National City Corp.

Regulatory scrutiny

The Wall Street Journal reported on June 6, 2008, that National City Corp. had entered into a memorandum of understanding with federal regulators, effectively putting the bank on probation. Terms of the confidential agreement, entered into a month earlier with the Office of the Comptroller of the Currency (which regulates nationally chartered banks), were not known.

On June 10, 2008, National City Corp. confirmed that it had reached agreements with regulators "regarding capital levels, risk-management practices and other aspects of its business." The company stated that there had been no material developments in these areas since these memorandums of understanding were signed in April and May 2008.

History

National City Bank was founded on May 17, 1845, when a group of Cleveland businessmen pooled $50,000 to organize the City Bank of Cleveland, the first bank opened under the Ohio Bank Act of 1845 in a small town with no gas, electricity, public waterworks, or railroad. Reuben Sheldon and Theodoric C. Severance, formerly of the Fireman's Insurance Company, organized The City Bank of Cleveland. The city's only bank at the time, opened its doors to the public at No. 52 Superior Street.

In April 1973, National City Corporation was formed as the holding company for the National City Bank of Cleveland to allow the company to expand outside of Cuyahoga County through the purchase of other banks.

In February 1992, National City announced that all member banks would change over to operate under the National City name within three years. Up to this time, all acquired banks had continued to operate under the same name that they were using at the time of their acquisition. This change would allow a unified brand through the company and simplify advertizing.

Expansion in Ohio

In February 1975, National City Corp. announced that it was seeking to acquire the assets of the failed Northern Ohio Bank from the Federal Deposit Insurance Corporation. The acquisition was completed by March 1975.

In March 1975, National City Corp. announced that it was acquiring the Cleveland-based Bank of Cleveland for an undisclosed amount. The acquisition was completed in January 1976.

In December 1975, National City Corp. announced that it was acquiring the Elyria-based First National Bank of Elyria for $4.6 million in cash. The acquisition was completed in August 1976.

In April 1977, National City Corp. announced that it was acquiring the Dayton-based First National Bank of Dayton for $40 million.

In July 1979, National City Corp. announced that it was acquiring the Norwalk-based Huron County Banking Company for an undisclosed price. The acquisition was completed in May 1979.

In September 1981, National City Corp. announced that it was acquiring the Akron-based Goodyear Bank for an undisclosed price.

In December 1981, National City Corp. announced that it was acquiring the Toledo-based Ohio Citizens Bancorp for $64 million in cash and notes.

In March 1984, National City Corp. announced that it was acquiring the Columbus-based BancOhio Bancorp for $310 million in stock and cash.

In May 1986, the troubled Cleveland-based Broadview Savings & Loan Company announced that it was selling 18 of its 38 offices to National City for $24 million.

In June 1989, National City Corp. announced that it was acquiring the insolvent Dayton-based Gem Savings Association without the assistance of Federal aid. The acquisition was completed in January 1990.

In April 1993, National City Corp. announced that it was acquiring the Youngstown-based Ohio Bancorp for $200 million in stock and cash and integrating it into National City Bank, Northeast. The acquisition was completed in October 1993.

In February 2004, National City Corp. announced that it was acquiring the Cincinnati-based Provident Financial Group, with it's lead bank Provident Bank and offices located in Southwestern Ohio and Northern Kentucky, for $2.1 billion in stock. The acquisition was completed in July 2004.

In June 2004, National City Corp. announced that it was acquiring the Wooster-based Wayne Bancorp for $180 million in cash. The acquisition was completed in October 2004.

Expansion in Kentucky

In January 1988, National City Corp. announced that it was acquiring the Louisville-based First Kentucky National Corporation for $660 million in stock.The acquisition was completed in July 1988 and it gave National City a strong presence in Kentucky plus a token presence in southern Indiana.

In February 1993, First Kentucky National Corp., a wholly own subsidiary of National City Corp., was renamed National City Bank Kentucky.

In January 1995, National City Corp. announced that it was acquiring the Lexington-based United Bancorp of Kentucky Inc. for $63 million in stock.

