The local bank that could

On a blustery Saturday, Vernon Hill II drains his bottled tea, hands the empty to his top lieutenant, lifts his blocky frame through the door of his four-seat helicopter, waves to his pilot, and rises through the changeable skies of his New Jersey.

The windshield fills with a vision of prosperous America — miles of tilted rooftops, curved pavements and backyard pools crowding fancy office parks and patchy woods.

Like an imperial colonist carving a province into plantations, Hill smiles over this former countryside. "They need another country club down there," he says as the chopper traces the turnpike north.

Accompanied by senior Commerce Bancorp executive Dennis DiFlorio and a reporter, he's on his way to open three more branches of his bank in Middlesex and Somerset Counties amid the web of angular townhouses, Palladian-windowed developments, tree-shaded boroughs, and big-box stores spreading an hour west of Manhattan.
Hill founded Commerce Bancorp in 1973 to exploit South Jersey's suburban sprawl. Today, with 200 branches from Delaware to Long Island, Commerce is both the largest bank based in New Jersey and one of the fastest-growing banks in U.S. history.

Hill opens a new Commerce office every nine days, generating 1,000 new jobs a year. Once content to avoid what he regarded as the decaying central cities, he has lately moved downtown, starting with upscale white neighborhoods such as Center City's Rittenhouse Square and Manhattan's Upper East Side — where, trashing New York's "arrogant" big-city banks, Hill opened his branches with bands, ballplayers, and celebrity bluster from the likes of his golf buddy, debt-challenged builder Donald Trump. In the next eight years, Hill says, he will open 1,000 branches, from New England to his native Northern Virginia.

In absolute terms, Commerce is still an upstart: it's just 5 percent as big as multistate rivals such as First Union or Bank One.

But it has cut deeply into the local market share of giants such as Fleet, First Union and PNC. In the dowdy banking business, where most of the big players spent the last generation merging and closing, the growth of Commerce has been spectacular.

Hill has achieved this growth by persuading residents, elected officials and small businesses to make their deposits at Commerce instead of its older, wealthier competitors. He has created that most unlikely of modern businesses — a popular bank. Commerce is a hit with suburban consumers and with New Jersey politicians, who bring the bank crucial public business; it has largely been a hit with investors, including most of the bank 's full-time workers, who profited as the shares jumped in 11 of the last 12 years — even when the stock market fell.

In the spring, Commerce arrived on the national scene as a Wall Street phenomenon. As the bank opened new outposts in the wealthier slices of Pennsylvania and New York and posted higher profits in apparent defiance of economic gravity, Hill wowed a jittery Wall Street with his tale of growth, profit and customer convenience. Investors responded by bidding up Commerce and making it the nation's most expensive bank stock, based on price to earnings ratio. Hill emerged a Wall Street celebrity.

But New York's a tough town, and Hill's fame has brought unwelcome scrutiny. For years, Commerce's shareholder statements showed that his family had grown rich through Hill-owned enterprises that supply Commerce with everything from furniture to branch locations. In this summer of corporate sleaze revelations, New York short-sellers, tabloids, and online stock gurus used Hill's family dealings to batter Commerce's stock price from $50 in May to the high $30s by the end of July. In August, Hill told analysts he will sell his personal interest in properties Commerce rents and stop using his wife's design firm — though not necessarily his wife — to outfit Commerce branches. Immediately, the share price rebounded.

Hill faces a bigger question than the short-term vagaries of share prices. Can his ambition and his blueprint turn Commerce into a national phenomenon?

Or is Commerce doomed to settle and fade, its reach exceeding its grasp, joining the likes of PSFS and Philadelphia National in the region's historic graveyard of financial pioneers?

As the helicopter bounces into the wind over Princeton, Hill defies the towering clouds in the white-and-silver sky.
"It never rains," he says, "on a Commerce branch opening."

It's tough, Hill sighs minutes later, to find a good place to land a helicopter in central New Jersey. But, asked if New Jersey is too crowded, Hill laughs.

"You can't stop growth," he says. "You can't stop progress. This is America. Property rights still have meaning."
By previous arrangement, the helicopter touches down on a Rutgers University athletic field. To get from the field to the branches in South Plainfield, Metuchen and Franklin Township, Hill must brave ground traffic, which gives him a chance to grill his local staff.

