Fourth Financial Corporation

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Fourth Financial Corporation

100 N. Broadway
Wichita, Kansas 67202
U.S.A.
(316) 261-4444
Fax: (316) 261-2195

Public Company
Incorporated: 1968
Employees: 3,500
Total Assets: $7.65 billion
Stock Exchanges: NASDAQ
SICs: 6021 National Commercial Banks; 6712 Bank Holding
Companies; 6311 Life Insurance; 6321 Accident and
Health Insurance

Fourth Financial Corporation is the largest bank holding company in Kansas. Operating more than 150 banking offices through its primary subsidiaries, Bank IV Kansas and Bank IV Oklahoma, Fourth Financial entered a period of rapid expansion in 1985 that led to large-scale company reorganizations in the early 1990s.

The history of Fourth Financial may be traced to the founding of the Fourth National Bank of Wichita, one of the oldest banks in Kansas, established by George C. Strong in 1887. By 1968, Fourth National was one of the 300 largest banks in the nation, with $290 million in assets. That year, Fourth Financial was created as a one-bank holding company, with Fourth National Bank as its sole asset, and Jordan L. Haines, executive vice-president of Fourth National, was named president of the new company. A native Kansan, Haines was noted for leading by example and for his ability to draw talented managers into the company. Haines sustained the Bank of Wichita’s legacy of fiscal conservatism, which had helped it to endure bank industry crises earlier in the century.

Prior to the creation of Fourth Financial, the Bank of Wichita and other U.S. banks were bound by restrictions that hampered their growth. Strict banking regulations had been passed as early as 1933, when the Federal Banking Act of 1933 was passed in reaction to the thousands of bank failures during the Great Depression. A series of laws restricting the activities of banks and bank holding companies ensued, including the pivotal Bank Holding Company Act of 1956, which required bank holding companies to refrain from all non-banking related operations and to seek state permission before branching out into other states.

Prompted by the Federal Reserve Board as well as by complaints from members of the banking industry, Congress enacted new laws in 1966 that were designed to eliminate restrictions and create more favorable tax laws for banks. In anticipation of still more deregulation, Haines and fellow executives formed Fourth Financial in 1968. By moving to a holding company format, Fourth Financial was able to conduct certain activities from which it would otherwise be barred. Importantly, new legislation in 1970 allowed multi-bank holding companies to operate in several non-banking financial markets.

Fourth Financial realized sound, steady growth during the 1970s and early 1980s under Haines’ direction, despite general banking industry malaise. Indeed, the industry experienced increasing competition during that period from other financial institutions and investment vehicles that were draining deposits out of traditional banks. Furthermore, Fourth Financial was constrained by state laws that kept it from expanding outside of Wichita. Although Fourth Financial was able to attract new clients through such instruments as Certificates of Deposits (CDs), expanding its asset base three-fold between 1968 and 1982 to about $1 billion, profit margins slipped.

Fourth Financial’s rapid rise during the 1980s was triggered by state legislation signed by Kansas Governor John Carlin in 1982. In an effort to project a more progressive business image for his state, Carlin passed a law allowing bank holding companies to purchase as much as 25 percent interest in other banks. In addition, another bill was pending that would allow holding companies to start buying 100 percent of other banks. Haines and fellow executives viewed the deregulation as an opportunity to begin expanding their organization statewide. Broadening Fourth Financial’s scope, they reasoned, would eventually allow them to reduce costs through economies of scale and become more competitive with other financial institutions, thus increasing market share and boosting profit margins.

Between 1982 and 1985, Haines and his team purchased the maximum allowable shares of five Kansas banks as part of a carefully conceived strategy. The banks in which Fourth Financial invested had several characteristics in common. Each was located in a community with more than 10,000 residents and was a county seat. In addition, all the banks were near an institution of higher learning and had assets of $80 million to $100 million. Fourth Financial’s management team believed that those traits would ensure high-quality assets. Assuming that the pending bill would also pass, Fourth Financial arranged for each of the banks to allow it to ultimately assume 100 percent ownership.

