Pennsylvania Commerce Bancorp Inc. daringly predicts it will continue to double its asset size every three to five years for the foreseeable future.
The Harrisburg-based company's boldness mirrors that of its franchiser, Commerce Bancorp Inc. of Cherry Hill, N.J. Nonstop branch building, retail savvy, and outspoken chairman and founder Vernon H. Hill have given Commerce one of the highest profiles in the industry.
In 1985, Commerce took the unusual step of giving Pennsylvania Commerce a 34-county territory in central and southern Pennsylvania, promising not to compete with the new bank. Pennsylvania Commerce, in turn, imitates the original right down to its free coin-counting machines in branch lobbies.
But for most of its 20-year history the Pennsylvania company grew modestly, like a conventional community bank. At the end of 2000 its banking subsidiary - Commerce Bank Harrisburg NA - had 14 branches, $480 million of assets, and $447 million of deposits.
But its board launched a growth spurt in late 2001 after seeing how profitable Commerce Bancorp's expansion had been.
The Pennsylvania company's current assets, $1.3 billion, are twice those of three years ago, and deposits total $1.18 billion. And last week the company said it aims to add $2 billion of deposits by 2010, but declined to provide an asset target.
Gary L. Nalbandian, its chairman, president, and chief executive, said Friday that such growth is possible because it has achieved critical mass. In the early days, he said, its reach barely extended beyond Harrisburg.
In November it raised $6 million of fresh capital in a secondary stock offering - and demand was so strong it could have raised several times that much, he said. "We're on the edge of being able to explode," Mr. Nalbandian said.
The company plans to use some of the money to add nearly 30 branches and expand its share of the region's commercial lending market. Its portfolio of commercial and industrial loans grew 58% last year, to $148 million, powered by a decision to begin making larger loans. Now it is pushing what it calls middle-market loans, of $5 million to $15 million. Before the third quarter of 2003, the biggest loan it would make was $3 million.
Pennsylvania Commerce hired three senior middle-market lenders from rivals last year and wants to add more. Mr. Nalbandian said. "We'd like to get a piece of the larger action."
Joseph Fenech, who covers the company for Sandler O'Neill & Partners LP in New York, said the move into middle-market lending is a natural result of rapid expansion. Furthermore, he said, the improving economy means that the move poses little threat to the bank's asset quality, which has been better than the industry average for several years.
"Given the credit environment … I'm not concerned," Mr. Fenech said.
Pennsylvania Commerce plans to open four branches this year to fill gaps in existing markets in Berks, Lebanon, and York counties - three of the 34 counties in which Commerce Bancorp agreed not to compete. In 2006 it plans to add two more branches in Berks County and expand west into Lancaster County, opening four branches there.
Mr. Nalbandian said he has looked at several acquisition opportunities but the prices were too high. He did not rule out doing a deal but said it was unlikely.
"I haven't figured out a way to make any deal work profitably," he said.
Building operations in the allotted 34-county area will take a long time, he said. After that the company can seek franchise rights from Commerce Bancorp in more markets, Mr. Nalbandian said.
Because Commerce Bancorp has focused on growing to the north and south, "I'll ask for everything west to L.A.," he quipped, and "Mr. Hill will say, 'You can have Pittsburgh.' "
He and Mr. Hill are close friends, and their companies' relationship goes deeper than a franchise agreement, which brings Commerce Bancorp an annual fee based on asset size.
The New Jersey company added to its ownership stake in the recent secondary offering and now holds more than 11% of Pennsylvania Commerce's stock. Also, Mr. Nalbandian's company chose Commerce Bancorp when outsourcing back-office processing several years ago.
Though Commerce Bancorp caught flak for hiring Mr. Hill's wife, Shirley, to help design its branches, Pennsylvania Commerce also uses the design firm she owns. The firm, Interarch, is doing the interiors of the 60,000-square-foot headquarters Pennsylvania Commerce is building outside Harrisburg.
Mr. Nalbandian said it was a "100% benefit" to be working with someone so familiar with the Commerce Bancorp model.
Mr. Fenech said that though Pennsylvania Commerce is reluctant to buy other banks, it might one day sell itself - to Commerce Bancorp. "That is definitely something that could happen," he said.
People have speculated about a sale for years, but no plans are in the works, Mr. Nalbandian said. Both companies are too busy expanding to think about doing such a deal now, he said.
