Vernon Hill vs. the Curve: He's Traded for Years on the Separation of Banking and "Commerce." but Does Commerce Bancorp's CEO Think He Can Keep Producing Above-Average Growth with the Current Flat Yield Curve? Hint: The Bank's Website Is "Yesbank.Com"

By Cocheo, Steve | ABA Banking Journal, May 2006 | Go to article overview

Vernon Hill vs. the Curve: He's Traded for Years on the Separation of Banking and "Commerce." but Does Commerce Bancorp's CEO Think He Can Keep Producing Above-Average Growth with the Current Flat Yield Curve? Hint: The Bank's Website Is "Yesbank.Com"


Cocheo, Steve, ABA Banking Journal


"Momentum. It is the way scientists measure the tendency of an object in motion to stay in motion. You see it often in nature. The rotation of the earth depends in part on momentum. And some animals, by nature's design, must stay in continuous motion.

In the world of banking, there is $38.5 billion-assets Commerce Bancorp, Cherry Hill, N.J. "Financial momentum" keeps it going.

Constant motion does not make Commerce a predator, at least in the sense that it is out to gobble up banks, though it will gladly take their deposits and their customers. It rarely acquires other institutions, preferring to grow chiefly through branching and the organic growth of those branches, which the retailing-minded Commerce prefers to call "stores."

Neither does Commerce like to travel in packs. Founder, chair-president, and CEO Vernon Hill II prefers--no. enjoys--the role of maverick and relishes independence.

"That bank will be there until Vernon Hill decides to get out of banking," says a long-time banking consultant who's known the Commerce CEO since he moved into banking in 1973 with what started as a little community bank in Marlton, N.J.

But constant motion, yes, that typifies Commerce, and the 60-year-old Hill. For Commerce, motion has generally been positive and upwards. Ten years ago, Commerce had stores in 95 locations. It finished 2005 with 373 stores in Connecticut, Delaware, Florida, New Jersey, New York, Pennsylvania, Virginia, and washington, D.C. The strategy the end of 2006, and 800 stores and $100 billion-assets by the end of 2010. This expansion is expected to incorporate not only fill-ins, but extension to new markets as well, including Boston.

Over the last five years, Commerce, stressing core deposit relationships rather than credit relationships in its promotions, has seen an average 36% total deposit growth rate, with a 27% core growth rate in 2005. And "same store" growth has been strong, generally outpacing other large and regional banks that it competes with.

"The market doesn't care too much about ROA," says Hill. "If you look at the Commerce model, it's relatively low ROA; relatively high ROE, which I think is important; and predictable, high growth, which is what I really think is important. The market pays for high, predictable growth."

The importance of motion--growth--is part of how Hill expects to weather the current yield curve and the rising rate environment. But first, let's explore what produced Commerce's growth to date.

The parts or the whole?

It's late Sunday morning, around 11:30, at the Commerce Bank branch in Bethpage, Long Island, N.Y., and things are bustling. In fact, the seemingly ample parking lot is more than half full. People are flocking into the branch like they were lining up for free Starbucks. Yet there isn't a latte in sight, although the check tables have cups stuffed with really neat, free pens of electric-blue plastic.

Half a dozen people are lined up, waiting to use the free self-service coin counting machine--the "Penny Arcade"--featured in every Commerce store.

The tellers are briskly handling the morning business, every one of them wearing a Commerce vest and a tie. Meanwhile, the platform staff is busy. One customer service representative is opening new savings accounts for a pair of young girls just off the softball field, accompanied by their father. By the end of the conversation the kids are thrilled to not only receive working ATM cards, as well as passbooks, but also two large red "C"-shaped coin banks. Within two days each will also receive a thank-you note for opening their accounts, personally signed and smiley-faced by the CSR. Another platform representative is helping a businessman sort out some questions about accounts.

You notice that while the customers are mostly in weekend clothes, staff is dressed up.

What's right with this picture? …

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