National City Corp.
National City Corp.
Incorporated: 1845 as City Bank of Cleveland
Total Assets: $2.91 billion (1994)
Stock Exchanges: New York
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6022 State Commercial Banks; 6035 Savings Institutions Federal Chartered
With more than $32 billion in assets and over 600 branch offices in Ohio, Kentucky, and Indiana, National City Corp. is the third-largest bank holding company headquartered in Ohio and ranks among the top twenty banks in the United States in terms of assets. While the 150-year-old institution grew rapidly in the late twentieth century era of bank consolidation, its leaders professed no urge to build National City into a nationwide entity. Acquisitions have therefore focused on garnering “super-regional” status and maintaining independence. Reflecting its long-term, ongoing shift from commercial to retail banking, National City hoped to boost market share within its Ohio, Kentucky, Indiana, and (beginning in 1995) Pennsylvania markets by expanding its auto leasing and credit card businesses and boosting phone, computer, and video banking technology.
The company was founded in 1845, shortly after the Ohio Bank Act of that year brought a measure of stability to the state’s banking system. Cleveland had endured three years without a bank of any kind and the City Bank of Cleveland, as National City Bank was initially known, was the first to be chartered under the new law. Ruben Sheldon and Theodoric C. Severance, both of the Fireman’s Insurance Company, led the new institution. Formerly president of Fireman’s Insurance, Sheldon assumed those same duties at City Bank. Severance, formerly secretary at the insurance company, started his career in banking as a teller.
City Bank opened for business in July, providing its clients with secured paper money, a safe place to deposit savings, and a source of funds for commercial loans. Its function as a lender supported the oil, iron, steel, shipping, and railroad industries that would be vital to Cleveland’s development as an important Midwestern city. During its first five years in operation, the City Bank’s capital stock tripled from $50,000 to $150,000. Lemuel B. Wick served as president in the 1850s, during which time the bank’s growth propelled two moves to successively larger headquarters.
Rampant inflation during the Civil War crystallized formerly divided opinions on a unified currency structure, prompting the 1863 ratification of the National Banking Act. The new law created a national currency secured by United States bonds, as well as a new system of federally regulated banks. These “national” banks were required to purchase bonds worth up to one-third of their capital stock and to deposit those bonds with the U.S. treasury as security for a new system for national currency. City Bank waited until its original state charter expired in 1865 before complying with the new law and becoming National City Bank that year.
W. P. Southworth succeeded Lemuel Wick as president upon the latter’s death in 1873. In 1889 long-time employee John F. Whitelaw became president. A 1995 company history credited Whitelaw with establishing the conservative character that would continue to distinguish National City Bank throughout its history.
National City Bank grew and profited throughout the late nineteenth century, but remained one of the smaller commercial banks. Assets rose steadily, passing the $1 million mark in 1881, $1.5 million in 1890, and $2 million in 1901. This consistent rate of growth would have been admirable during a normal period, but was especially extraordinary given the severe panic (or national recession) of the mid-1890s, when almost 500 banks failed nationwide.
Whitelaw died in 1912 after serving the bank for more than half a century. His abrupt departure opened the door to a takeover by James M. Hoyt, who purchased a total of 1,000 shares (including Whitelaw’s 842) to gain control of National City. The new stockholder moved the business, increased its capital stock to $500,000, expanded the board of directors from 5 to 25, and got Charles A. Paine elected president by the end of the year. National City opened an imposing new headquarters in 1913, replete with tile floors, marble, and luxurious fixtures. Rapid asset growth during this period seemed to reflect the bank’s new image, doubling from $2.5 million in 1912 to $5.7 million in 1914. By that time, National City Bank ranked fourth among Cleveland’s banks in terms of combined capital and surplus, and sixth in deposits and total assets. Nevertheless, a centennial history characterized the institution at this juncture as “plodding along nicely, but down among the minors,” having not participated in the wave of mergers and acquisitions that characterized this period in banking history.
In an effort to decentralize and stabilize the nation’s monetary system (which was then concentrated in New York City) the U.S. government ratified the Federal Reserve Act in 1913, creating a system of 12 regional banks. This new organization bolstered the public’s confidence in national banks by requiring all, including National City, to deposit three percent of their capital and surplus with the regional Reserve bank for safekeeping. Although many bankers initially opposed the creation of the Federal Reserve, the agency helped prevent panics and runs on banks, gave the federal government more control over the country’s money supply, made commercial credit more available, and inhibited venturesome banking practices.
