How you choose to define growth goes a long way toward deciding just how good of a quarter Commerce Bancorp
Revenue for the quarter rose 6%. Now, "revenue" is kind of a goofy concept for bank stocks -- in this case, though, it means the sum of net interest income and non-interest income, including investment gains and losses. If you strip out those gains and losses, as some would suggest you should, you see growth in excess of 11%. Net income, too, is a little hazier than usual. Reported net income dropped 38% in the quarter, but there was a $19.3 million charge -- and backing that out reduces the net-income drop to 12%.
Net interest income, meanwhile, rose 7% in the quarter, as ongoing growth in assets offset a nasty decline in net interest margin. While it's admittedly still very early in the bank reporting season, Commerce's drop from 4.16% to 3.52% (and from 3.67% in the third quarter) is one of the sharpest I've seen so far. Nevertheless, while the bank's cost of funds has gone up considerably, it still stands at a very competitive 2.01% -- and that's better than even notoriously cheap US Bancorp
If you're looking for growth this quarter from Commerce, you'll find it in loans and deposits. Average loan balances grew more than 30% in the fourth quarter, and average deposits were up 24%. Simply put, those are incredible growth rates. Unfortunately, though, that growth is coming at a cost -- non-interest expenses climbed 27% in the fourth quarter as a byproduct of the company's aggressive expansion strategy.
This is an unusual banking stock, and it has a sometimes-fanatical investor base. I understand the virtues of growth, and I also get the notion that Commerce is approaching the banking business with a very different strategy. That said, sooner or later the old "it's different this time" argument wears a bit thin, and the results ultimately are what they are. In this case, you have a bank spending a lot of money to grow its business, and it remains to be seen whether management can drive sustainable profitability when the expansion boom slows down -- as it eventually will.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).