Society Corporation

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Society Corporation

127 Public Square
Cleveland, Ohio 44114
U.S.A.
(216) 689-3000
Fax:(216) 689-5115

Public Company
Incorporated: 1958
Employees: 7,919
Assets: $24,978.3 million
Stock Exchanges: New York
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6022 State Commercial Banks; 6099 Functions Related to Deposit Banking, Nee; 6091 Nondeposit Trust Facilities; 6082 Foreign Trade and International Banking Institutions; 6211 Security Brokers, Dealers and Flotation Companies, 6311 Life Insurance

Headquartered in Cleveland, Ohio, Society Corporation is one of the fastest-growing and most innovative bank holding companies in the United States. The corporation is focused in the Great Lakes Basin, but also has subsidiaries in Florida, New York, Missouri, Colorado, and Texas. Society Corp.’s primary business activities include general banking and associated financial services for consumer, business, and commercial markets. Society Corp. grew quickly by avoiding such banking pitfalls as bad foreign, agricultural and leveraged buyout loans that were common in the 1980s. In that decade, it was able to boast an almost unparalleled decade of consecutive earnings-per-share improvements. Society Corp. emerged from the late 1980s and early 1990s banking dilemmas as the United States’ 29th largest bank holding company and one of the country’s largest and best performing trust departments. Society Corp. has the highest return on assets figure, at 1.4 percent, of all the country’s major banks.

The Society for Savings was founded by Samuel H. Mather as a mutual savings bank in Cleveland, Ohio in 1849. Within three years, Mather’s part-time business had collected deposits of $150,000; by 1857, Society had become Mather’s full-time job. Ten years later, the bank built its first headquarters, a three-story building on Cleveland’s Public Square. Society outgrew that building by 1890, when the bank erected Cleveland’s first “sky scraper,” a ten-story stone structure that featured two massive murals depicting the story of “the goose that laid the golden egg.” At the time, the Society for Savings was the tallest structure between New York and Chicago.

The bank earned a reputation for security and conservatism during its first half-century in business by surviving four depressions and financial panics before the turn of the century. It emerged from the Great Depression’s federally mandated bank holiday as one of Cleveland’s four largest banks, with deposits of over $100 million. By the time Society celebrated its centenary in 1949, it was the largest mutual savings bank west of the Allegheny Mountains. Although it still had only one office, Society had garnered 200,000 depositors and over $200 million in deposits.

Society National Bank was formed in 1955 as a commercial bank of the National Banking Association. Society National acquired the assets and liabilities of the Society for Savings mutual bank in 1958. The terms of the merger also made Society a public company. Voting certificates were issued to depositors of record at the end of 1958 at $500 each. Society Corporation was then created and became the first entity in Ohio formed under the 1956 federal Bank Holding Company Act. Before 1960, Society National became the first commercial bank in the United States to use on-line teller terminals, one of the decade’s newest electronic data systems.

Society Corp.’s adoption of the holding company structure enabled it to grow rapidly between 1958 and 1978, when it acquired 12 community banks, including: Fremont Savings Bank, Western Reserve Bank of Lake County, Springfield Bank, Xenia National Bank, Erie County Bank, Farmers National Bank & Trust Co., Tri-County National Bank, Second National Bank of Ravenna, Peoples Bank of Youngstown, 1st State Bank & Trust, and American Bank, and First National Bank of Clermont County. The subsidiary banks had combined assets of over $500 million in 1972.

Society Corp.’s history as a mutual savings bank was often derided by analysts, but by the mid-1970s, the heritage was recognized as an advantage. Savings accounts, a source of strength and stability, represented 65 percent of the bank’s $1.5 billion in total deposits. In 1979, when Ohio’s banking laws were revised to permit banks to establish branches in counties contiguous to the home office’s county, Society Corp. was poised for its second growth spurt. The expansion was accomplished through dozens of small acquisitions and four billion-dollar mergers from 1979 to 1989.

Society Corp.’s opening salvo in its acquisitions spree occurred in 1979 with the acquisition of Canton, Ohio’s largest bank, Harter BanCorp. Harter entered Society Corp.’s 12-bank stable second only to Society Corp.’s flagship Society National Bank, adding $400 million in assets to the holding company’s $1.8 billion. Society Corp. acquired five smaller banks over the next three years. Second National Bank of Bucyrus, with assets of $34.6 million, was purchased in 1980 for $5.2 million. Second National helped fill a gap between Society Corp.’s northern Ohio banks and its Dayton and Columbus affiliates, thereby giving the corporation access to counties that it had not been able to reach in the past. Later that year, Society Corp. acquired Community National Bank (Mount Gilead, Ohio) and merged its $15 million assets and customers with Second National of Bucyrus. The new entity was renamed Society National Bank of Mid-Ohio. In 1981, Society Corp. purchased First National Bank of Carrollton and merged it with Harter BanCorp.’s flagship Harter Bank & Trust. Lancaster National Bank’s $30 million in assets and three branch offices were added to Society Corp.’s roster at a cost of $2.78 million later that year. The acquisition of Citizens Bank of Hamilton for $10.7 million in cash and notes closed Society Corp.’s first round of relatively small acquisitions.

