First of America Bank Corporation
First of America Bank Corporation
108 East Michigan Avenue
Kalamazoo, Michigan 49007
Fax: (616) 376-7273
Sales: $20 billion
Stock Exchanges: New York
SICs: 6021 National Commercial Banks; 6022 State Commercial Banks; 6035 Savings Institutions; 6712 Bank Holding Companies
First of America Bank Corporation is one of the Midwest’s largest bank holding companies and is ranked among the top 35 banking companies in the country based on net income, profitability, and size. Its 566 branch banks in Michigan, Illinois, and Indiana offer conventional checking and savings programs as well as numerous other financial services including mortgage loans, retail credit, and investment opportunities.
First of America traces its origins to 1863 when the first National Bank Act was passed by Congress and signed into law by President Abraham Lincoln. The law allowed for the chartering of national banks, which, for the first time in the country’s history, would issue standardized national bank notes as legal tender. At the time, chartering a national bank required capital ranging from $200,000 for larger cities to $50,000 for small towns. The new national banks were required to deposit one-third of their capital in bonds with the U.S. government, and in exchange they could circulate up to 90 percent of the deposited amount in standard bank notes. The new system, with its government-backed currency, restored national confidence in paper money and eventually helped the country sustain the economic hardships of the Civil War.
At the beginning of 1863, the city of Kalamazoo, Michigan, had two private banks and a population of around 6,000. By the end of the year a third bank, a national bank, was established. Latham Hull, a well-known and respected businessman in the community, was elected president of the First National Bank of Kalamazoo, which was established with a capital investment of $50,000. The bank’s first cashier was Thomas S. Cobb.
Throughout the 19th century, Kalamazoo’s First National Bank served a largely rural community by receiving deposits as well as making business loans and investments. By the turn of the century, First National had capital stock of $100,000 and estimated assets of $84,000. In a review of Kalamazoo’s banks, published in a June 1902 edition of the Kalamazoo Telegraph, First National’s facilities were praised as among the area’s most efficient and handsome, featuring marble partitions, mahogany woodwork, and “the most modern conveniences known to the banking world.”
In 1912 the First National Bank was merged with the Michigan National Bank, one of the two originally privately held banks in Kalamazoo that had later received national charters. Charles Campbell, Michigan National’s president, became president of the newly formed bank, which took the abbreviated name of First National Bank. Eight years later the bank’s name was again changed to First National Bank and Trust Company of Kalamazoo to reflect the fact that a trust department had been added to its business.
On February 14, 1933, at one of the lowest points of the country’s Great Depression, Michigan’s Governor Comstock ordered a statewide bank holiday in order to avoid the possibility of a nationwide banking collapse. Like the other three banks in Kalamazoo, the First National Bank and Trust was forced to close for about one week, during which time patrons relied on credit from merchants. One week later, the banks were allowed to reopen on a limited basis, accepting deposits and permitting their customers to withdraw no more than 5 percent of their deposits on Thursdays only. A national bank holiday was declared by President Franklin Roosevelt a few weeks later, but by April 1933 the First National Bank and Trust withstood examination, was declared solvent, and was reopened permanently.
In 1936 and 1939 First National expanded its market area by opening offices in the neighboring communities of Vicksburg and Galesburg, respectively, and as First National’s physical presence expanded so did its services. In 1940 bank loans previously extended only to area businesses were offered to individuals, and a personal loan department was established. During World War II First National and most other Michigan banks were kept busy with war bond sales, handling industrial payrolls, and maintaining ration banking accounts. With much of the nation’s male work force serving in the war, large numbers of women went to work outside the home, and in Michigan over 3,500 women were employed as bank tellers.
In the years immediately following the war, First National opened several more branches in nearby towns. During this time the bank also began to experiment with new systems and conveniences for its customers. In 1952 First National became the first bank in the country to offer a charge account plan to customers. The service became a model for other Michigan banks, and First National frequently hosted banking representatives sent to study the details of the plan and its record keeping procedures.
Furthermore, in 1959 the bank began making available in-plant financial services for the area’s larger industries and businesses, providing assistance with payroll and record keeping. Four years later, as it prepared to celebrate its 100th anniversary in 1963, First National maintained 18 offices in and around Kalamazoo. Computerization of banking transactions was established during this time, and in 1967 First National and American National Bank became equal partners in a venture to establish the Great Lakes Computer Center.
Although First National Bank had by 1970 grown into a successful business worth about $300 million, it had, in accordance with Michigan state law, been unable to make acquisitions beyond a 25-mile radius of Kalamazoo. When that law was repealed in 1971, and Michigan banks were allowed to develop into holding companies, First National was poised to take its business statewide. Acquiring banks in the Michigan towns of Calumet and Deerfield, First National became a holding company on March 20, 1972, and was renamed First National Financial Corporation. As the first statewide bank holding company in Michigan, First National had approximately $348,300,000 in assets.
Thereafter First National began rapidly acquiring banks throughout the state. Over the next five years, the corporation owned 12 banks and was ranked the seventh largest bank holding company in Michigan. In 1977, it became the state’s largest holding company when it joined forces with American Bankcorp, Inc. of Lansing, Michigan, in a merger that also represented the state’s largest. That year, in his report to shareholders, Chairperson James H. Duncan claimed he and newly retired American Bankcorp chair Joseph Foster had “accomplished much of what we set out to when our respective holding companies were formed. … We can now present to you a truly diversified investment in a $1.5 billion bank holding company that spans Michigan and serves most of the major cities and economic areas of our State.” The newly merged organization, renamed the First American Bank Corporation, reportedly had acquired a total of 18 commercial banks that ranged in size from $7 million to over $460 million in assets.
