interest expense: Deposits 2,645,720 2,776,399 Borrowed funds 1, ,487 Subordinated debentures 448, ,950 Total interest expense $ 3,096,355 $ 3,406,836 Net interest income 10,640,981 9,708,153 Provision for loan losses 676,000 2,509,000 Net interest income after provision for loan losses 9,964,981 7,199,153 Noninterest income: Service fees 176, ,835 Loan servicing income 449, ,891 Income from sale of loans 444, ,110 Increase in cash value of life insurance 218, ,636 Other 101, ,896 Total noninterest income $ 1,390,270 $ 1,814,368 Noninterest expense: Salaries and benefits $ 4,717,933 $ 4,581,563 Occupancy 1,214,900 1,001,785 Data processing 907, ,809 Net expenses related to foreclosed assets 441, ,118 Advertising and promotions 181, ,616 Professional fees 502, ,850 Other 1,847,584 1,568,187 Total non interest expense 9,812,807 9,269,928 Income (loss) before provision (benefit) for income taxes 1,542,444 (256,407) Provision (benefit) for income taxes 504,070 (290,370) Net income $ 1,038,374 $ 33,963

22 Disclosure This Annual report may contain certain forward-looking statements with respect to the financial condition, results of operations, objectives, plans, future performance and business of the company. Statements that are not historical facts, including statements about beliefs and expectations, are forwardlooking statements. These statements are based on beliefs and assumptions for the Company s management and on information currently available to management. Statements containing the words believe, expect, anticipate, plan, intends, estimate, may, will, would, could, and should, or similar expressions are forward-looking statements. All statements in this report, including forward-looking statements, speak only as of the day they are made, and the Company undertakes no obligation pursuant to this section to update any statement in light of new information of future events. Commerce State Bank is a wholly owned subsidiary of Commerce Financial Holdings, Inc.

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24 West Bend 1700 South Silverbrook Drive West Bend, Wisconsin, Fax: Cedarburg W61N301 Washington Avenue Cedarburg, Wisconsin, Fax: Saukville Loan Production Office 524 East Green Bay Avenue Saukville, Wisconsin, Fax: commercestatebank.com