Vernon the Barbarian

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They're shimmying into the Tweeter Center arena now, 5,000 strong, drinks in hand, silver New Year's hats emblazoned with wow! atop their heads, while the piped-in music blares custom-made lyrics to the tune of Lou Bega's “Mambo No. 5”:

A little bit of Monica on the phone
Helping out a customer who's at home
A little bit of David at his desk
Making every customer feel their best…
A little bit of Commerce Bank here and now
Is just enough to make you feel that WOW!

They wear their team color, red, as they boogie in and are met by a dancing red C, or, more accurately, a Ritalin-deprived guy in a giant red C costume. Some of them bump and grind with the big red C; others launch copious amounts of Silly String all over their colleagues; still others punch a huge beach ball. One group comes in carrying a sign reading shore rules #1! The contingent from North Jersey enters chanting: “We want the cup! We want the cup!” These are bankers. “That's where you're wrong,” says their leader, red-jacketed Commerce Bank founder and ceo Vernon Hill ii, his voice barely audible above the din. “They're not bankers. They're retailers. And my job is to convince them we're on a mission from God.” These are Commerce Bank's annual wow! Awards-the South Jersey bank's version of the Academy Awards. It's a night of open bar, elaborate spreads of food, a giant wow ice sculpture, and, inside the arena, a raucous awards ceremony complete with spotlights and bad jokes from presenters. Tonight, instead of Oscars, winners of categories like “Best Part-Time Teller” will take home red C statuettes, and one of the company's divisions-either North Jersey or Central Jersey or the Shore or Commerce Insurance-will win the award for having Commerce's most spirited employees. Vernon Hill is introduced as “that Master wow-er himself, our chairman,” and rousing applause drowns out his name. You expect the cheering throng to start waving lighters as Hill stiffly takes the stage. In truth, though, there is little that is wow about him; he's a slender, bespectacled man of 55 with thinning, matted hair and a slight stutter. He has a gruff-some say rude-demeanor; he answers his phone by barking “You called me” into the receiver. A self-described “doer,” he's the kind of boss who's more inclined to shoot off orders than offer pats on the back. As tonight's ceremony wears on, he'll grow increasingly impatient during each winner's jubilant, spotlighted walk down the aisle. When Cleo Morrison wins for Best Retail Support, Hill bellows into the microphone: “If you're not here in one minute, I take the award back!” When Boots Zurbano, winner of Best Full-Time Teller, isn't quite quick enough to the stage, Hill barks, “C'mon, folks! It's getting dark outside! Let's go!” And yet they cheer, for he is their leader. He boldly announces his latest stratagem: “Most of you know that each year, we go and save another part of America that's not served by Commerce,” he says, in a clipped cadence that serves to fire up his audience. “And Manhattan is our next stop, and the poor underbanked, overcharged people of Manhattan need to be saved by Commerce!” The audience jumps up with a roar, stomping and screaming, a spontaneous eruption reminiscent of the frenzy on the floor of political conventions after a killer applause line. Hill, who likes to call himself banking's Genghis Khan and who hands out to visitors at his office a book titled Leadership Secrets of Attila the Hun, breaks into a wicked, thin-lipped smile as he looks down upon his flock. He's basking in the adulation, but he's also surveying his troops. The difference between Vernon Hill and the rest of us, he will tell you, is that he wakes up and decides to do things. One day last year, Hill woke up and decided to build a mansion-“Villa Collina”-in Moorestown that is, at 45,854 square feet, bigger than Bill Gates's home, and almost the size of the White House; it features a marble fountain in the foyer, a two-story atrium-windowed living room, an exercise room bigger than most health clubs, 14 built-in televisions (some wall-sized), 94 doors and 131 windows. It is under construction now, and it will be a reality this fall because he made it one. One day 15 years ago, Hill