Expansion in Indiana

In October 1991, National City Corp. announced that it was acquiring the Indianapolis-based Merchants National Corporation for $604 million in stock. The acquisition was completed in May 1992.

In July 1994, National City Corp. announced that it was acquiring the Kokomo-based Central Indiana Bancorp for $48 million in stock.

In January 1998, National City Corp. announced that it was acquiring the Fort Wayne-based Fort Wayne National Corporation for $800 million in stock. The acquisition was completed in March 1998.

Expansion in Pennsylvania

In August 1995, National City Corp. announced that it was acquiring the Pittsburgh-based Integra Financial Corporation for $2.1 billion in stock. The acquisition was completed in May 1996 for $2.4 billion in stock.

Expansion in Michigan

In December 1997, National City Corp. announced that it was acquiring the Kalamazoo-based First of America Bank Corporation, with offices in Michigan, Illinois and Indiana, for $7.1 billion in stock. The acquisition was completed in March 1998.

Expansion in Missouri

In November 2003, National City Corp. announced that it was acquiring the St. Louis-based Allegiant Bancorp for $475 million in stock. The acquisition was completed in April 2004 for $500 million in stock.

Expansion in Florida

In July 2006, National City Corp. announced that it was acquiring the Fort Pierce-based Harbor Florida Bancshares for $1.1 billion in stock. The acquisition was completed in December 2006.

In July 2006, National City Corp. announced that it was acquiring the West Palm Beach-based Harbor Fidelity Bankshares for $1 billion in stock. The acquisition was completed in January 2007.

Expansion in Illinois and Wisconsin

In May 2007, National City Corp. announced that it was acquiring the Clarendon Hills-based MAF Bancorp, with offices in Chicago and Milwaukee, for $1.9 billion in stock. The acquisition was completed in September 2007.

Recent transactions

National City went on an acquisition spree from 2004 through 2008, headed by its $2.1 billion purchase of Cincinnati-based Provident Financial Group. Provident Financial Group's banking arm, Provident Bank, specialized in warehouse lending facilities whereby it extended commercial credit lines to mortgage banking firms so that the mortgage banking firms could make loans to their customers and either keep those loans or sell them in the secondary market to government-sponsored enterprises (GSEs) or other institutional investors. After the acquisition, National City renamed the division National City Warehouse Resources. The warehouse lending division was a profit center and did not contribute to the Bank's downfall. In addition, in 2005, National City acquired Allegiant Bancorp to secure a presence in the St. Louis, Missouri market. In 2006, they acquired Fidelity Bankshares Inc. for an estimated $1 billion deal that was half cash, half stock. The bank also acquired Harbor Florida Bancshares Inc. through a $1.1 billion stock deal, with both acquired banks located in Florida; these acquisitions gave National City $7.4 billion of assets and 94 branches in Florida.

On the other side of the ledger, National City sold to Bank of America its 83% stake in National Processing Company, which earns fees from processing merchant credit card transactions. The sale of San Jose, California based First Franklin origination franchise and related servicing platform to Merrill Lynch & Co. was completed on December 30, 2006 for $1.3 billion.

In May 2007, National City announced the purchase of MAF Bancorp Inc., the holding company for MidAmerica Bank. As of June 30, 2006, MidAmerica Bank had the 9th-ranked market share in the Chicago metropolitan area (Chicago-Joliet-Naperville) at 2.18%. Following the merger using the same dataset, the combined National City and MidAmerica Banks were expected to rank 4th in the Chicago market with a market share of 3.96% and deposits of more than $10 billion.

