Investors in Republic First Bancorp Inc. who oppose chief executive Vernon Hill’s expansion plans on Wednesday cheered an appeals court ruling that favored a rival board faction led by Hill’s predecessor, Harry Madonna, in a fight for control of the 33-branch, Philadelphia-based bank.
The decision by a three-judge Third Circuit federal appeals court panel in Philadelphia overturns Judge Paul Diamond’s actions, which kept Hill in power with the support of just two other directors on the seven-member board and called for an appointed custodian to set up elections that could settle a board fight between the two groups.
Wednesday’s decision directs Diamond to draft a new order that would let Madonna’s group take over the direction of the company and add to its majority by filling a vacant seat, in advance of this year’s delayed shareholder meeting and board elections, which remain unscheduled.
It was the latest step of a months-long fight that has enriched lawyers in Philadelphia, New York and elsewhere at shareholders’ expense. A spokesman for Hill had no immediate comment on the court decision.
After an investor-led call for spending cuts, higher profits and a possible sale of the Philadelphia-based bank, the board last spring was deadlocked, 4-4, between Hill and Madonna backers — until director Theodore Flocco, a Hill ally, died in May. Madonna and his three allies then used the one-vote majority that Flocco’s death gave them in an attempt to unseat Hill, which Diamond blocked in favor of a custodian-managed process designed to let shareholders decide which faction should have a majority.
But the appeals court ruled that the Madonna group had acted rightly, and Diamond’s intervention went beyond what the law required. Appointing a custodian should be done “only in an extreme case,” according to the decision, written by Judge Kent Jordan. ”This is not such an extreme case,” he added, “though its facts are dramatic.”
Diamond’s action — “no doubt well-intended” — lacked “the required caution, circumspection, or justification for such a drastic step,” Jordan continued. In seizing control, Madonna’s group followed the bank’s own bylaws, he concluded: “They were and are entitled” to replace Flocco and grant themselves a clear board majority.
That would give the Madonna group the power to change leaders and direction and to sell the bank.
Madonna supporters include Cooper Health chairman, insurance executive and Democratic Party leader George Norcross, a leader of a group that owns nearly 10% of the bank, and Greg Braca, a former TD Bank executive and potential Hill replacement.
The Norcross and Braca group said in a statement that following the appeals court ruling, Hill should be placed on “administrative leave” as Republic auditors review contracts granted under his administration.
At his previous banks, Hill awarded work worth millions to his wife’s design firm and other family-related businesses as a means to expand rapidly and ensure quality control, even as those decisions attracted scrutiny from regulators and criticism from investors during periods when profits and share prices were down.
Hill’s innovations — including siting branches on highly visible corners, extending hours of operation, setting up rapid indoor and drive-up teller lines, and allowing pets in branches — were copied by larger banks in the 1990s after Hill’s Commerce Bank gained customers at their expense.
But critics say those features are of less value as customers shift online. Indeed, Republic’s stock price languished, compared to other banks, under Hill’s management. Hill has lately proposed spending more on technology.
Hill, a Republican who backed successful politicians of both parties, and Norcross, with close connections to Democrats in Trenton and Washington, were allies in the 1990s and early 2000s. Hill’s Commerce for a time handled Norcross’ municipal and corporate insurance business and Norcross served as Commerce’s vice chairman. They fell out over directors’ response to federal regulators’ probes of Hill’s banking practices in the mid-2000s.
Hill, of Moorestown, previously started and ran Commerce, which opened over 400 branches in metro New York, Philadelphia and Washington from offices in Marlton, and MetroBank UK in England. He left both of those banks after coming under pressure from regulators. After Hill’s ouster, Commerce was sold to Braca’s former employer, Canada-based TD Bank, in 2007.