Until 1981, First American had expanded as far north as Michigan’s Upper Peninsula, but had limited its acquisitions to smaller community banks. It entered the larger Detroit market in 1981, when it acquired the Wayne Oakland Bank, reportedly worth $458 million in assets. By the end of that year four more Detroit banks were added to First American’s list, all part of the acquisition of Detroit’s struggling Northern States Bancorporation. Although the corporation reported an increase in assets to $3.6 billion that year, up from $2.5 billion in 1980, analysts observed that its earnings dropped 21 percent. Chairperson James H. Duncan held responsible the country’s economic recession, which hit Michigan’s auto and agricultural industries particularly hard during the early 1980s and therefore affected First American, the state’s largest agricultural lender.
The corporation took the name First of America Bank Corporation on January 14, 1983. At that time it had 28 affiliate banks and about $3 billion in assets, ranking as the fifth largest banking company in Michigan. During the early 1980s automatic teller machines were introduced at First of America’s banks, providing customers with banking services at all hours and convenient locations. In Kalamazoo: The Place Behind the Products, Massie and Schmitt observed that although in the bank’s early years President Latham Hull signed each bank note personally, and that such procedures had been replaced by plastic cards and computerized machines, the bank, through its commitment to improving services through technology, continued to give personalized attention to customers and communities. In 1985, when First of America’s chairperson James H. Duncan stepped down and Daniel R. Smith took over, First of America boasted nearly $5 billion in assets.
Although Executive Vice President Richard D. Klein told Barron’s at that time that First of America had “not felt it necessary or prudent to go out of our territory to seek loans or deposits,” expansion into Indiana and Illinois began in 1986. Perhaps the most important of its out of state acquisitions was completed on November 1, 1989, when First of America reportedly paid about $250 million, or 5.6 million shares of First of America common stock, for the Midwest Financial Group, Inc., based in Peoria, Illinois. Fending off a hostile takeover attempt from the Kansas City, Missouri-based Commerce Bancshares, management at the struggling Midwest considered First of America’s philosophies and practices compatible with their own and welcomed its offer. Midwest provided the holding company with 38 more offices and $2.3 billion in assets. As a result of the merger, First of America became the fifth largest bank in Illinois, and the largest in that state operating outside of Chicago.
From the period 1972 to 1987 First of America had acquired 58 banks. During this time the corporation attracted attention for its successful implementation of a “community banking” strategy, in which it preferred to acquire banks in slow, rural economies and turn them into smoothly operating First of America bank branches that would flourish when the economy turned around. Rather than attempting to gain the banking business of large companies and industries, such branches focused primarily on collecting deposits locally and lending conservative amounts of money to local businesses and residents. This strategy fostered a sense of community pride and involvement, which helped to maintain customer satisfaction while also making it possible for the corporation to avoid losses from risky foreign and commercial lending. In accordance with its conservative policies, the corporation would extend no more than $20 million in credit to any one party, an amount significantly lower than most banks. However, most decisions, including pricing for loans and deposit products, were left up to individual bank management, so that under its community banking strategy, First of America’s banks retained a significant degree of independence and autonomy.
While the decision-making process remained flexible for each First of America branch bank, the corporation began centralizing the record keeping of all its banks in response to inconsistencies and inefficiencies resulting from its many mergers and acquisitions. Consequently, a new Operations and Data Processing Center in Oshtemo, Michigan, featuring a network of 7,900 data terminals, was opened in 1991.
One of the reasons cited for First of America’s rapid growth and financial success in the late 1980s and early 1990s was the knowledge and experience of its management team. Dubbed “the savvy crew from Kalamazoo” by Bankers Monthly magazine in 1990, the group consisted of Smith, Klein, who had been promoted to vice chairperson, President and Chief Operating Officer Richard Chormann, and executive vice presidents John Rapp and Thomas Lambert. Most of the men had strong ties to Kalamazoo, having attended college there and having begun work for the First National Bank in the late 1950s and early 1960s. Firmly dedicated to the corporation’s community banking strategy, a program that had seen successful in both favorable and unfavorable financial conditions, they chose to ignore the trends toward riskier investments popular among many large financial institutions. Robert Bruce Slater noted in Bankers Monthly, that “by sticking to what they know best, community banking, the top management team at First of America is way out in front.”
Although the corporation’s net income and earnings per share dropped slightly in 1992, management contended that such losses reflected several one-time only acquisition costs incurred during the 1992 fiscal year rather than the overall performance of the corporation. As First of America approached the twenty-first century, its management regarded its foundation as strong for continued financial growth and a possible expansion of its geographic range.
Dubashi, Jagannath, “Prophet Without Honor,” Financial World, August 22, 1989, pp. 59–61.
Dunbar, Willis F., Kalamazoo and How It Grew … and Grew, Kalamazoo: Western Michigan University, 1969.
F. W. C. “Growing at Home,” Barron’s, February 4, 1985, pp. 48–49.
Gatton, T. Harry, A History of Michigan Banking, Lansing: Michigan Bankers Association, 1987.
Massie, Larry B., and Peter J. Schmitt, Kalamazoo: The Place Behind the Products, Windsor Publications, 1981, pp. 56, 254.
Slater, Robert Bruce, “The Savvy Crew from Kalamazoo,” Bankers Monthly, September 1990, pp. 21–28.
“Who Says Banks Are Dull?,” Financial World, March 15, 1982, pp. 51–52.
Willoughby, Jack, “Think Small, Grow Big,” Forbes, August 22, 1988, p. 96.