Deposit Growth Lifts Commerce Bancorp

The bank weathers the flattening yield curve.
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New Jersey regional lender

Commerce Bancorp

(CBH) - Get Report

navigated the flattening yield curve to a 20% rise in second-quarter profits, the company said Thursday.

In the quarter, the fast-growing bank earned $79.4 million, or 46 cents a share, compared with $66.2 million, or 40 cents a share, a year ago. Total revenue also rose 20% in the quarter to $404 million.

Earnings at the Cherry Hill, N.J.-based lender were in line with analyst estimates as surveyed by Thomson Financial.

Net interest income, or profits from the bank's lending operation, rose 18% to $288 million, despite further shrinkage in Commerce's net interest margin to 3.93% from 4.29% a year ago.

The net interest margin, a way of measuring the profitability of a bank's investment and lending operation, got squeezed in the quarter because of the unusual combination of rising short-term interest rates and falling long-term ones. This phenomenon, better known as the flattening yield curve, is expected to play havoc with many banks' second-quarter earnings.

In fact, Midwestern lender

Fifth Third

(FITB) - Get Report

on Thursday blamed much of its 7% slide in second-quarter earnings on the negative impact of the flattening curve. Fifth Third said deposit growth from its customers did not meet expectations.

Commerce was able to overcome the problems Fifth Third incurred because it had stronger customer deposit growth, enabling it to reinvest more money in income-bearing assets. One reason bulls on Wall Street have come to love Commerce is the bank's ability to add new customer deposits at a rapid pace.

In the quarter, core deposits at Commerce rose $1.6 billion to $29.6 billion. Compared with a year ago, total core deposits rose 28%.

The bank says it intends to keep the flow of new deposits coming by opening 45 new branches in the New York metropolitan area, the Philadelphia region and Washington, D.C., area.