Gassed and ready to drive Hill's delegation around is Fred Graziano, fast-talking head of Commerce in central New Jersey. On the dashboard of his late-model sedan, he sports a flashing global positioning device because, he says, Hill "made me get one."

But Graziano isn't using it. Hill himself is riding shotgun, arguing amid merging traffic about the best way to cross Middlesex County.

"We've got to go up to 287," Graziano says.

"No we don't," his boss says. "We can go across South Plainfield."

"But we're nowhere near there."

"Turn left," Hill says a while later. "Wait a minute. All right, go another block. Now take this alley."
In a gesture of frustration, Graziano raises his arms from the wheel.

Graying but smooth-faced in a well-fed, country-club way, the sport-coated, stripe-tied Hill , 57, exudes a certain brash authenticity. The stutter he's had since childhood doesn't hinder him from seizing the mike to exhort 5,000 cheering workers at his company's annual 1950s-style pep rallies (where he gives a red Porsche to the branch manager of the year), or shouting down needling trade unionists at a packed shareholders' meeting, or selling Commerce shares to stock-market junkies on financial TV.

His bank bears his personal imprint at every level. Hill selects every branch site, inspects the branch paint jobs, and drives his lenders nuts by second-guessing all but the smallest business loans. "No one," he asserts, "has ever said I don't have a high level of involvement."

He grew up the eldest son of a northern Virginia real estate developer and came to Philadelphia to attend the Wharton School at the University of Pennsylvania. Instead of living on campus or anywhere in University City, he got a garden apartment in Somerdale, Camden County. "I'm a suburban kid," he says. "It's what I'm used to."

One day, as Hill tells it, he walked into First Peoples Bank in Somerdale and talked himself into a teller's post. After six months, "I was making loans there."

First Peoples was then an aggressive institution run by car dealer and Republican politico William A. Rohrer. Rohrer became Hill's mentor, teaching him how to sell — and how not to lend. When Hill was 21, still at Wharton, Rohrer made him a vice president.

Hill graduated from Wharton in 1967 and started Site Development, a firm (in which he is still a partner) that, among its other activities, prospects for his new branch sites.

Six years later, at 28, he started Commerce Bancorp. By 1983, when Rohrer was forced out of First Peoples after a federal investigation showed he had lent millions to prominent Jersey politicians and businessmen who couldn't repay, Hill had been running his own bank for a decade, determined to emulate his mentor's successes and avoid his mistakes.

He married the year he founded Commerce, and has built his bank with his wife at his side. Shirley Hill runs the design company that fits out Commerce branches. He calls her "my enforcer" for her frequent, demanding inspections — the key, Hill says, to maintaining Commerce's all-important "branding" standards. Some bank veterans who dread the visitations call the team "Mama Smurf and the Smurfettes." (Shirley Hill declined to be interviewed for this story. )
The couple have four children. Two of them work for their father — a daughter for Commerce, a son for Site Development. Hill says neither is on a management track. The two younger children are still in school.

The Hills are now completing one of the nation's monster mansions, a 46,000-square-foot palace in Moorestown called "Villa Collina" — Hill House — that's locally famous for being bigger than Bill Gates' mansion. The new home replaces a Colonial farmstead that local preservationists had hoped to save. Hill shows no remorse.

"If it weren't for me, they'd have 40 houses on that property, and they'd have to build another school."
Hill is on a crusade to make Commerce "America's most convenient bank." He offers free checking; evening, weekend and holiday hours; simple account terms; free appliances for new accounts; and more drive-through lanes than are on some exits of the New Jersey Turnpike.

Hill's side interests include a partnership running Burger Kings in Bucks and Montgomery Counties. He insists that Commerce, like Burger King, is a retail operation and that its branches are comparable to chain stores, not banks.
He says banking isn't rocket science. You borrow low, raising money from depositors, investments and the Federal Reserve, and lend high. Most banks focus on the second part, lending nearly a dollar for every dollar they collect from depositors. Commerce focuses on the borrowing, lending less than 50 cents for every dollar on deposit. Hill prefers to put customers' money in government bonds and live off the interest.

Commerce relies to an extraordinary extent on government deposits. In fact, millions of New Jerseyans who never opened a Commerce account have "their" money in his bank: More than one-fifth of Commerce Bank deposits come from government accounts, compared with less than one-twentieth for such rivals as First Union or PNC.

