CoreStates Financial Corp
CoreStates Financial Corp
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, Pennsylvania 19101-7618
Fax: (215) 786-6545
Founded: 1803 as The Philadelphia Bank
Total Assets: $45.2 billion (1996)
Stock Exchanges: New York
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6022 State Commercial Banks; 6282 Investment Advice
CoreStates Financial Corp is a major, Philadelphia-based regional bank holding company whose basic banking services are concentrated in Pennsylvania, New Jersey, and Delaware. However, beyond these “core states,” the holding company also operates a national lending operation (Congress Financial) and is a leader in processing electronic transactions for other banks.
The core of CoreStates is what started out in 1803 as The Philadelphia Bank (later Philadelphia National Bank), though today’s CoreStates can claim roots that go back even further in American financial history. Well before there was a Constitution, the Continental Congress in 1781 granted the first commercial banking charter to The Bank of North America, which more than two centuries and a number of mergers later became part of the CoreStates family in 1990. Two other forerunners, barely younger than The Philadelphia Bank, were the 1804-founded Trenton Banking Company in New Jersey, and the Farmers Bank of Lancaster, which opened in that Pennsylvania city in 1810. Another venerable forerunner was The Pennsylvania Company for Insurances on Lives and Granting Annuities, which received an insurance charter in 1812 but in time became a major Philadelphia bank. And a more recent major CoreStates acquisition—Meridian Bancorp, which was merged in the spring of 1996—traces its ancestry to the 1828-founded Bank of Penn Township.
A New Country and a New Banking Community
The Philadelphia Bank began as the pet project of John Welsh. A self-made man who had become a prominent shipowner, Welsh nonetheless was still an outsider in the city’s mercantile establishment. Much of that establishment cherished both business and emotional ties to Britain (a good many continued to keep their books in pounds and pence) and tended to be staunch Federalists. Welsh and his friends in the new entrepreneur class were more inclined toward Jeffersonian ideals and argued that the existing Philadelphia banks were uninterested in serving small merchants or meeting the needs of the entire community. However, Welsh was shrewd enough to bring in as first president George Clymer, a signer of both the Declaration of Independence and Constitution and a well-connected member of the Federalist establishment. The new bank was organized in August 1803 at Welsh’s countinghouse with a capitalization of $1 million. It opened for business on September 19, 1803.
Clymer served as president until his death in 1813. For his part, John Welsh never held an executive post at the bank, but his influence was great. He remained a director all his life. When he died at 84 in 1854, a memorial resolution declared “to him is justly due the appellation ’the Father of the Bank.’ “The same resolution remarked that the “triumph” to which Welsh led the bank “was achieved over the powerful, bitter and uncompromising opposition against which it had to contend in its earliest history and for many succeeding years.”
When Welsh and Clymer opened their bank, there were already three well-established banks in the city. Robert Morris, who helped finance the Continental Congress and government during the Revolution and officially became its Superintendent of Finance in 1781, was instrumental in founding the Bank of North America (as noted, a future CoreStates partner) with the primary purpose of lending to the hard-strapped Continental Congress. The Congress granted a charter on December 31, 1781, and the bank began business a week later. Although Cornwallis had surrendered in October 1781, it took three more years of semi-hostilities, with the concurrent military and financial strain, before peace was secured.
Because the Continental Congress’s powers were so uncertain, a state charter was obtained in April 1782—not without considerable opposition in the Legislature. It was revoked in 1785, but the bank managed to stay in operation; it also threatened to move to more hospitable Delaware. After a new legislature was elected, a Pennsylvania charter was granted again in 1786, and the bank prospered while helping finance both government and business.
Once the Federal government was established under the Constitution, Treasury Secretary Alexander Hamilton pushed hard for a federally chartered Bank of the United States, patterned in many ways after the century-old Bank of England. Congress approved a 20-year charter and the bank was established in 1791 in Philadelphia, then the national capital as well as the preeminent financial center of the young nation.