woke up after suffering a lengthy tee-time delay at Atlantic City's prestigious Seaview Country Club and decided to build his own state-of-the-art golf course. Seven years and $15 million later, he produced Galloway National Golf Club in Galloway Township, which is consistently ranked among the nation's best courses. It is also one of the key perks Hill uses to entice prominent business leaders to bring their deposits to Commerce. One day 28 years ago, Vernon Hill, then 27, woke up and decided to start a bank. It has succeeded beyond anyone's expectations-including his own. In a struggling industry known for widespread consolidation (quick, what is it today-CoreStates, First Union or Wachovia?), Cherry Hill-based Commerce is the nation's fastest-growing bank: 30 new branches and 1,500 new employees each year, earnings up by by 16 percent (seven percentage points ahead of the industry average), and a stock that has risen a remarkable 278 percent over the past five years (more than double the industry average). At a time when few of this region's companies go national-least of all banks-Hill has devised a model that he hopes will take the country by storm. “Commerce is like the Mongolian horde coming across the plains, threatening the Roman Empire,” says Brock Vandervliet, the Lehman Brothers analyst who first dubbed Hill “Genghis Khan.” “In this case, the Roman Empire is the larger, established banks that still don't fully recognize the threat posed by Commerce.” The vision heralded by Vandervliet starts with the figure Hill is proudest of: his bank's stockpile of deposits, driven mainly by consumer checking and savings accounts-the retail side of banking. Between 1995 and last year, Commerce doubled those assets to $5.6 billion. In the past year, that figure has jumped to $9 billion. Hill's goal-which most analysts consider attainable-is to reach $25 billion within the next five years. It all starts with a simple yet revolutionary idea. Most banks subscribe to something called the 80/20 rule, the theory that 80 percent of their revenue is generated by the top 20 percent of their customer base. So they saddle non-revenue customers with fees or inattentive service, focusing on the commercial side, viewing their retail operation-the branches-as a necessary evil and the first to be crunched come cost-cutting time. Hill, who also owns 41 Burger Kings, primarily in Montgomery and Bucks counties, has radically deviated from the conventional wisdom, applying fast-food retail theories to the staid world of banking. He knew from the fast-food world that it's the fries and Cokes that are truly profitable, while hamburgers are a break-even proposition. Applying the 80/20 rule at BK would mean mistreating anyone who orders just a burger. “It's ridiculous on its face,” he says, leaning in closely to share a guarded secret over lunch at tgi Friday's (a chain, of course). “The truth is, bankers aren't very smart. The ones that have followed the 80/20 rule have had the worst results. You don't have to look any further than First Union, where they've been hemorrhaging customers because of inattentive service.” (“It's common to attack us for what was happening over two years ago,” says First Union spokesman Don Vecchiarello. “Since then, our service scores have increased in every quarter, and our customer complaints to federal regulatory agencies are down 500 percent.”) Hill has been called America's McBanker. The red C logo is his version of McDonald's golden arches, an easily identified extension of the brand. Six years ago, inspired by McDonald's Hamburger University and Disney's Disney U., he invested more than $20 million-while other banks were cutting back on employee-training programs-to start Commerce University, which has its main campus less than a mile from Commerce's Cherry Hill headquarters. It's an indoctrination program masquerading as employee training, where the curriculum teaches the customer-service culture of Commerce while deprogramming incoming branch managers who have worked for other banks. In a class called “Traditions,” students practice their phone greetings while peers grade them on their cheerfulness. The university dean is Debi Jacovelli, who started at Commerce as a clerk 20 years ago, after working at a McDonald's drive-thru