Two banking companies closely affiliated with Commerce Bank founder Vernon W. Hill 2nd are planning to merge, with the intention of creating a Commerce-like franchise in Pennsylvania, New Jersey, and perhaps beyond.
The $2.1 billion-asset Pennsylvania Commerce Bancorp Inc. in Harrisburg announced Monday that it is buying the $965 million-asset Republic Bancorp Inc. of Philadelphia for about $110 million in stock.
Mr. Hill, who helped found Pennsylvania Commerce and is a major investor in Republic, would be the merged company's largest individual shareholder.
The new company, to be named Metro Bancorp Inc., would have 45 branches in central Pennsylvania, southern New Jersey, and Philadelphia and its suburbs. It would have a long way to go before it could be accurately described as "the next Commerce," however.
When Commerce Bancorp Inc. of Cherry Hill, N.J., was sold in March to TD Banknorth Inc. of Portland, Maine, Toronto-Dominion Bank's U.S. subsidiary, it had $49 billion of assets and roughly 450 branches stretching from Connecticut to Florida.
Still, Gary L. Nalbandian, Pennsylvania Commerce's chairman and chief executive, who would have the same titles at Metro Bancorp, said that, much like the old Commerce, Metro aims to position itself as a deposit-gathering powerhouse by offering such conveniences as seven-day-a-week banking. Pennsylvania Commerce is already retail-focused, and moving into more densely populated markets in and around Philadelphia should accelerate deposit growth, Mr. Nalbandian said.
He said he would like to double the company's assets within the next several years by opening more branches in its current territory and then expanding into adjoining markets.
"Because of Republic's existing platform of $1 billion in assets and our culture — strong gathering of retail deposits, convenience for the customer, and high loan quality — we can take it to the next level," Mr. Nalbandian said in an interview Monday. "Our goal is to be America's next great bank."
The words are a twist on the tag line "America's Most Convenient Bank," first used by the New Jersey Commerce.
Toronto-Dominion had planned to rebrand Commerce and TD Banknorth as TD Commerce Bank, but Commerce Bank and Trust Co. of Worcester, Mass., filed a suit to block it from using the name, arguing it would confuse the Massachusetts company's customers. The bank, now known as TD Bank, retained the "America's Most Convenient Bank" tag line.
Mr. Hill founded Commerce in 1973 and 12 years later he and Mr. Nalbandian co-founded Pennsylvania Commerce, modeling it after the New Jersey bank. Indeed, Commerce owned a 10% stake in the Harrisburg company before Commerce was sold to TD Banknorth.
Pennsylvania Commerce had an unusual agreement with New Jersey's Commerce, giving it exclusive rights to the Commerce brand in 34 Pennsylvania counties. The New Jersey company also let Pennsylvania Commerce customers use its branches and did back-office processing for the Pennsylvania company.
Mr. Hill also has ties to Republic. In June, Republic announced that Mr. Hill was the lead investor in a group that had infused Republic with $10.8 million of capital, which it would use to beef up its retail business.
At the time, Mr. Hill said that his vision for Republic First was much like the one he had for Commerce when he founded it. Since then, seven former senior-level Commerce executives have joined Republic.
Mr. Hill, who left Commerce in July 2007, is now a consultant to Republic and would be one to Metro Bancorp. He said he did not want to comment for this article.
Republic's chairman and CEO, Harry D. Madonna, called Mr. Hill "a banking genius."
"He realized that core banking deposits is the center of banks 20 years ago, when no one else believed it," Mr. Madonna said in an interview Monday. Though Mr. Hill did not advocate for this specific merger when he invested in Republic, Mr. Madonna said his involvement in the new company with the same model as Commerce Bancorp should expedite Metro Bancorp's growth.
Republic is predominantly a business bank, and merging with Pennsylvania Commerce would give it access to cash management and other products, services, and systems, as well as to more retail customers, said Mr. Madonna, who would become vice chairman of Metro Bancorp.
Stephen H. Moss, an analyst with Janney Montgomery Scott LLC, said in a research note Monday that the combined company should benefit from merger-related disruptions in its market, and "from its association with Mr. Hill through strategic planning and business referrals."
However, he said he is lowering his rating on Pennsylvania Commerce's stock, from "buy," to "neutral," to reflect his concern with the level of construction loans in Republic First's portfolio.
Shares of Pennsylvania Commerce fell 11% on news of the deal, to close at $25.66 Monday. Republic First's shares rose 0.6%, to close at $8.80.
Republic's branches would be rebranded as Metro Bank early next year, and Commerce Bank/Harrisburg would continue to operate as Commerce Bank until the third or fourth quarter, Mr. Nalbandian said.
The deal is expected to close late in the first quarter.