Some rival merchants tried to form a Bank of Pennsylvania as an alternative to the Bank of North America in 1784 but settled for the right to receive stock in the older bank at the original issue price of $400 a share. (The North America directors had wanted to sell new stock in their successful enterprise for $500.) But in 1793 a new Bank of Pennsylvania was organized and over the next decade the three banks found they were all able to thrive nicely.
However, the trio was in no mood to welcome additional competition. For some time they refused to accept bank notes issued by The Philadelphia Bank and lobbied hard against a legislative charter which the newcomer was finally able to obtain in 1805.
The Philadelphia Bank also suffered from internal problems—not the least of which was its first cashier’s absconding to Georgia in 1805. However, the bank was able to survive with the support of prominent customers like E. I. DuPont. Once it gained strength, its directors, following the example of its rivals, paid generous dividends and established branches in outlying parts of the state. When the depression of 1819 hit, the bank found its latest dividend had been paid partially out of capital. John Read, a lawyer and long-time director who took over as president in 1819, introduced belt-tightening and managed to sell the money-losing branches. He was able to resume dividends by 1820 and, as the country expanded during the decade, began to develop correspondence relationships with banks in the South and West.
In the mid-1830s, the Second Bank of the United States—which had received a 20-year Congressional charter in 1816 but was denied renewal in a bitter battle with the Andrew Jackson Administration—tried to linger on locally and managed to get the Philadelphia banks to lend it $5 million, $1 million of which was subscribed by The Philadelphia Bank. Despite that, the Second Bank of the United States failed in February 1841, putting severe strain on the other banks of the city, all of whom suspended specie payment (exchanging their bank notes for gold or silver). Three large banks in the city collapsed, moving The Philadelphia Bank to the lead position. However, as prosperity returned in the mid-1840s, the bank stuck to conservative growth policies, allowing old rival Bank of Pennsylvania, which had almost collapsed in 1842, to surge back to top spot in the city.
In size, The Philadelphia Bank was also outpaced by the Farmers’ and Mechanics’ Bank. But its careful management was able to resume dividends in 1844 and uninterrupted payments have now been kept up for more than a century and a half. In 1852, the Philadelphia bankers formed a Board of Presidents. They aimed to establish a clearinghouse to facilitate transactions and make the true financial condition of each bank more visible. The effort was blocked by vigorous opposition from the Bank of Pennsylvania. When that bank finally failed in 1857, the others founded the Philadelphia Clearing House Association in 1858. And the next year The Philadelphia Bank moved into a fine new building (acquired at half price) that had been erected for the defunct Bank of Pennsylvania.
The Civil War Years
Once the Civil War started, Treasury Secretary Salmon P. Chase found Philadelphia financier Jay Cooke an able seller of public debt by going directly to the public instead of conservative bankers and a few wealthy families. Chase also got Cooke (whose later manipulations were to make him a leader in infamy) to use his publicity talents to promote passage in early 1863 of the National Bank Act, which established the federally printed greenbacks and authorized national banks. Cooke promptly organized the First National Bank of Philadelphia (another future CoreStates entity) which was awarded national charter Number One. The city’s established banks had to wait until August 1864 for the Pennsylvania legislature to authorize them to give up their state charters. Shortly thereafter, all the city’s banks switched—and The Philadelphia Bank became the Philadelphia National Bank.
Stated below are our CoreValues.... We value people. We will treat all people with respect and courtesy and create an environment that supports the attainment of their personal and professional aspirations. We value performance. Exceptional contributions by individuals and by teams are critical to CoreStates successful performance. Such contributions at all levels of the organization will be appreciated and recognized. We value diversity. We will actively promote an atmosphere of mutual respect for each other’s differences, recognizing that our diversity creates a breadth of perspectives which strengthens our organization. We value teamwork. Teamwork is critical to our success. Trust and mutual respect for each other’s responsibilities, functions, skills and experience are essential ingredients of teamwork. We value communication. Open, candid communication flowing in all directions will be the norm. We emphasize that listening is a crucial component of the communication process. We value integrity. We will strive to be recognized as an organization of the highest ethical standards and unquestioned integrity.