while she was in college. Hill liked her zest for Commerce culture, and when he asked her to head up the university, she agreed, she says, “for the good of the Order,” sounding every bit the cult member she proudly claims to be. “That's a phrase you hear a lot of around here,” she adds. “I think when people deal in the retail business, often the product is secondary,” Hill says. “Have you ever flown Southwest Airlines? It's owned by Herb Kelleher, who is from Haddon Heights. Here's a guy with the lowest-cost carrier, in the crappiest planes, with no food, yet he's created this culture about how great this experience is. He's turned a low-price experience into a fun experience. Or Starbucks. These guys are getting $7 for a cup of coffee. Yet they've got 'em waiting in line.” Hill's outrageous and radical notion is that people will do business with a bank if they like coming to it. Commerce calls itself “America's most convenient bank,” and everything is tailored toward pleasing the seven million customers who use the bank's 150 branches each month. Commerce offers legitimately free checking (First Union has about 10 different checking accounts with differing fees), free money orders, and Hill's no-float rule, whereby deposits clear instantaneously. “Every check in America can clear in one day,” Hill says. “When a bank tells you it'll take three business days to clear, it's a bullshit gimmick to make money.” All Commerce branches share the same retail-like hours: weekday teller service from 7:30 a.m. to 8 p.m., plus hours on Saturdays and Sundays. Competing banks thought Hill was crazy-why take on such burdensome overhead? “You don't have to think about what time a Home Depot, a McDonald's or a Starbucks is open,” Hill says. “They're open. You just go. My theory was, if you advertise that you're open on Sunday, the consumer will automatically believe you're open all the time. That message is more important than the savings. It says, 'We're always there for you.'” While other banks try to cost-cut their way to prosperity, Hill spends and spends and spends. He throws a three-day Christmas bash-a carnival, really-for customers, employees and their families. He gives away 200,000 Commerce pens a month. He just spent $8 million equipping each branch with its own “Penny Arcade,” a state-of-the-art coin-counting machine that spits out a receipt immediately redeemable for cash-even by non-Commerce account holders. Most banks don't handle change, charge for the service, or require customers to roll their own coins. “Another radical idea,” Hill says with a smirk. “'We're a bank. Hey, let's accept people's money.'” The one catch to all this service is that Commerce pays less interest than its competitors. But the company is upfront about the lower rates, and hasn't had many complaints. Still, until recently, other bankers laughed at what they saw as Hill's flight of fancy: Banking as an enjoyable experience? They're not laughing anymore. But they're also not talking-not on the record, anyway. “Vernon is the king of the hill now,” says one. “Why do I need to get into a pissing match with him?” But off the record, some local bankers acknowledge that they are seething over Hill's trash talk-something that just doesn't play in the courtly world of banking. When Summit Bank was bought by Boston-based Fleet, Hill set about raiding Summit employees and customers. (welcome summit bank customers! read signs in front of Commerce branches.) Internally, he's started a “Sink the Fleet” campaign, outfitting employees with “Sink the Fleet wow War iii” dog tags. Driving around South Jersey, he gleefully points to nondescript, barely identifiable banks: “Look at that piece of shit Mellon branch,” he says. Hill is “ruthless,” say his detractors, and out of control. “His ego is bigger than his house,” sneers one rival. And now, with his ambitious foray into the New York market, they're hopeful that he's heading for a comeuppance-though they speak in hushed tones. Next month, the first two Commerce branches will open in Manhattan-one at 55th and 6th Avenue, the other at 94th and Broadway. Thirty to 40 more are to be opened in the next five years. “There won't be a lot of tears shed,” says one local banker, “when Vernon goes to New York and gets brought down a peg or two.”
