Commerce, Feds Close on Deal

In an SEC filing, the bank said it expected to settle potential conflict of interest charges.
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Commerce Bancorp

(CBH) - Get Report

is getting closer to a settlement with regulators.

The

Office of the Comptroller of the Currency

expects the Cherry Hill, N.J.-based bank to enter into a consent order relating to "corporate governance, related party transactions and policies and procedures for real estate-related transactions," according to a

Securities and Exchange Commission

filing by Commerce Monday evening.

In addition, the Federal Reserve Bank of Philadelphia expects the bank to enter into an informal so-called memorandum of understanding related to similar circumstances, the filing said.

Commerce disclosed In January that it was being probed by regulators over certain "transactions with its officers, directors and related parties, including transactions involving bank premises," according to its fourth-quarter earnings report.

The investigation covered possible conflicts of interest involving Commerce branches, as well as personal investment properties by Vernon Hill, Commerce's founder and CEO.

"The company intends to terminate all continuing material related-party transactions on or before Dec. 31, 2007 and will enter into no new material relationships," with the exception of real estate leases executed before 2002, normal lending and banking relationships and the completion of prior commitments, Commerce said in the filing.

Commerce is changing its real estate development policies and considering bringing in-house the services of InterArch.

InterArch is an architectural and design company owned by Hill's wife that has provided design services to Commerce branches since 1973. Employees of InterArch would become bank employees.

The company said in April that the OCC had asked for additional information for pending branch site applications, which is lengthening the approval time.

The OCC is still reviewing new store applications.

Commerce scaled back the amount of branches it anticipates opening this year. Previously, it expected to open about 65 branches. It now expects to open between 50 and 55 branches -- roughly equal to the amount it opened in 2006.

Analysts say Commerce's stock is likely to take a hit on Tuesday morning, as investors worry that the company will have to slow down its red-hot expansion pace of the past few years.

"Regulatory agreements are never a good thing," says Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners. "People are going to be concerned that this will slow their growth."

Shares of the company fell 13 cents to $33.75 in after-hours trading.