A Pennsylvania banking company that most people - perhaps even many of its own depositors - think is part of Commerce Bancorp Inc. has quietly amassed nearly $800 million of assets, and is now aiming to more than double its size by moving closer to the edge of Commerce's markets.
The company is Pennsylvania Commerce Bancorp Inc., headquartered in Camp Hill, and led by chairman Gary Nalbandian. Its similarities to Commerce Bancorp of Cherry Hill, N.J., are striking. Their branches have the same name, logo, design, decor, and operating system. Moreover, Commerce's chairman and CEO, Vernon W. Hill 3d, controls 16% of Pennsylvania Commerce's stock, more than anyone else.
Nevertheless, they are two separate institutions, a fact that was never more evident than last week, when Pennsylvania Commerce announced an ambitious expansion plan that would move it into Berks County, one county over from Montgomery County, where $16.4 billion-asset Commerce has 14 branches.
Pennsylvania Commerce plans to open 20 branches in central Pennsylvania by the end of 2006, including five this year in Berks and Dauphin counties, between Harrisburg and Philadelphia.
Mr. Hill said Pennsylvania Commerce's entry into Berks would move its branch network to within six miles of his company's, but he said it would get no closer.
That is because Pennsylvania Commerce is a franchisee of Commerce Bancorp, and it has agreed to stay out of the suburban Philadelphia market where Commerce has concentrated its Pennsylvania operation. For its part, Commerce has ceded the central part of the state, including Berks County, to Pennsylvania Commerce.
Mr. Hill founded Commerce in 1973 and has built it into one of the Northeast's largest banking companies, with 224 branches in four states. It has gained widespread recognition for high levels of customer service, offering seven-day-a-week banking and even dog biscuits to drive-through customers' pets.
Mr. Nalbandian, whom Mr. Hill described as a good friend, founded Pennsylvania Commerce 12 years later and modeled it after Commerce. It has 18 branches in central and southeastern Pennsylvania.
Some analysts who cover Commerce said they were surprised to learn that Pennsylvania Commerce is actually an independent company with a separate management, board of directors, and stock. Those who follow the industry closely said they know of no other relationship where one bank is allowed to use another's name and identity.
Deborah Farver, a Pennsylvania Commerce spokeswoman, said the ties are so close that the two companies' customers have interbank privileges, meaning they can conduct certain transactions, such as deposits, withdrawals, and balance transfers, at either bank's branches.
"A lot of our customers go to the beach at Cape May, N.J. [where Commerce has several branches], so that is very convenient for them," Ms. Farver said.
As a franchisee, Pennsylvania Commerce has full control over its lending operation, but on the retail side, it is required to imitate Commerce exactly - right down to having coin-counting machines in the lobbies of its branches. Pennsylvania Commerce also relies on Commerce for technological, marketing, and back-office support.
Mr. Hill would not reveal the size of Pennsylvania Commerce's annual franchise fee, but he said the agreement does not permit it to deviate from Commerce's business model.
"You have to protect the brand at all costs," he said.
Mr. Nalbandian said it is fine with him that people confuse the two Commerces. "We've always recognized that Commerce was a different type of bank," he said. "We want to stay true to the model."
Mr. Hill sat on Pennsylvania Commerce's board of directors for 17 years until December, when he resigned and accepted the honorary title of director emeritus. He said signing a franchise agreement with a large institution makes sense for a small company like Pennsylvania Commerce.
"It's been a real advantage for them, because it plugs them in to all of our financial strength and our product line," he said.
Even so, franchising has never caught on among banks.
Robert Ball, a longtime franchise consultant and the owner of Franchising Co. in San Bernardino, Calif., said that, though franchising is common in the mortgage brokerage and real estate industries, it is virtually unheard of in banking.
"I've been doing this for 30 years, and I've never come across any franchise deals involving banks," he said.
And Mr. Hill, who also owns a number of fast-food restaurants, said he knows of only one banking company, the former First Interstate Bancorp, that struck franchising deals similar to Commerce's. Wells Fargo & Co. acquired First Interstate in 1996.
"You would think there'd be more," he said. Franchising "seems like a logical way for a relatively small company to tap into the strength of a larger company with a more-developed model."
However, he also said that Commerce probably will not do any more franchise deals - not because of any dissatisfaction with Pennsylvania Commerce, but because it is unwilling to cede any more territory to other banks.
Pennsylvania Commerce has prospered as a franchisee. It reported $5.7 million of net income for last year, 28% than it did for 2001.
Ms. Farver said it is expanding because there is enormous potential in fast-growing Berks County, as well as in Dauphin County. It plans to build three branches north of Camp Hill, in Dauphin, where it already has four branches and a 5% share of the $3.4 billion deposit market, according to June 30 data compiled by the Federal Deposit Insurance Corp.
It also plans to expand its loan production office in Cumberland County, which includes both Camp Hill and Harrisburg within its borders.
Pennsylvania Commerce currently has 18 branches in Cumberland, Dauphin, Lebanon, and York counties.