In war, every attack is preceded by careful reconnaissance missions. That's why Vernon Hill takes a helicopter to New York three or four times a month. He meets there with his recently hired lieutenant, David Slackman, the man heading the New York invasion, and they travel the city in a chauffeured car, surveying the terrain of Commerce's next battleground. Slackman briefs Hill on his latest intelligence operations. He has been “shopping the competition”-walking into Chase and Citibank branches and gauging the quality of customer service by asking for, say, a small business loan application. He regales Hill with tales of the dumbfounded looks he receives, of flustered customer service reps scurrying off to find the manager, unsure where the form is or if it even exists. He tells Hill of the Chase branch right near their forthcoming 6th Avenue site where there is nowhere to sit while you open an account and where he stood for 20 minutes before someone reluctantly asked if he could be helped. “I'm too lucky,” responds Hill, gazing out the window. It's only four o'clock on a weekday, but as he cruises past a Chase branch, Hill notices that it's closed. “This is the city that never sleeps,” he says. “Except for the banks.” Slackman points out an hsbc branch-Hong Kong Shanghai Bank-and observes, “Ninety-seven percent of their customers don't know it's a Hong Kong bank. They try and keep that a secret.” Hill mulls this over. “How about this for an ad?” he says finally. “'Do You Really Want Your Money Going to Red China?'” They ponder the in-your-face idea. A longtime admirer of Commerce's renegade style, Slackman, at 53, jumped over from New York's Atlantic Bank last March, after concluding that the Commerce way can't be copied; since it's all about culture, an existing bank would have to start from scratch to do it right. (This is why Hill won't acquire other banks; it would taint his pool of true believers.) “Would an ad like that work here, on the Upper West Side?” Slackman asks. “Oh, right,” Hill says. “The liberals up here would want their money going to Red China.” Both men point excitedly each time they see a woman pushing a baby carriage. They call the Upper East and West sides “vertical suburbia,” viewing the residents as kin to their customers in the South Jersey 'burbs and along the Main Line. Hill instructs the driver to stop at various locations he's considering and snaps photos with a digital camera he retrieves from the trunk, so he'll remember each site. “Site selection is an art, not a science,” Hill says, clicking away at an Upper East Side corner property. One of his side businesses is Mt. Laurel's Site Development, Inc., a company he started in the late '60s, before founding the bank. Site Development handles the all-important first step for any retail operation: For a fee, it finds a site and works out all the related zoning and traffic issues. Way back in 1969, Hill's first client was McDonald's; he'd drive Ray Kroc around South Jersey in search of locations. Today, Site Development has a staff of 19 and acts as a broker for most of Commerce's branches, so Hill is in the unusual position of profiting as a Commerce contractor, in addition to his ceo role. (Last year, Site Development, Inc., was paid $1.1 million by Commerce.) Hill argues that this allows him to make sure the all-important site selection process is done right. Even before those car rides with Ray Kroc, Hill had an affinity for fast-food retail. He still recalls his excitement 45 years ago, when he was a 10-year-old growing up in Northern Virginia and his father took him to McDonald's for the first time. Other kids were enthralled by the big arches, the clown mascot, the junk food. Not Vernon: “I can still remember wondering, how the hell can you make money selling hamburgers for 15 cents apiece?” he says. “I mean, I just couldn't get over that. Still can't, really.” His father, Vernon Hill Sr., was a successful real estate broker with 14 offices who had this advice for his son: “Never work for anybody but yourself.” In the mid-'60s, Hill attended early morning classes at Wharton and then worked from 11 a.m. to 6 p.m. at Haddon Township's First People's Bank, a local bank started by Bill Rohrer in 1959. Rohrer was a Chevy dealer, and Hill watched as his boss's car-dealer mentality informed his running of the bank. First People's stayed open late, and focused on gathering deposits. Meantime, as much of South Jersey began to morph into strip malls, Rohrer had Hill make loans to franchises such as 7-Eleven, Wawa and, of course, McDonald's. It was this experience that led directly to Hill's creation of Commerce Bank. “A lot of us knew Vernon from being involved in real estate at that time,” recalls 70-year-old Morton Kerr, chairman of the board of Markeim-Chalmers, Inc., a real estate firm, and one of the original Commerce board members. “He was a 26-year-old kid who called about 15 of us to a meeting in his office on Haddon Avenue in Haddonfield. I'll never forget it. He said, 'We're going to start a bank.' And he said we'd each have to put up between $250,000 and $500,000. This was 1973-who had that kind of money? But he'd arranged for all of us to borrow it. If you could put up $100,000, he got us loans for $400,000. Only seven of us didn't get up and walk out, but we still thought he was crazy. We thought it would be a half-assed thing, but what the hell? We were young, and it would be glamorous to say we owned a bank.” Hill put up about 10 percent of the $1.5 million he raised. Commerce was born in a one-room office, with nine employees, on Route 70 in Marlton. If you had invested $10,000 with Hill back then, it would be worth $2 million today. An original flyer of $100,000 would now yield $20 million. “Did we think this would happen?” asks Kerr, sounding as if, all these years later, he still can't quite believe it. “Are you kidding me?”
