Vernon W. Hill 2nd stops just shy of saying that his investment in a Philadelphia bank is the first step in trying to re-create Commerce Bank in Commerce's own backyard.
Mr. Hill led a group of investors infusing Republic First Bancorp Inc. with $10.8 million, with a goal of building the company into a regional powerhouse. He also will be a consultant to the $1 billion-asset Republic for at least four years and have the right to designate a board nominee.
In an interview, Mr. Hill said his vision for Republic First is much like the one he had for Commerce, which he founded in 1973 and turned into a retail phenomenon featuring seven-day-a-week banking and free coin-counting machines in every branch.
"Let me put it to you this way: In 1991 Commerce was roughly $1 billion in assets. In 2008, it was $52 billion," he said. "I'm about creating value by building fans that can produce growth. We hope to turn Republic First into a growth company."
Republic is the first banking company in which Mr. Hill is taking an active role since he bowed to regulatory pressure last summer and resigned as the top executive of Commerce and its parent, Commerce Bancorp Inc. of Cherry Hill, N.J. Commerce, which has since sold itself to Toronto-Dominion Bank's TD Banknorth Inc. of Portland, Maine, did not return a call by press time.
Though Mr. Hill formed an investment company this year that buys stakes in community banks, that company is not involved with the Republic First deal.
Harry D. Madonna, Republic First's founder, chairman, and chief executive, said that the company is shifting its focus from business to retail and that Mr. Hill's insight would be valuable.
"I'm going to ask his advice on a lot of areas — branding, retail strategies, a myriad of ways to make this bank into the full-service regional bank in this area to go to," Mr. Madonna said in an interview. (Mr. Madonna is also the chairman and CEO of First Delaware Bank and Trust in Wilmington, which on Tuesday was fined $35 million for allegedly deceptive credit card marketing practices. See related
Mr. Madonna said Republic First added three branches and more consumer-oriented products over the past year. It now has a dozen branches and aims to add more. Some will be start-up branches, but the company also hopes to scoop up a bank, Mr. Madonna said. "We're going to look around and see if there are some opportunities to pick up the kind of branch network we would like."
The goal is to have "a significant number" of branches in each of the nine counties that make up the Philadelphia area, he said.
Mr. Hill said it is too soon to say how many branches Republic First might open or when. "The first step is building a retail model and determining how fast we can expand."
He said the company initially would focus on the commercial side of the business, which is stronger, but retail should not be far behind. "There is now a void in this metropolitan market for a sizable hometown bank and I know Harry hopes to fill that void," Mr. Hill said.
Mr. Madonna said Republic First is putting in information technology systems to support the retail push. "But in the next two years I think you'll see some serious expansion."
He said Republic First would adopt "the best parts of Commerce" — the emphasis on convenience and the concept of turning customers into fans.
"We're going to be extremely convenient and user-friendly," he said. "That's the part of Commerce I always liked."
Republic First has had some asset-quality issues lately. It lost $2.8 million in the first quarter because of troubled loans. But Mr. Hill said its capital ratios are strong.
"This is very unlike the capital raises that you see out there every day," he said. "It had more than sufficient capital. This is about raising capital to support growth."
He did not rule out investing in and taking an active role at other banks, but said nothing is in the works.
After leaving Commerce, Mr. Hill teamed up with Gary B. Townsend, a former bank analyst at Friedman, Billings, Ramsey Group Inc., to start Hill-Townsend Capital in Chevy Chase, Md.
Mr. Townsend declined to comment on Mr. Hill's latest venture, but he said Hill-Townsend Capital has more than $50 million to invest and has bought stock in about 15 companies so far. Republic First is not among its investments.
Frank Schiraldi, an analyst at Sandler O'Neill & Partners LP and the only analyst who follows Republic First, said he could not comment because his firm worked on the offering.
Republic issued $10.8 million of convertible trust-preferred securities in its private placement, $7.8 million to a group of four investors led by Mr. Hill and $3 million to Mr. Madonna. The securities that Mr. Hill's group purchased are convertible to no more than 9.9% of the company's stock. Mr. Madonna's purchase increases the amount of stock he owns to 9.9%.
Mr. Hill (who is also a contributor to American Banker) declined to identify the other three investors who participated in the deal with him, except to say that they are local businesspeople.
On the news of Mr. Hill's involvement Tuesday, Republic First's stock shot up 34%, to $5.85.
Andrew W. Stapp, an analyst at B. Riley & Co. who is familiar with the Philadelphia market, said Republic First would have to increase in size to follow through with its plan to emphasize convenience and attract more retail customers. "It'll be a challenge for them to compete on that basis, with some of the big banks having so many branches in the area," Mr. Stapp said. PNC Financial Services Group Inc. and Citizens Financial Group Inc. have roughly 400 branches each and Wachovia Corp. has about 300, he said.
But Mr. Hill is surely an asset, Mr. Stapp said. "If anyone can build a successful retail branch network, it is Vernon Hill," he said. "The question is: Can he do it on a part-time basis?"
