The proposed merger of two Pennsylvania companies with ties to Vernon W. Hill 2nd has been touted as the second coming of Commerce Bank.

But more than nine months after Pennsylvania Commerce Bancorp Inc. in Harrisburg agreed to buy Republic First Bancorp Inc. in Philadelphia, regulators have yet to bless the deal. The former Pennsylvania Commerce, which recently renamed itself Metro Bancorp Inc., and Republic First have not given a reason for the delay. Neither company would discuss the matter.

Observers said it is tough to pinpoint what is hamstringing the deal — but they agreed something must be.

Several said Hill's involvement is likely at least a complicating factor in winning approval, given his well-documented scrapes with regulators. Hill declined to comment for this story.

The regulators also could be questioning Republic First's loan concentrations and the projected capital strength of the two companies after they combine, observers said. The $2.1 billion-asset Metro filed a shelf registration this month to raise up to $250 million.

When the companies announced the deal in November, they said they expected it to close by the end of the first quarter. The original closing deadline in the merger agreement was April 30, with an option to move it to July 31 if needed. Last month the two companies extended the deadline to Oct. 31, with the option to push that to Dec. 31.

Deals have been taking longer to win regulatory approval lately, but Jeff Marsico, an executive vice president at Kafafian Group Inc., a consulting firm in Parsippany, N.J., said the delay for this one is longer than usual.

Hill — who resigned from Commerce Bancorp Inc. in Cherry Hill, N.J., in July 2007, under regulatory pressure — is likely drawing extra attention, Marsico said.

"Two things are slowing deals right now. One is the workload for regulators. The other is if there is a reason for increased scrutiny," Marsico said.

Of the 34 deals announced in the fourth quarter, only three are still pending, including the Metro-Republic First deal, Marsico said.

Anita Gentle Newcomb, the president and managing director of A.G. Newcomb & Co., a consulting firm in Columbia, Md., called the delay "a little perplexing."

"Obviously, there is a reason, but on the face, it is not discernible," she said.

The controversial Hill founded Commerce in New Jersey, which sold itself to Toronto-Dominion Bank's TD Banknorth Inc. of Portland, Maine, in March 2008.

He has been lauded as a visionary who saw the value of core deposits when other banks did not. But Hill's reputation was tarnished when regulators forced him out of Commerce after questions were raised about his family's involvement in the building of branches.

"In the mid-1990s, when consultants were telling bankers that branching was on its deathbed, he was the number one contrarian. … They did a super job at it, too. Their deposit growth was exceptional in every market it operated in," Marsico said. "He is still considered an industry luminary."

Hill is a co-founder of and a major investor in Metro, which mimics the Commerce model he created. He also led a $10.8 million infusion at Republic First, five months before the Nov. 10 merger announcement. He has an exclusive consulting contract with the company and designated one of its board members.

In November the Office of the Comptroller of the Currency issued a cease-and-desist order against Hill and restricted his real estate dealings with banks.

However, Chip MacDonald, a partner at the law firm Jones Day, said nothing in the order — or elsewhere — bars Hill from banking.

"If they were really after him, they wouldn't have let him invest in that bank in the first place," MacDonald said. "Still, they can make it harder for him. They can add scrutiny to the deal, and that could certainly explain why it is taking longer."

Others said that even if Hill's involvement added a layer of scrutiny, Republic First's condition by itself would be a reason for regulators to take extra time.

"Sure, there are some regulatory concerns, but Republic First's asset quality is enough of an issue to give the regulators some trepidation," said Andy Stapp, an analyst with B. Riley & Co. Inc., who used to cover Republic First. "They might want them to resolve asset-quality issues first. Regulators might be concerned that it could be a distraction to the integration."

The $937 million-asset Republic First lost $5.4 million last quarter. Its nonperforming assets totaled $25.8 million on June 30, up 48% from a year earlier.

At 2.76% of assets, Republic First's nonperformers are not drastically high for the industry. The company also has capital ratios well above the threshold for well-capitalized institutions, with a total risk-based capital ratio of 10.68% at its Republic First Bank.

Still, observers said, with 28% of its portfolio in construction and 40% in commercial real estate, there is a great risk of losses. "Those exposures are not good," Newcomb said. "That could possibly be the problem here."

The exposures could also be part of Metro's motivation to raise up to $250 million, if regulators are concerned about what the merged institution would look like.

"The pro forma capital levels could be another one of regulators' objections," Marsico said. "That would explain the capital raise."

Matthew Schultheis, an analyst with Boenning & Scattergood Inc., who does not cover either company but is familiar with the Pennsylvania banking market, said he wasn't reading much into the delay. Instead, he said he thinks regulators' priorities are elsewhere.

"The regulators only have so many resources, and they have so many fires to put out that perhaps they view this as one of those things that they can push back a little," he said.

Gary L. Nalbandian, Metro's chairman and chief executive officer, would retain those titles after the merger. Harry D. Madonna, Republic First's chairman and CEO, would become Metro's vice chairman.

The two executives have talked about how they aim to create a deposit-gathering powerhouse much like the old Commerce. Already Republic First has begun lining up the people to do so. Since Hill invested in the Philadelphia company, more than half a dozen former senior Commerce executives have joined.

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