“Wait a minute,” says Vernon Hill, interrupting an employee during one of his monthly senior staff meetings. He's just spotted someone who works for him taking notes-with a CoreStates pen. “Can I see that pen?” All eyes are fixed on the pen as it passes to him; all eyes stay glued to the ceo as he methodically disassembles the pen and, holding its parts, stands and walks to the corner of the conference room, where he deposits them in a trash can. Without saying a word, he sits down again and reaches into his breast pocket, removing a Commerce pen and holding it out to the aide next to him, who dutifully passes it down to the red-faced employee. “That guy, uh, is no longer with us,” says Glenn Holck, president of Commerce's Pennsylvania operation, chuckling as he recounts the incident. When Holck was at CoreStates, he sat in meetings every day. To Hill, meetings are where you talk about the work you're going to do instead of actually doing it. So senior staff meetings at Commerce are limited to the third Wednesday of every month, and the agenda is always the same: Each market-Holck, representing Pennsylvania, is one-reports on its performance in three areas: deposits, fees and loans. The reports are easy because Hill has invested in a state-of-the-art computer system that allows every Commerce employee to hit a key and check how each branch is doing every single day in all three areas, then compare that performance to its month-end goals. “At CoreStates, if somebody asked how your business was doing, you'd say 'Okay,' and no one-including you-knew if that was true,” says Holck. “Here, everybody knows. And they know Mr. Hill is checking the numbers.” He's also checking the e-mail updates that every manager is required to send him every Monday by noon. Holck once made the mistake of skipping a Monday; the following Monday, just hours after he'd sent the update, his phone rang. As usual, Hill offered no greeting. “Perhaps I should just pay you for every other week,” he said-before hanging up. Good soldiers like Holck insist that Hill's hectoring is simply a form of mentoring. But it is certainly the stuff of legend at Commerce. Hill still conducts the year-end job reviews of his senior managers-an appointment few anticipate eagerly. “How'd your department do this year?” he'll ask. If the answer gets past two sentences, he'll bark: “Too many words! Let's try again: How'd you do?” “You have to learn how to talk to Mr. Hill,” says Commerce University dean Debi Jacovelli. “I have a tendency to ramble, so he'll blurt out, 'Will you just shut up and listen?' It's forced me to get to the point much quicker.” Like Attila, Hill is known to leave bodies in his wake, particularly on the loan side, where his lenders either sink or swim. Loan officers who fail to meet agreed-upon goals-say, $20 million in new business-tend to disappear mysteriously, like dissidents in Third World republics. There's even an office catchphrase for the phenomenon: ddtb, as in Don't Drag The Bodies. “If you're talking about someone who is behind plan, all you have to say is 'ddtb,' and it's understood what's happening,” says Holck. “You don't need to say anything else.” Commerce loyalists like Holck and Jacovelli characterize Hill's style as eccentric and quirky, but others see his warrior mentality as representative of something darker. He is a man who demands that his branch managers smile constantly and that his drive-in tellers hand out doggie biscuits to customers with canines in the car, but he rarely practices what he preaches. He walks the halls grunting greetings to staffers-if he says hello at all. Even on the Galloway golf course, where Hill is an 11 handicap, his demeanor hardly smacks of the common touch: No one is allowed to play the hole behind him or the three holes ahead of him. More important, Hill doesn't seem to have the same zeal for customer service when it comes to making loans. He personally approves every loan in excess of $5 million, which has resulted in some embarrassing last-minute about-faces for Commerce. One businessman received a call from the bank saying it couldn't meet the terms proffered by its own term sheet-because, the businessman presumed, Hill had crunched the numbers and changed his mind. Another businessman says he discovered at closing that Commerce's interest rate had suddenly changed, and fees had been added: “It's a classic bait and switch,” he fumed. (A