That is no accident. Hill is the most political of bankers, relentlessly cultivating local political leaders, financing governors, mayors and county officials from both parties. Though Hill says he's a Republican, he's most loyal to the dominant party wherever he does business.

Most notably, he is a significant fund-raiser for the powerful Camden County Democratic organization run by George Norcross, a key ally of Gov. McGreevey. In the early 1990s, Hill bought Norcross's insurance agency, which has many local government clients, and put Norcross on his payroll as an insurance executive. In March, Hill named Norcross — already one of Commerce's biggest shareholders — to the bank's board of directors.

Camden County Republicans, who are typically out of power and thus outside the scope of Hill's generosity, spent years scrutinizing the Hill-Norcross relationship for improprieties. When the GOP briefly controlled the county in the early 1990s, its officials even began investigating a $100,000 county contract with the design company owned by Hill's wife. No charges were filed; the Democrats swept back in, and the matter was dropped.

In fact, Hill says, the Norcross organization is only one of his political interests. If he hired Norcross and former Democratic mayors Melvin "Randy" Primas of Camden and Jack Tarditi of Haddonfield, he also hired Republicans such as Ocean County GOP boss Joseph Buckelew. And on the day Commerce tapped Norcross for its board, it also added Republican former acting governor Donald DiFrancesco — as if Commerce were in need of a bipartisan, balanced ticket.

In the first quarter of 2002, according to research by Inquirer reporter Jake Wagman, the Commerce political action committee donated $272,000 to politicians in Pennsylvania, New Jersey and Delaware — ranging from $25,000 to Pennsylvania Democratic gubernatorial hopeful Ed Rendell to $12,000 for Bucks County Republicans. Commerce raises so much money for politicians that a recent New Jersey law limiting campaign contributions forced it to refund $54,000 that it had raised earlier this year from Buckelew, Norcross and Tarditi.

What does Commerce get for Hill's efforts? The municipal deposits create a vast pool of cheap funds that helps new branches break even quickly. The company's investment-banking arm now ranks among the leading purveyors of municipal-bond services in New Jersey and Pennsylvania. Commerce National Insurance is a top seller of policies to municipal governments in the region. The bank has a nearly unbroken record of bulldozing local opposition to its branches.

In a recent coup, Commerce "got Somerset County last year for $50 million in deposits," senior executive DiFlorio says, luring that money away from giant FleetBoston Financial Corp. In this case, Commerce supported local candidates and sponsored the county's new minor-league baseball stadium.

Hill says there is nothing illicit in soliciting business from people he helps elect.

"We offer the towns a great deal. We save these towns a lot of money."

Graziano pulls up to the Commerce branch on a busy corner in South Plainfield. Bearing the trademark red C, the branch is a boxy structure like all other Commerce branches, whose quick-turnover suburban style recalls the could-be-anywhere world of mall retailers and chain restaurants. More than business sites, the branches are billboards for branding on the public the Commerce logo and its gospel of consumer convenience.

In scores of towns, these buildings have replaced yesterday's fussy, columned First Bank of Down-the-Block. Preservationists often object to the construction, equating Commerce's big red C with McDonald's Golden Arches as an icon of excess.

Hill dismisses such objections. He revels in the energy of post-World War II America, the car-borne expansion of opportunity that helped the grandchildren of immigrants move up to comfortable suburban homes. He retains a faith in material progress that smiles past energy worries and environmental second thoughts and sees the angry local politics of what to do with the trash, sewage and traffic of rampant suburbia as mere footnotes to the triumphant main story of bigger, better and more.

Today's opening in South Plainfield is low-key — the branch actually has been doing business for months. Hill still finds it necessary to apologize to the reporter with him for the lack of a band or a spillover crowd.
A few blocks before arriving at the branch he asks, "Who's the manager?"

Graziano is ready with the highlights: "Eric Radell. We got him from Summit. Opened the branch Nov. 1. Break-even was $11 million in deposits. He's got $21 million already."

"Why has this branch done so well?"

Radell's on the school board, Graziano says. (Actually, he's in a fund-raising group sponsored by the board; but for Commerce's purposes, that's just as good.) "I just gave him $1,500 to give them. And the municipal building is across the street."

DiFlorio notes the importance to Commerce of municipal accounts.

"This branch alone will be at $35 million within a year," Graziano says.