National City grew quickly during World War I, and shared its good fortune by purchasing $100 million in U.S. bonds in support of the country’s war effort. Assets increased from $4.5 million in 1913 to $15.5 million in 1919. Bank President Paine was elected to the newly created title of CEO and Chairman in 1918, and Hoyt V. Shulters, formerly of East Ohio Gas Co., advanced to the presidency.
Assets nearly doubled to $30.6 million by 1925 and totaled about $40 million by the end of this prosperous decade, when National City ranked second among Cleveland’s national banks and fifth overall. The institution’s conservative management sheltered it from the financial crisis of October 1929 and the devastating depression that followed. While over 30 percent of America’s banks failed from 1929 to 1933, National City fared considerably better: its assets only declined 25 percent, to $29 million. In fact, National City was Cleveland’s only major bank to maintain full access to accounts and was first to reopen after the March 1933 bank holiday.
The company also endured an unexpected management shakeup during this period. In 1932 President Hoyt Shulters died, and was replaced on an interim basis by Charles B. Reynolds. Sidney B. Congdon, who had served as a national bank examiner for the Cleveland, Pittsburgh, and Cincinnati region throughout the fiscal crisis, was elected president of National City in 1933. His long list of credentials, including Chief Examiner of the Reconstruction Finance Corporation, further bolstered National City’s reputation for stability. The bank quickly resumed its rapid growth pattern, with assets ballooning from $35 million in 1932 to $475.5 million by 1944.
Like many other national commercial banks, National City began to move decisively into full-service retail banking in the post-World War II era, adding a trust department, personalized checks and check sorting, home service representatives, and 24-hour depository services at each branch. The company also began investing in automation, purchasing its first computer in 1959. By the 1960s, National City had 24 branch offices and had crossed the $1 billion asset mark.
The bank took its first step toward becoming a major regional player in 1973, when it created National City Corp. as a holding company and made National City Bank its primary subsidiary. This new corporate structure enabled the company to bypass some of the most stringent banking regulations and begin what it called a “cautious, well-planned strategy of acquiring affiliate banks.” The charge was led by Julian McCall, who had begun his banking career at First National Bank of New York (later Citibank) in 1948 and joined National City as a first vice-president in 1971. He advanced to president and was elected to the board of directors within five months, and became chief executive in 1978 and chairman a year later. McCall guided National City Corp. through an intense series of in-state acquisitions. From 1974 to 1984, National City acquired eleven relatively small ($300 million to $750 million asset) banks, thereby increasing its asset level to about $6.5 billion. Unlike many of its competitors, National City maintained its affiliates’ historical names and autonomous marketing programs, forming a federation of banks with unified back office operations.
Throughout this period of expansion, however, the Cleveland bank remained unable to break into Ohio’s vital Columbus and Cincinnati markets. Then, in 1984, National City burst onto the state capital scene through the $315 million purchase of Columbus’s BancOhio Corp. This union of Ohio’s second- and third-largest banks created a $12.5 billion asset powerhouse that was 30 percent bigger than its next largest rival, BancOne. BancOhio also gave National City a leading 35 percent share of Columbus’s deposits. The combination of National City’s strength in commercial banking with BancOhio’s retail forte more than doubled the resulting entity’s number of branches and expanded its geographic reach to 53 of Ohio’s 88 counties, or over 80 percent of the state’s population. While McCall acknowledged that these increases were important, he characterized the union as an anticipation of the industrywide shift to interstate banking that occurred throughout the late 1980s. By 1990, federal strictures against interstate banking became practically irrelevant. The merger with BancOhio not only shielded National City from acquisition by an out-of-state bank, but also set the Cleveland institution up as a regional leader.
Aside from these positives, however, Forbes pointed out a few drawbacks to the union, including BancOhio’s marginal profitability in the early 1980s (.32 percent, compared to a peer group average of .8 percent), and the fact that National City’s long-term debt doubled to $200 million with the acquisition. The new parent addressed these problems quickly, closing 70 branches and furloughing 700 full-time employees in an effort to cut costs by reconciling overlapping operations. By 1985, BancOhio contributed $30 million of National City’s $108 million in earnings, and helped it become Ohio’s second bank to be listed on the New York Stock Exchange in 1986. During this period, cautious Midwestern banks like National City began to attract analysts’ attention because many did not buy into the risky lending and investment strategies that ruined so many financial institutions in the 1980s.