Strategic changes and subsequent downfall

In the late 1990s, under former CEO David Daberko, National City began a strategy to increase the yields on it assets. In 1999, the company purchased First Franklin Financial Corp., a large subprime mortgage lender. Instead of selling the loans, as most mortgage companies do, National City retained many of the loans to enhance its net interest spreads. It also aggressively originated loans brought to the company by third-party mortgage brokers, as well as originating a large number of home equity loans. The amount of residential mortgage loans grew rapidly and came to exceed the level of commercial loans. By 2003, National City was the sixth-largest mortgage lender in the country. The company did sell its First Franklin Financial subsidiary in December 2006, but retained a large volume of loans that had been originated by the subsidiary. Management failed to recognize the extent of problems in the subprime market and did not take sufficient aggressive actions to reduce its real estate mortgage portfolio. National City subsequently made several other strategic mistakes, including buying back $3 billion of its stock in early 2007, thereby reducing its level of capital, and expanding into the Florida market in late 2006, just before the real estate market there went into a severe decline. As the subprime mortgage market began going into free fall in mid-2007 and continued into 2008, loan losses mounted. In the third quarter of 2007, the company suffered a net loss of $19 million. By the second quarter of 2008, the company had a net loss of $1.8 billion.

Acquired by PNC

On October 9, 2008, The Wall Street Journal ran an article citing unnamed sources indicating that National City was in talks with several other banks for a possible sale. The article named Pittsburgh-based PNC Financial Services, Toronto-based Scotiabank, and Minneapolis-based U.S. Bancorp as the leading contenders. A spokesperson for National City declined to comment on the report. On October 24, 2008 PNC announced that it had finalized a purchase agreement for National City.

The acquisition was a stock purchase transaction to be completed before the end of 2008. National City would be merged into PNC, and the National City brand would be dissolved. The deal was approved by shareholders of both banks on December 23, 2008 and the acquisition was completed on December 31.

The deal made PNC the largest bank in Pennsylvania, Ohio, and Kentucky, as well as the second largest bank in Maryland and Indiana. It greatly expanded PNC's presence in the Midwest, as well as entering PNC into the Florida market. Pittsburgh, Louisville, Kentucky, and Cincinnati were the only three markets before the acquisition in which both banks had a major presence.

In the case of Pittsburgh, the two banks had significant overlap, to the point that it would pose antitrust issues in Western Pennsylvania, since both banks had the top two market shares in that region. As a result, the United States Department of Justice required PNC to sell off 50 National City branches in the Pittsburgh area and 11 more branches in and around Erie to competitors. On April 7, 2009, PNC reached a deal with Buffalo-based First Niagara Bank to sell 57 of the branches; First Niagara officially took over those branches on September 8, after the signs were changed over from National City during that year's Labor Day Weekend. The branches not purchased by First Niagara were the four in Crawford County, Pennsylvania that PNC was still required to divest: one branch in Titusville was sold to The Farmer's National Bank of Emlenton, with the other three (one in Conneaut Lake, and the other two in Meadville, including the branch inside Wal-Mart) were sold to Marquette Savings Bank.

Although employees at the branches being sold off were retained, there were still heavy layoffs at National City's headquarters in Cleveland. PNC originally stated that 5,800 employees would be laid off corporate-wide across the new organization. In actuality, over 15,000 employees were laid off, all of them from the previous National City, with PNC losing customer and deposit market share in the Cleveland area as a result. National City Bank had been the largest bank in the Cleveland market and held the largest deposit share of all of its competitors. After the PNC merger, crosstown rival KeyBank became the largest bank in Cleveland, gaining a significant share of deposits once held by National City; KeyBank would later buy First Niagara and move into PNC's home market of Pittsburgh with the former National City branches PNC had to sell off.

The National City name lasted into 2010, since it would take PNC some time to integrate the two banks together. Despite the branch closures and the sale of others to First Niagara and Emclaire, PNC still ended up with a 46% market share in Pittsburgh, over three times the market share of second-place Citizens Financial Group, with 13%. PNC began to convert the National City branches that were not sold off or closed on November 7, 2009, starting with Pennsylvania (where the two had the most overlap), Florida, and the Youngstown & Steubenville, Ohio regions. The conversion of National City to PNC was completed in June 2010, in the following phases:

Combined PNC and National City Facts

From pioneer times to the Great Depression

Grows throughout much of Ohio

Becomes interstate bank

The final years: a banking conglomerate

Merger with PNC and last actions as independent bank