Over the last few years, Commerce Bancorp's (NYSE:CBH) earnings grew at a remarkable pace, and the shares fully reflected this. But how quickly things can change.

Shares have taken a drubbing over the last few months after two executives in the firm's bond department were charged with fraud. To compound the woes, folks other than the SEC have started asking more questions about Commerce's accounting -- always a red flag -- after unfavorable stories about the company ran in recent issues of The New York Times and in Barron's.

Generally, doubts about a firm's accounting are enough to keep me away, but I'm a fan of banks. Plus, Commerce's recent woes have been so severe in relation to its growth that I feel it is worth digging in to see whether Commerce is a potential bargain or, instead, a value-trap.

Based in southern New Jersey, Commerce has branched out into a number of large metro areas in the Mid-Atlantic the last few years. Its method of luring deposits from competitors such as Citigroup (NYSE:C), Bank of America (NYSE:BAC), and JPMorgan Chase (NYSE:JPM) is offering lower fees, solid customer service, and extended banking hours.

On the surface, Commerce is a growth company at a bargain price. The company has grown assets, loans, and earnings more than 25% per year for the last few years and has a current P/E of just 17 to go along with a return on equity of 18%. These kinds of numbers often point to a business whose shares are on sale, but as Fools know there is more to a business than just earnings growth and an attractive price. We need to understand how healthy the underlying business is.

Commerce's sheer growth has been impressive, but its return on assets has consistently been at or below 1%, which is just plain mediocre. Part of this is driven by Commerce's very high cost structure seen in its efficiency ratio of 70%. A cost structure this high leaves the door open for competitors to easily chip away at Commerce, and when that happens the growth will decelerate faster than a jet landing on a runway.

In a rather ironic twist, Commerce's income statement reveals that the bank's net interest income just barely covers all of its expenses. This means the bank that has made its name on offering customers low fees is extremely dependent on those fees just to turn a profit.

Banks that are not aggressive with loan reserves are most likely not aggressive elsewhere. Commerce's reserves on its loan portfolio seem inadequate given its increasing level of non-performing assets, though. At 1.51%, the total level of reserves is in line with its historical reserve levels, but given that loan growth for 2003 was 28% and non-performing asset growth was 33%, a reserve increase of just 24% is too aggressive for this Fool.

I have outlined only a few of the reasons why I think investors should not fall under the earnings growth spell and should avoid Commerce at this time. However, investors who are still curious about Commerce should also take a close look at its most recent proxy statement to scrutinize the high rate of share dilution via options and history of related party transactions.

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Fool contributor Nathan Parmelee does not own shares in any companies mentioned in this article.