In the meantime, National City had shored up its internal operations through joint ventures in electronic banking, including charter membership in Money Station, Ohio’s largest system of automatic teller machines, as well as point-of-sale debit cards. The company forged strong ties with its locales by creating National City Community Development Corp., a for-profit development corporation that infused low and moderate income neighborhoods in the bank’s key metropolitan markets with almost $50 million from 1982 through 1995. This and other community-conscious efforts earned the bank an outstanding rating from the Office of the Comptroller of the Currency for complying with the Community Reinvestment Act.
J. Robert Killpack, National City Corp. president since 1980, succeeded Julian McCall upon his 1986 retirement. Kill-pack only served in that capacity until the fall of 1987, when he retired and was succeeded by Edward B. Brandon. Called “the most popular executive at National City Corp.” in an August 1986 article in the Plain Dealer, Brandon had earned his undergraduate degree in economics at Northwestern University and an MBA from the Wharton School of Banking and Finance. He moved up through National City Bank’s ranks, becoming president of National City Corp.’s largest affiliate in 1984 and CEO one year later. He advanced to the parent company’s presidency in 1986, and had a brief wait in the wings until Killpack’s retirement. According to an October 1987 article in the Plain Dealer, Brandon’s “one overriding priority” was “an interstate bank merger to get back into the running for status as a super-regional bank.”
In pursuit of that goal, Brandon engineered several major acquisitions, both within and across Ohio’s borders, in the late 1980s and early 1990s. One of the most significant of these came in 1988, when National City beat out four other bidders to win the hand of $6 billion (asset) First Kentucky National Corp. of Louisville. Like the BancOhio acquisition, the addition of First Kentucky boosted National City’s size (making it America’s eleventh-largest bank, according to market capitalization) and helped it remain independent of the even larger national banks then moving into the Midwest.
Nevertheless, the acquisition drew criticism from some industry analysts and stockholders because it diluted National City’s stock by 11 percent during a “banking bust” that Fortune magazine characterized as the industry’s most difficult period since the Great Depression. Over one thousand American banks failed from 1985 to 1992. Non-performing loans and correspondingly high loan loss provisions during this period battered National City’s net. Earnings flattened, then started to erode in 1989, as non-performing assets rose to peak at $468 million in 1991.
Brandon incurred more criticism that year when, after eight months of behind-the-scenes negotiations, National City pursued a hostile, highly publicized takeover of Ameritrust Corp., another Cleveland bank. National City was soon joined by Society Corporation, NBD, and BancOne in competition for Ameritrust. Society won the rivalry in September, and the rebuffed National City acquired Merchants National Corp. of Indianapolis in October. In the two months that followed, Wall Street registered its disapproval, driving the bank’s stock down by 20 percent.
While Brandon continued to defend his acquisition strategy, he acknowledged some of the criticism, telling Brian Hellauer of American Banker that “We had acquired an awful lot of banks in a ten-year period, and in the process had gone from one of the most efficient banks in the industry to where we were at best mediocre.” National City hired top consulting firm McKinsey & Co. to help guide a two-year reorganization dubbed the “Vision” plan. Economizations—especially at BancOhio, where costs ran up to 20 percent higher than National City’s other subsidiaries—helped cut from $65 million to $120 million in annual operating costs. Between 1992 and 1994, all of the holding company’s major affiliates took on the National City name, presenting a unified marketing front. National City also continued to decrease its dependence on interest income (already battered by loan losses) and focus more strongly on fee income. Interest income declined 24 percent from 1990 to 1993, while non-interest income increased by 48 percent. During this same period, National City’s overall net grew by over 72 percent, from $249 million to $430 million. By early 1993, the company’s stock price reflected these improvements, having recovered 71 percent from its late 1991 low. Brandon had repudiated his detractors by mid-1995, having boosted National City’s stock 178 percent from 1985 to 1995 and increased assets from $14 billion to $35 billion.
David A. Daberko succeeded Brandon as president of National City Corp. in 1993 and CEO in 1995. The Phi Beta Kappa graduate of Denison University with an MBA from Case Western Reserve University had made his entire professional career at National City, advancing through the investment and corporate banking ranks of National City Bank. Upon his ascension to the presidency in 1993, Daberko asserted that “There will always be strong regional banks, and we will be one of them.”