Both competition and growth continued during the rest of the century. In 1893, Fourth Street National, founded only a decade earlier, took the lead among Philadelphia banks. Meantime, Philadelphia National, also growing fast, passed old leader Farmers’ and Mechanics’. By 1900, Fourth Street and Philadelphia National were both more than twice as big as any of their rivals.
Into the Twentieth Century
Under Levi Rue, who had started as a stenographer in 1878 and was named cashier in 1894 and president in 1907, Philadelphia National actively pursued accounts in the Midwest, entered foreign banking, and participated in underwriting syndicates (chiefly with New York-based giants J.P. Morgan and Kuehn, Loeb). Correspondence banking was also beefed up aggressively. By 1914, Philadelphia National had edged out Fourth Street as the city’s biggest bank.
In 1900, Philadelphia National merged with City National—a small transaction, but notable as the bank’s first acquisition. Then, in 1918, it bought Farmers’ and Mechanics, ’ the onetime leader that had long been declining in strength, but which brought in important lines of business as fiscal agent for the city and state.
The late 1920s totally reordered the Philadelphia banking scene. In 1926, Fourth Street National, which had been losing ground since 1914 and was now No. 4, merged with No. 3 Franklin National. While Philadelphia National was still first in size, president Levi Rue (about to retire) considered the new “Franklin Fourth Street” a strong challenger and countered by negotiating a merger with No. 2 bank Girard National to form Philadelphia-Girard National. Then in 1928 the two newly merged organizations entered into a merger with each other, so that what in 1926 had been the four largest Philadelphia banks were now one under the Philadelphia National Bank name.
The Post-World War II Era
The bank sailed safely through the Depression (president Joseph Wayne had sharply cut back on brokers’ loans in 1929) and World War II. After the war, under the leadership of president Frederic Potts, management moved back toward John Welsh’s original goal of serving small merchants. A bank brochure conceded that, after 100 years of emphasizing wholesale banking, “the bank had long since lost touch with the small borrower and the small depositor.” In fact, only a few personal accounts were handled for very substantial customers.
In 1951, Philadelphia National absorbed Ninth Bank & Trust, which helped it“inaugurate an all-inclusive program of personal banking service, including neighborhood branches, complete trust services, small loans and special checking accounts.” Of course, “commercial loans continue[d] to represent the back bone of the bank’s business.” In 1953, the bank was able to make its first cross-county move (since the original branching days of 1809—1820), acquiring the First National of Conshohocken, and a number of other suburban acquisitions followed.
The Pennsylvania Company’s Rise to Prominence
By 1955, Philadelphia National had grown to a billion-dollar bank. But that same year it lost top place in Philadelphia through a merger of major rivals. The key player was another company which could point to John Welsh as one of its founders. Welsh was a leader of a merchant group that saw the need for a locally based insurance company and started soliciting subscriptions in 1809. The legislature rebuffed their initial effort but, with the approach of the War of 1812 adding to the urgency, a charter was granted in March 1812 for The Pennsylvania Company for Insurances on Lives and Granting Annuities. One seemingly minor clause in the charter authorized the insurance company to invest in any chartered or incorporated bank, a provision that was to assume vital importance a couple of decades later.
Capitalizing on these incidental investment powers, the company in 1829 and 1836 obtained charter amendments that broadened its powers to invest in government, municipal, and corporate securities and engage in trust activities. Trust operations soon became far more important than insurance activities. In 1853 the company was authorized to act as executor or administrator. Insurance activities played a progressively lesser role and in 1872 were discontinued altogether, leaving the Pennsylvania Company strictly a bank and trust company.