By 1985, Fourth Financial had $1.35 billion in assets, representing a 35 percent increase since passage of the 1982 legislation. When Kansas passed the multi-bank holding company laws in July 1985, Fourth Financial was positioned for even more rapid growth. The company immediately assumed full control of its five subsidiary banks, and within nine months it had purchased three more banks. By March 1986, Fourth Financial was the largest bank in the state, with assets totaling $2.5 billion. That year, the company renamed all of its subsidiaries “BANK IV” to promote a sense of unity and to simplify marketing tasks. Over the next four years, moreover, Fourth Financial would bring 16 more institutions into the BANK IV fold, raising its total base of assets to more than $4 billion and cementing its role as a regional banking powerhouse.

While Fourth Financial’s growth was exemplary in the banking industry, it also reflected a dynamic trend of consolidation within the U.S. banking industry during this time. As smaller banks faced increasing competitive pressures from less-regulated, non-bank financial institutions, the percentage of U.S. assets held by commercial banks dropped from about 37 percent in the late 1970s to 25 percent by the early 1990s. Furthermore, computers and electronic banking devices were making it easier for banks to operate across broad regions. As a result, the number of independent banking entities in the United States plunged from about 13,000 in 1983 to less than 10,000 by 1990. At the same time, the number of multi-bank holding companies grew through acquisition from about 300 to around 1,000.

In 1985, Haines selected Ron Baldwin to oversee Fourth Financial’s aggressive buyout program. The 37-year-old Baldwin had started working for the bank in the early 1970s while he was a student at Wichita State University. Although he took a job in Dallas after graduation, he returned to his home state in 1976 to work for Fourth Financial. Baldwin rose quickly through the ranks. After being assigned head of the acquisition squad, Baldwin assembled a group of managers with expertise in targeting, analyzing, and negotiating buyouts. When the 1985 laws were passed, Baldwin and team advanced. “Every year we sit down and look at what kind of banks we want to buy, what cities we would like to be in, and what the best banks are within those cities, and we kind of plan an attack,” Baldwin explained in the July 16, 1990 issue of Wichita Business Journal.

Between 1985 and 1990, Baldwin supervised the purchase of 24 banks at an average rate of one every 75 days. This pace surged to one per month during 1990, when Fourth acquired several troubled savings and loan institutions at rock-bottom prices. Analyzing a plethora of potential deals, Baldwin selected only those that would complement the overall organization. After Baldwin and his crew completed a new purchase, they were then charged with overseeing its integration into the BANK IV network, which meant streamlining computer systems, allaying customer concerns, and absorbing the new institution’s financial products into their own portfolio of offerings.

By 1990, the original Fourth National Bank of Wichita organization had become part of a massive $4.2 billion corporation, only 30 percent of which was attributable to the pre-acquisition Bank of Wichita. After presiding over a 28-year era of growth and prosperity for Fourth Financial, 21 of which were served as president or chairperson, Haines announced his retirement in 1990. Before he left, however, he initiated a reorganization of the company to prepare for it for its next phase of expansion, slated to begin in July 1992. Indeed, new legislation was pending in Kansas which, when passed, would allow Fourth Financial and its Kansas peers to extend their reach into other states. The passage of this law would prove timely, as Fourth National was just a few acquisitions away from hitting a ceiling on the amount of deposits a single bank could control under Kansas laws.

Before his departure, Haines wanted to organize and streamline Fourth Financial. Toward that end, he consolidated many management functions into the holding company headquarters and assembled a non-banking division to manage Fourth Financial’s services, including credit card, mortgage, and insurance-related services. Haines also merged several of the company’s holdings into a subsidiary called BANK IV Kansas City. During this time, acquisition activity continued; in June 1990, Fourth Financial picked up Anchor Savings, a thrift with six branches and $565 million in assets.