Although Daberko had previously maintained that market share gains would fuel National City’s growth in the mid-1990s, the $2.1 billion acquisition of Pittsburgh’s Integra Financial Corp. announced in August 1995 pushed the Cleveland bank over the $50 billion asset mark and into the list of the nation’s top twenty banks. Faced with a new chorus of criticism, Daberko quickly announced a 29 percent cut in Integra’s staff and rationalization of its 260 western Pennsylvania branches. If the new CEO continued to follow in his predecessors’ footsteps throughout the late 1990s, National City could be expected to enjoy the double-digit earnings increases forecast for Midwest banks in the years leading up to the turn of the twenty-first century.
Buckeye Service Corp.; Circle Equity Leasing Corporation of Michigan; Circle Leasing Corp.; Gem America Realty & Investment Corp.; Madison Bank & Trust Co.; Merchants Capital Management, Inc.; Merchants Mortgage Corp.; Merchants Service Corp.; Money Station, Inc.; Mortgage Company of Indiana, Inc.; National Asset Management Corp.; National City Bank; National City Bank, Ashland (99.5%); National City Bank, Columbus; National City Bank, Dayton; National City Bank, Indiana; National City Bank, Kentucky; National City Bank, Northeast; National City Bank, Northwest; Naional City Bank, Southern Indiana; National City Capital Corp.; National City Community Development Corp.; National City Credit Corp.; National City Financial Corp.; National City Holding Co.; National City Investments Capital, Inc.; National City Life Insurance Co.; National City Mortgage Co.; National City Processing Co.; National City Trust Co.; National City Venture Corp.; NC Acquisition, Inc.; NCC Services, Inc.; Ohio National Corporation of Columbus; Second Premises Corp.
Andrews, Greg, “Merchants Deal ‘a Blockbuster’,” Indianapolis Business Journal November 4, 1991, p. 1.
Bennett, Robert A., “Brandon Dreams Expansion,” United States Banker, March 1992, p. 27.
Benton, Elbert J., A Century of Progress: Being a History of the National City Bank of Cleveland from 1845 to 1945, Cleveland: National City Bank, 1945.
“Buckeye Banker,” Barron’s, November 24, 1986, p. 54.
Byrne, Harlan S., “National City Corp.,” Barron’s, September 17, 1990, p. 56.
Foster, Pamela E., “National City Sharpens Ax,” Business First Columbus, August 12, 1991, pp. 1,9.
Fuller, John, “BancOhio, National City Wed,” Cleveland Plain Dealer, September 29, 1984, p. 3B.
_____, “A Tale of Two Bankers,” Cleveland Plain Dealer, September 30, 1984, p. IE.
_____, “Banks Map Big Future with Merger,” Cleveland Plain Dealer, October 2, 1984, p. IE.
Hellauer, Brian, “National City’s Vision: A Strong, Independent Regional Bank,” American Banker, November 8, 1993, p. 1A.
Hill, Miriam, “National City Chief Pushes Bid,” Cleveland Plain Dealer, May 16, 1991, p. 1A.
_____, “Mergers Help Bank Industry,” Cleveland Plain Dealer, May 22, 1991, p. 1G.
_____, “National City to Slash Costs, Jobs,” Cleveland Plain Dealer, August 14, 1991, p. 1H.
_____, “National City to Buy Ohio Bancorp,” Cleveland Plain Dealer, April 3, 1993, p. 1C.
_____, “National City CEO Passes the Baton,” Cleveland Plain Dealer, July 25, 1995, p. 1C.
_____, “National City Becomes 17th Largest Bank with Purchase,” Cleveland Plain Dealer, August 28, 1995, p. 1A.
Klinkerman, Steve, “National City’s Brandon Is Winning Bet in Indiana,” American Banker, March 23, 1993, pp. 1,13.
_____, “It’s Back to Basics for National City Chief,” American Banker, November 29, 1993, p. 4.
Mahoney, Mike, “Brandon Is Contender,” Cleveland Plain Dealer, August 5, 1986, p. 1D.
_____, “Deregulation Will Test New Leaders of Banks Here,” Cleveland Plain Dealer, October 13, 1987, p. IE.
“National City Bank 150th Anniversary,” Cleveland Plain Dealer, May 17, 1995, p. S1.
Serwer, Andrew E., “Banking Boom in the Heartland,” Fortune, July 18, 1988, p. 21.
Shingler, Dan, “Same Bank, Two Views,” Crain’s Cleveland Business, p. 11.
Tippett, Karen, “National City: Noallrills Banking,” FW, August 21, 1990, p. 19.
Weberman, Ben, and John Heins, “The Doughnut or the Hole,” Forbes, December 17, 1984, p. 94.
—April Dougal Gasbarre