The folks who run Commerce Bancorp (NYSE:CBH) have some pretty weird ideas about how to run a bank. And I mean that in the nicest possible way.
Offering much better hours than most banks, low-balance free checking, and savings accounts with low minimums but competitive rates, Commerce Bancorp offers an alternative to those of us who don't like being nickel-and-dimed by stupid fees. Weird as it may seem to reintroduce customer service to banking, Commerce has definitely benefited from it in the form of robust growth and extremely high customer loyalty and retention.
Revenue grew 21% for the March quarter, and net income followed by growing 24%. That said, the net interest margin for the quarter shrank to 4.04% -- down from 4.36% a year ago and 4.16% in the prior quarter.
Elsewhere there were a few other numbers that should also concern investors. The company's efficiency ratio climbed from the year-ago level and is still pretty high. While a bank's efficiency ratio can be calculated several ways, it's always a means of expressing the expense level of operations, and "higher" is never good. In addition, the company's return on assets was down annually and sequentially and came in at a pretty feeble 0.99%.
Looking ahead, management still expects to add between 55 and 60 "stores" this year (what you and I call a bank branch, they call a "store" -- see, I told you they were weird). At least 35 of those will be in the metro New York area, and the company expects to open the first of around 200 branches in the metro Washington, D.C., area.
No doubt, then, that Commerce Bancorp is a rapidly growing bank that has ample room to get even bigger. The company is on track to post well more than $1.5 billion in revenue for the year, and that's been achieved without stretching much beyond the Philly/New York/New Jersey area.
Of course, the question for investors is whether all that growth will continue to translate into solid profit growth and, sooner or later, generous heaps of cash flow that can be returned to shareholders. After all, veteran investors can regale you with seemingly countless tales of companies that grew at breakneck speed but never got hold of their expenses and ultimately foundered and died.
At this point, I'm inclined to give Commerce the benefit of the doubt. Management thinks that the company's net interest margin is at, or near, a bottom, and it also sees substantial economies of scale as branches mature and leverage their expenses over increasing amounts of customer deposits. Although I'm not sure I completely agree with the first point just yet, I'm willing to give the company the benefit of the doubt that expenses and efficiency will improve as time goes on.
If that proves true and management is able to continue to grow revenue while expending into new markets and boosting profitability, investors should be quite happy with the company that emerges on the other side.
For further Foolish financial fancies:
- Vineyard Still Harvests Growth
- Bank vs. Bank
- Has Doral Fallen Far Enough?
- Commerce: Bargain or Trap?
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