"So I guess we like Eric," DiFlorio says.

"Very much," Graziano says.

"Let me tell you something," Hill says. "It has nothing to do with the kid. It's the location of this branch."
Exiting the car, the men stride toward the glass door and stop short at the sight of chipped paint on the C-shaped door handle.

Says Hill, "I never seen one so bad."

Graziano makes a note.

They spend five minutes quizzing Radell and his assistants, who answer with the confident good cheer taught at Commerce University, the Mount Laurel indoctrination center where employees are drilled in customer service, issued stock options, and trained to shout "Wow!" in unison. Then it's back in the car and on to Metuchen.

En route, spying competitor branches here and there, Hill trashes them gleefully. A First Union branch looks "like a morgue." A Valley National branch "should close, for all the business we've taken away from them."
(On another occasion, Hill called Sovereign Bank "a horror story," adding that its branches look like something you wouldn't want to get stuck on your shoe.)

Hill's competitors gamely acknowledge his success. But some are happy to question where Commerce is headed.
Sovereign Bank chairman Jay S. Sidhu, who grants Hill's skill at salesmanship and showmanship, warns that Commerce's advantage could evaporate overnight, as the gaudiest financial empires often do.

"His model is that it doesn't make a difference how much you spend, as long as the branches are in the best place," says Sidhu, whose own institution has grown to three times Commerce's size through a string of costly mergers. "And that next year's costs will be the same as today's! And that people will still be parking money in banks, because the stock market will still be down! And that he has a unique environment!"

To Sidhu, the biggest danger is a lack of doubt. "If you're ignorant and arrogant about your internal or external environment," he warns, "you will be blindsided. High expenses and high margins cannot be sustained." Hill is "like a dot-com, trading at double" the stock-market average, Sidhu concludes, adding, "I wish him the best."

Competitors at big multistate banks such as Fleet and First Union admit that Commerce has grown at their expense, but snipe privately that Hill has attracted "hot money" — short-term accounts that could leave tomorrow if interest rates rise or stocks recover.

Hill denies that Commerce attracts bargain hunters: Its deposit rates aren't the highest; its loans aren't especially cheap. To the contrary, he says, he's building brand loyalty by associating Commerce with convenience and service. He exhibits little patience with the notion that his bank might fall under the weight of its own growth.

"They say that size will kill you — that's what they said about Wal-Mart, and Home Depot, and Starbucks," Hill scoffs. "I say the successful players learn to use size as an advantage."

He dismisses Commerce critics as parochial thinkers. "In Philadelphia, they say we're loud, we're brash, we're aggressive. But in New York, people embrace change. In New York, we're succeeding beyond our wildest dreams. In New York, our biggest challenge right now is convincing them we're not too good to be true."
If Commerce Bank has pleased customers, it has also made a fortune for Hill and his family.

Last year, Hill collected $2 million in Commerce salary, bonus and expenses, $2 million in Commerce dividends, and $15 million in unrealized capital gains on the five percent of the bank he owns. (He could also have taken $43 million in stock-option profits but chose to wait, on the theory that the stock will keep going up.)

Also last year, Hill's development company collected $1.3 million in rent from Commerce, and his wife's design firm collected $4.2 million in fees.

Hill is an investor in Galloway National Golf Club near Atlantic City. Last year, Commerce paid Galloway $300,000 for use of its facilities. And although Commerce's public reports have not disclosed this fact, Hill is also a partner in the helicopter firm that flies him around New Jersey, New York and Pennsylvania.

These "related-party" transactions have raised eyebrows among Commerce competitors, financial analysts and short-sellers and contributed to the stock's midsummer drop. Even though "regulators have been aware of this for years," says Merrill Lynch analyst Edward Najarian, "you know the environment we're in. There are short-sellers scouring the financial reports and filings looking for reasons to dump on stocks. "

In its yearly statement to shareholders, Commerce calls the bills from Hill -owned enterprises "substantially equivalent" to what the bank would have paid competitors. Using insiders, Hill argues, is the most efficient way to get the job done: "You can't be a growth company without the ability to develop your own sites. "

Like most bank chairmen (many of whom are being less than honest), Hill says he has no plans to sell his company.
Nor is he set to establish a dynasty. So far, he says, his children show little interest in running a business. He attributes this partly to his decision to send them to elite private schools, where they learned consensus, cooperation, and the other "old Philadelphia values" with which the city was brainwashed, he believes, by William Penn.