Among Haines’ most important acts, before his departure, was that of bringing in outsider Darrell G. Knudson as chief executive. Knudson assumed the leadership role in July 1991 and immediately intensified Haines’ restructuring efforts. One month after taking the helm, Knudson announced 250 layoffs as part of a plan to cut annual expenses by $15 million. Moreover, the following month, he combined all of the holding company’s 13 separately chartered bank divisions into one subsidiary, BANK IV Kansas. “I didn’t come here to manage what was. I came here to create what can be,” Knudson responded to his critics in the September 27, 1991 issue of Wichita Business Journal. Knudson also slowed the company’s acquisition pace. Nevertheless, in April 1992, Fourth Financial picked up two more banks with about $120 million in assets.

Some insiders were surprised to see Knudson, a Minnesota banker, brought in to run one of the state’s biggest and oldest financial institutions. However, Knudson’s resume included a long list of credentials that were highly applicable to Fourth Financial’s situation. Knudson had spent 32 years with Minnesota-based First Financial System Inc., a multi-state holding company that mirrored the interstate institution that Fourth Financial was striving to become. During the late 1980s, Knudson had orchestrated more than 2,000 layoffs, managed the integration of several large out-of-state banking systems into First Financial System, and conducted a massive cost-cutting effort that restored the organization’s profitability.

Knudson picked up many of the skills that had made him successful in the banking industry while growing up in Centerville, South Dakota, a town of 1,200 people 35 miles south of Sioux Falls. On weekends, Knudson accompanied his father, an insurance salesman, on sales calls. “He would always give me tips and ideas about why the customer needed the insurance coverage,” Knudson recollected in the September 27, 1991 Wichita Business Journal. An avid sports fan, Knudson eventually abandoned his plans for coaching in favor of career in business. Nevertheless, he maintained his competitive mindset; “The game we play is creating value every day for customers,” Knudson related.

In 1992, shortly after Kansas passed its interstate banking laws, the reorganized Fourth Financial launched its assault on the Oklahoma banking market. The company purchased three banks in the Tulsa area with $780 million in assets and organized all of their branches into a single subsidiary, BANK IV Oklahoma. Moreover, having found a way to get around the deposit ceiling in Kansas, Fourth Financial also picked up five new banking systems in the state, with $430 million in assets. By the end of 1992, in fact, Fourth Financial had grown into an interstate, multi-bank holding company with $6 billion in assets, 2,600 employees, and nearly 100 offices in 30 communities. The bank’s net income topped $50 million in 1992 from total revenues of about $275 million.

Although Fourth Financial greatly increased its debt load in 1992, the company was able to reduce its portfolio of bad loans left over from the most recent recession and to achieve marked profitability gains. Furthermore, Fourth Financial was successfully expanding most of its existing operations by bolstering customer service and emphasizing a range of new financial services. For example, Fourth Financial became the fifth largest investment brokerage house in Kansas in 1993 and increased its fee income from annuity sales to more than $2 million. The company also expanded efforts in mortgage, consumer finance, and trust services.

Besides buying banks, cutting costs, and stressing fee services, Fourth Financial boosted its profitability in the early 1990s with the implementation of the latest technology. A high-tech database marketing system, for instance, allowed staffers to organize and track thousands of varied transactions on a daily basis. The system helped the marketing department pinpoint the most profitable customers and market products targeted at their specific needs. Similarly, in 1994, Fourth Financial unveiled a new automated teller machine that perform virtually any transaction normally handled by a teller.

As profitability climbed in 1993 and 1994, Fourth Financial continued to fortify its stronghold in the Oklahoma and Kansas markets. The company completed nine more buyouts in 1993, mostly in Oklahoma, bringing the organization’s total asset base to more than $6.7 billion. A string of new acquisitions early in 1994, moreover, increased Fourth Financial’s assets to more then $8 billion, making it nearly dominant in its key Oklahoma markets, Oklahoma City and Tulsa. Total net income rose 20 percent in 1993, to $76 million, as the company’s work force reached approximately 3,500. In less than ten years, the bank had blossomed from a mid-sized Wichita-based institution into a regional banking powerhouse. “We’ve made good time, and we’re going the distance,” asserted Knudson in Fourth Financial’s 1993 annual report.