former Commerce loan officer and fan of Hill's confirms these weren't isolated incidents-that Hill's last-minute dictums often force his people to go back to borrowers and rework agreed-upon terms.) “Most ceos of a bank our size don't get involved in loan approval,” says Hill, making no apology. “But I've got a good bullshit detector. If a deal doesn't smell right, I step in-often late in the process.” As Hill's ostentatious home, “Villa Collina,” nears completion-all he'll say about it is, “That's my wife's project”- some critics take issue with his compensation. Last year, he earned roughly $1.2 million in salary, bonus and perks, and exercised $856,858 in stock options; he holds some $33 million in unexercised options. Then there are the fees taken in by his Site Development Corporation, and the $3.6 million for branch and office decorating and design that was paid to Interarch, the Mt. Laurel interior design and architectural firm owned by Shirley Hill, Vernon's wife. When word spreads that Mrs. Hill is on her way to the Cherry Hill headquarters, employees routinely rush to roll up the window shades in their offices, knowing of her fondness for natural sunlight. Hill laughingly boasts that when he assigned Shirley the job of designing Commerce's Philadelphia offices, on Market Street, he “gave her an unlimited budget-and she exceeded it.” Vernon Hill makes no bones about the fact that he is well paid-or that he loves to spend. In that sense, he's the antithesis of once-hyped Albert Dunlap, the cost-cutting ceo who dismantled Scott Paper here before selling it and moving on to Sunbeam. “What a horse's ass,” Hill says of Dunlap, whom he sees as someone who tears down, in contrast to his own pro-growth agenda. Thus far, there have been few if any complaints from the board or anyone else about Hill's spending-presumably because the bank has been doing so spectacularly well under his leadership. Might that change if the stock drops? Possibly. But it seems unlikely, unless, as his competitors are hoping, the invasion of New York turns out to be Hill's Waterloo. He is guarding against that possibility by launching a measured rollout, beginning with the two branches next month. “There's an unstoppable nature to the Commerce strategy,” says Lehman analyst Vandervliet. “They won't take no for an answer. They are going to have their way with the market.”
Vernon Hill is in the backseat of the car, checking his e-mail on a handheld BlackBerry, the portable personal organizer that makes the PalmPilot seem Jurassic. Hill, of course, has provided BlackBerrys to everyone in his company who needs one. “You know what's giving me agita now? It's not the New York rents,” David Slackman says from the front passenger seat, looking back at his boss. “And I'm not worried about growing the deposits. My issue is getting good branch managers. A lot of the people I'm meeting, they're fat, dumb and happy.” “Of course,” Hill says. “At a lot of these hundred-year-old New York branches, you can just retire while you continue working, and nobody bothers you. We're better off gambling with the second or third level down, taking an assistant manager as a branch manager.” “But that's what I'm saying,” Slackman says. “A lot of the assistant managers are terrible here. I talked to a 60-year-old career assistant manager at Citibank-” “What does he make?” “Sixty thousand dollars. And he says, Oh, I'm too old to leave and head up a branch, I'm going to retire soon.” Slackman shakes his head. “He's not looking to be challenged. I left that meeting and turned to whoever I was with and said, That guy's a loser. Scratch him from the list.” Vernon Hill breaks into that wide, thin-lipped smile. “Hey, what do the kids say?” he asks as he raises his right hand, clenched in a fist but for his L-shaped index finger and thumb, and puts it to his forehead: “Loooserrrr!” Slackman laughs, and now he joins in, putting his L to his forehead and moaning, “Loooserrrr!” As Vernon Hill sees it, the world is divided into winners and losers. And like his role models Attila and Genghis, he is determined to be in the first group, and to throw a whole lot of people-in this case, sleek-suited, genteel bankers-into the other. As the car arrives at the heliport pad, Vernon Hill is checking Commerce stock on the BlackBerry, but he's still chortling like a mischievous teen, laughing and coughing out “Loooserrrr” again and again.