Vernon Hill - Commerce Bancorp

Commerce Bancorp

Commerce Bank was notable for its rapid expansion, from one branch in 1973 to 470 branches in 2008, and a deposit base that grew by an average of 30% per year between 1996 and 2001 (against an industry average of 5% in 2001). According to Forbes Magazine, Commerce produced a 23% annual shareholder return compounded for 30 years.

Commerce Bank’s economic model rested on the idea that the fixed costs of a bank branch are largely independent of volume, and so profitability lay in maximizing the number of deposits and accounts per branch. Additionally, Hill believed that the industry's reliance on internet banking had led to dis-investment in bank branches, to the detriment of consumers who prioritised in-person service.

“Other banks decided to push consumers out of the branch because it is the high-cost delivery channel. They wanted to push them online. We totally reject that. You can’t name me one retailer in this country that has pushed people where they don’t want to go and succeeded…We have some branches that get 100,000 customer visits a month; the average branch gets 40,000. An average McDonald’s gets 25,000 per month.”

Hill’s motto for Commerce was “America’s most convenient bank”.

Commerce tactics were oriented to drive volume, differentiation and customer advocacy, including:

• Longer opening hours, including evenings and weekends; opening ten minutes earlier and later than advertised hours
• Removing glass from teller booths for a more open customer experience
• Pet-friendly policies
• Giveaways such as lollipops and dog biscuits
• Free use of coin-counting machines
• Handing out pens in response to rival banks’ practice of chaining pens to desks
• “Kill the stupid rule” program, whereby employees who suggested an alternative to a stupid rule were paid $50

Commerce bank staff were awarded $5,000 if a nearby rival bank closed its branches; hundreds of mystery shoppers made tens of thousands of store visits annually, and salary increases were based on mystery shopping scores. Top-performing managers were given sports cars.

On June 29, 2007, Hill resigned as Chairman and CEO of Commerce Bancorp after the Office of the Comptroller of the Currency, the Federal Reserve Bank of Philadelphia and the board of directors of Commerce Bancorp established governance to stop doing business with firms under the control of Hill’s family. Notable business dealings with insiders included property leases with entities in which Hill was a partner, and the purchase of services from an architectural design business run by his wife, Shirley. No charges were brought.

On October 2, 2007, Commerce Bancorp announced that it would be merging with TD Bank Financial Group. The Canadian-based Toronto-Dominion Bank would acquire Commerce for $8.5 billion (U.S. dollars) in cash and stock, at $42 per share of CBH stock, a purchase multiple of x28. Some industry commentators held that Hill's departure and a strong Canadian dollar had made a takeover inevitable.