After considerable growth over the years, the Pennsylvania Company in 1929 merged the Robert Morris-founded Bank of North America, and the name of the nation’s first bank disappeared. Several more banks were acquired in the early 1930s and still others soon after World War II. Also in 1947 directors, realizing that the old “Insurances on Lives” title was, as a company history put it, “a befuddling name for a bank,” changed to the still lengthy but more descriptive The Pennsylvania Company for Banking and Trust. Then in 1955 the bank merged Jay Cooke’s old First National Bank of Philadelphia and as the new leader on the Philadelphia banking scene adopted the name of The First Pennsylvania Banking and Trust Company.
Philadelphia National tried to regain the lead in 1960 by merging the Girard Trust Corn Exchange Bank (no relation to the 1926-merged Girard National), but in 1963 the Supreme Court upheld the government’s anti-trust objections. Disappointed Philadelphia National soon snapped back with an aggressive branch building program. It also moved briskly into a number of new fields.
In 1965 it opened its CompuCenter in Carlisle, Pennsylvania, designed to provide data processing services for correspondent banks. The next year it became one of the charter members issuing the BankAmericard (later renamed VISA) credit card. And in 1967 it took advantage of more liberal regulatory attitudes to buy New York City-based Congress Factors. This unit later became known as Congress Financial. Factoring (buying a supplier’s receivables) would represent only one-sixth of business in the 1990s; the rest would be mostly asset-based lending. The Congress Financial of the 1990s would account for about one-tenth of CoreStates profits.
Forming a Holding Company in the 1960s
In 1969 Philadelphia National joined the move of most major banks to form a one-bank holding company, which provided more flexibility and diversification opportunities. It named the holding company PNB Corporation. Actually, Phila delphia National had been emphasizing its initials as a streamlined identifier since the mid-fifties and “PNB” blazed from the new headquarters building it opened in 1956. But officially, the bank and its branches retained the full name, and indeed carried it into the 1990s. And only in 1996 was it able to complete its “one bank, one name, one mission” aim, with a “CoreStates Bank” shingle at every branch.
Bank watchers found a downside to the PNB acronym in a state where the two major cities shared the same first letter. The potential for confusion had escalated when the fast-growing Peoples First National Bank & Trust became Pittsburgh National Bank in 1959. A head-on collision of initials was avoided when Pittsburgh National at first named its 1969-formed holding company Pittsburgh National Corp. Clarity was further served when in 1973 PNB Corp. renamed itself Philadelphia National Corp. However, informal use of the handy abbreviation PNB—and even PNC—continued. Meanwhile, in 1983—the year in which Philadelphia National was to adopt the CoreStates name for the parent corporation—Pittsburgh National followed the “initials” trend and became PNC Financial Corp. PNC went on to acquire a far more wide-spread group of banks and as of mid-1996 was easily the largest Pennsylvania-based banking company (ranked 13th nationally), some 60 percent bigger than runner-up CoreStates, whose $43.7 billion assets ranked it 21st in the United States at that time.
Expansion in the 1980s
Even so, Philadelphia National and its successor continued substantial growth. Once Pennsylvania authorized statewide banking in 1982, the bank quickly arranged to move into the central part of the state through a merger with National Central Financial, whose chief unit was Lancaster-based Hamilton Bank. The merger (which technically used the National Central charter) was completed in 1983 and the combined organization adopted the name CoreStates. Meantime, in 1982, Philadelphia Bank (Delaware) had been formed, primarily to take over credit card activities which had suffered under Pennsylvania’s rigid limits on permissible charges. Banking expansion into New Jersey, made possible by new laws in both states, came in 1986 with the acquisition of Trenton-based New Jersey National Bank.
Back in Philadelphia, CoreStates in 1990 acquired the venerable First Pennsylvania, whose nearly two-century history had so often paralleled Philadelphia National’s. Chairman and CEO Terrence Larsen bluntly conceded CoreStates was concerned by the prospect that “one of the strongest local institutions” would be purchased by an out-of-area competitor. He noted that of the eight large independent banks based in Philadelphia in the late 1970s, all but CoreStates had since been acquired, mostly by outsiders. First Penn also provided welcome strength in consumer banking and middle-market businesses.
