Commerce Profit Falls

Commerce Bancorp (CBH Quote - Cramer on CBH - Stock Picks) missed its earnings target in the second quarter, but the Cherry Hill, N.J.-based bank is still sanguine about its near-term growth plans.

Commerce, which parted ways last month with longtime CEO Vernon Hill, reported second-quarter earnings of $76.9 million, or 39 cents per share, down from the year-ago quarterly earnings of $79.5 million and below consensus analysts' estimate of 40 cents.

The bank's second-quarter report follows its announcement that Hill, who founded the bank 34 years ago and had spearheaded its successful if gimmicky deposit-gathering strategy, would step down. The bank reported that second-quarter deposits were up 17%.

It reported total shareholder equity as of June 30 of $27.3 million, which increased $2.5 million or 10% from a year ago.

Commerce underscored that it does not have any links to subprime-related assets.

Weighing down the bank's performance, however, were legal costs related to an investigation by regulators of transactions linked to Hill. The probe was tied to Commerce's real estate transactions, including Commerce's use of an architectural firm owned by Hill's wife to design branch offices.

Commerce recorded pretax charges of about $5.1 million, or 2 cents per share, primarily related to legal costs associated with an investigation by the Office of the Comptroller of the Currency. Although the investigation is ongoing, the bank expects future legal costs to be addressed by an insurance policy.

Growing the business is still high Commerce's list, but it has scaled back from its initial guidance of 65 new branches to about 50 by year-end, because of more rigid regulatory approval procedures that have been previously announced.

Conspicuously absent from the bank's report were its five-year performance targets, which were a trademark under Hill. Bank executives said they would no longer provide such guidance on a quarterly basis, especially given the challenges financial institutions are facing, including an inverted-yield curve environment.

Shares rose 7 cents at midday to $36.56.