Hill now prefers "New York values," he says, which "embrace change and excellence," and which he identifies with a traditional, authoritative Catholic-school education — common among bank loan officers — that "pushes you to do your best. "

He insists that Commerce is bigger than he is. He says he relies increasingly on a hand-picked team of tough veteran bankers who could run the bank today in his absence. He says he has instilled a culture at Commerce that will survive him and is already being tested as the bank grows beyond South Jersey.

Yet Hill clearly dominates the company and its finances.

To be sure, Commerce is growing faster than its rivals because it appealed systematically and aggressively to consumers and local politicians — groups that bigger banks took for granted or ignored in the 1990s in their desperate rush to remake themselves as investment firms. Since 2000, the edge Hill established for his bank has grown as the stock market has faltered. Disappointed investors who have turned away from their burned-out mutual funds have found Commerce waiting for them with open arms.

Yet American business history is littered with innovative young companies that failed in middle age to adapt to changing times and were swamped by cut-rate, copycat competitors. Think of A&P groceries, Peoples Express airline, Apple Computer — and the many once-shining business upstarts that have survived to a merely mediocre maturity.

Hill 's supporters see in him a visionary whose faith in and respect for customers has forced the banking business to improve its cattlelike treatment of middle America, making him and his investors deservedly rich in the best capitalist tradition.

His detractors see a self-dealing control-freak CEO whose high-speed aggression threatens to wreck itself.

Hill himself, of course, exhibits no doubts about the future. He has begun to characterize the significance of his bank in historic, even global, terms. He compares himself favorably to legendary banking pioneer A.P. Giannini, founder of Bank of America. But while Giannini grew by merger and acquisition, Hill says, he himself built Commerce branch by branch.

"This is more than a regional bank ," he boasts. "We have created a new model. This is a national story. Don't you think it's a national story? I'm getting calls from Japan. "

At the edge of a neighborhood of graceful, well-tended homes, the Commerce office in Metuchen stands out like a block of painted concrete on a cobblestone street.

As Hill 's party arrives, the sun comes out. Inside and under a circus-size tent outside, the branch is mobbed. Hundreds of people — engineers, small-business men, Asian immigrants — have arrived with their kids for the clowns, the face-painting, the free appliances that come with new accounts.

Hill plows into the crowd — not like a vote-seeking politician trying to impress a fickle public, but like a seasoned political boss who believes he has discovered the truths of needy human nature and is busily putting that knowledge to work for his organization and himself.

Here the entourage assembled to meet new customers includes former acting governor and Commerce board member DiFrancesco. While his wife beams at his side, DiFrancesco extols the free change-wrapping machine in his local Commerce lobby and slams customer service at First Union.

Over here, dressed in Commerce red, is Robin Storrs, the curren  branch manager of the year, who drove up for the occasion in her 2002 red Porsche. Also in red is newly appointed branch manager Mary Jane McDonough, who just moved to Commerce from Allied Irish Bank .

Why did she come to Commerce ? "At other banks , management is behind a curtain. Like the great and powerful Oz. Here, management is right there with you. They look at everything you do. "

Isn't that kind of claustrophobic? "It's human to fail. It's the Commerce Way to recover. That's one of our Five Fundamentals. "

In the parking lot at the edge of the crowd, Hill invites a guest to join him for a burnt hot dog. He asked for it burnt: That's how he likes his hot dogs.

"It takes me eight weeks to build a branch," he complains, scanning the surrounding neighborhood, his lip curling just slightly, "and 16 months for the approval process. Every deal is a war. "

So Metuchen didn't roll out the red carpet? "This town thinks it's special. All these towns want control over how we build our branches. We can't just let that happen. Our model is the heart of our company, like any successful retailer. Protecting the brand is at the heart of everything we do. "

Metuchen wanted the branch built sideways, so it wouldn't be so obtrusive. Commerce did move most of the parking off to one side, instead of putting it in front, as Hill first proposed.

But, as he intended, the branch faces the street. While it bears no relationship to historic Metuchen, it is unmistakably the same Commerce branch that squats at key intersections in Cherry Hill , Newtown Square, South Plainfield and Talleyville, Del.

For Hill , this town isn't so special. It's like any other prosperous American suburb.

It will come to Commerce.