In 1995, CoreStates considered a first inter-regional merger with Bank of Boston, but to the overwhelming relief of Wall Street analysts who saw a poor fit and considerable weaknesses, the talks were soon ended. On the other hand, there was strong acclaim for the merger with Meridian Bancorp, based in Reading, Pennsylvania, which was completed in April 1996, and brought with it $15 billion in assets and strengthened operations in the CoreStates area. While most CoreStates competitors in the Philadelphia market (including Pittsburgh-based PNC and Mellon) operated over a fairly wide area, CoreStates retail banking had not ventured beyond eastern and central Pennsylvania, central and southern New Jersey and northern Delaware by the mid-1990s.
However, in other endeavors, the CoreStates reach was far broader. Philadelphia National had started a foreign department in 1910, opened two Edge Act banks (which helped finance foreign trade) in the 1960s and by 1996 had some two dozen overseas branches and representative offices scattered from London and Hamburg to Tokyo and Sydney. It also had investments in a number of foreign financial institutions and “longstanding” business relationships with nearly 1,200 institutions. International business brought in about one-tenth of CoreStates profits.
In the United States, CoreStates leveraged an early interest in electronic banking technology to become one of the foremost “third-party” service providers. Philadelphia National first offered a 24-hour automated teller machine (ATM) in 1972 and in 1979 launched Money Access Service (MAC). Initially it provided an ATM network covering 13 banks, with PNB handling the processing. In 1992 CoreStates and three partners (a fourth joined later) formed Electronic Payment Services (EPS) as a broad-based, fast-growing processor of ATM, credit and debit card transactions. In 1996, EPS was working with MasterCard on a rechargeable “smart card” that could be used instead of cash for small purchases.
Also in the mid-1990s CoreStates’ wholly owned subsidiary QuestPoint operated units that handled check processing for other banks (J.P. Morgan became the first major customer), provided cash management services to some 70 major banks, and took care of the highly complex requirements of corporate credit card servicing. As more banks, including very large ones, outsourced all these specialized processing tasks (often to non-bank operators), CoreStates felt it had a niche business that would provide a dependable and increasing flow of fee income.
In May 1996, CoreStates named Rosemarie B. Greco to the post of company president, “making her the highest-ranking woman in commercial banking,” according to American Banker magazine. Greco asserted that her role at the bank would first focus on making the merger with Meridian work. While aware that in an era of mega mergers, diversification, and technological advances the banking scene was in flux as the 20th century came to a close, CoreStates remained a major, soundly based regional bank, an important player in a number of related financial areas, and a leader in technological services.
CoreStates Bank, N.A.; Congress Financial Corporation; CoreStates Bank International; Philadelphia International Investment Corporation; QuestPoint; CoreStates Investment Advisers, Inc.; Electronic Payment Services, Inc. (20%).
Chase, Brett, “CoreStates’ Incoming President to Be Top Woman Exec in Banking,” American Banker, May 28, 1996, p. 8.
“CoreStates Trims at Top,” The Star-Ledger (Newark, NJ), October 17, 1996, p. 42.
Elstein, Aaron, “CoreStates Transaction Shows Short-Selling’s Role in Buybacks,” American Banker, December 2, 1996, p. 29.
Larsen, Terrence A., CoreStates Financial Corp: Drawing Strength from History, Community and Diversity, New York: Newcomen Society, 1993.
Perkins, Edwin J., American Public Finance and Financial Services 1700-1815, Columbus: Ohio State University Press, 1994.
Since 1803: A Look at Executive Leadership, Philadelphia: Philadelphia National Corp brochure, 1976.
The Bank, 1781-1976, Philadelphia: First Pennsylvania Bank, 1976.
—Henry R. Hecht