The corporation regrouped over the next two years by reorganizing its top management structure and consolidating its bank holdings. Early in 1982, a tripartite management team was formed, with J. Maurice Struchen, chairman and chief executive officer of Society Corp., Robert W. Gillespie, vice chairman of Society Corp. and chief operating officer of Society National Bank, and Gordon E. Heffern, president and chief operating officer of Society Corp., sharing the corporation’s top responsibilities. The team concept helped coordinate policy-making, planning, and operating between the holding company and its largest subsidiary. It also helped Society Corp.’s management prepare for interstate banking and inter-industry acquisitions.

Later in 1982, Society Corp. merged three of its northwest Ohio banks—Society National Bank of Northwest Ohio, Fremont Savings Bank and American Bank in Port Clinton—to form a $250 million, 15-office, five-county bank. Society Corp. also joined with three other banks, National City Corp. (Cleveland), Fifth Third Bancorp. (Cincinnati), and Third National Bank of Dayton, to form an automatic teller machine (ATM) network of 400 machines. The virtually statewide network gave over one million customers access to accounts in most major Ohio cities.

By the end of 1983, Society Corp. had net earnings of $8.01 million on total assets of $4.3 billion, and was poised for another major acquisition. In the spring of 1984, Society Corp. merged with Interstate Financial Corporation, parent of Third National Bank in Dayton. The acquisition increased Society Corp.’s assets to $5.1 billion and gave the corporation a stronger foothold in Dayton metropolitan area banking, where Interstate was the second-largest bank. Interstate’s subsidiary, North Central Financial Corp., had offices in Ohio, Indiana, Virginia, Maryland, and Florida, and held $1.1 billion in mortgage loans.

Within a little over a year, Society Corp. would make an even larger acquisition, but in the meantime, the corporation contented itself with the purchase of BancSystems Association, a regional bank card processor headquartered in suburban Cleveland. BancSystems was formed as a not-for-profit association in 1969 by National City Bank, Society Corp., and Central National Bank. National City Bank sold its interest in the association to Society Corp. after it acquired BancOhio National Bank in Columbus, which had its own card processing facility. BancSystems provided MasterCard and Visa credit and debit card processing for 140 banks and savings and loan associations, and employed over 300 people. The acquisition helped Society Corp. diversify its income base into more non-interest sources, giving it over 1.4 million credit card accounts and annual volume of $2.3 billion in processed transactions. Later in 1984, Society Corp. set up barriers to a takeover by prohibiting two-tier pricing and establishing a two-thirds majority in case a takeover vote was called.

The corporation further shored up its takeover defenses with the purchase of Centran Corp., a holding company of Cleveland’s fourth-largest bank, Central National, in 1985. Society Corp. offered Centran’s stockholders a choice of cash or stock totalling $220 million for its assets of $3.1 billion and 82 offices in northern and central Ohio. The acquisition made Society Corp. one of the state’s top five banks. But the merger had some drawbacks. Centran carried with it the vestiges of ill-advised bond investments made in 1980, an unsuccessful attempt to expand into consumer finance that lost another $20 million, and problems with international loans. Centran lost $70 million on the bad bonds and had to be bailed out by Marine Midland Banks, Inc., which held influential stock in the company. Society Corp. offered Marine Midland $26 million in cash and $50 million in non-voting adjustable-rate perpetual preferred stock, thereby limiting this bank’s voice in the merged company.

Society Corp. reorganized statewide to accommodate its growing Columbus affiliate. It set up a separate region, which was centered in the state capitol, to control $700 million in assets. Society Corp. later added its $100 million-asset Scioto Bank offices and Central National’s Columbus-area branches to the newly organized, 36-unit region. Society Corp. scaled back in northwest Ohio, selling two banks with 18 offices and $275 million in assets to Toledo Trustcorp, Inc. for cash, then spent most of the next two years rationalizing Centran’s corporate culture, computer systems, branches, and top management. Two task forces were formed: one worked to combine the holding companies, and the other merged flagship banks Society National and Central National. The company instituted a hiring freeze and eliminated excess personnel, primarily through attrition. Centran sold 18 Akron offices to First National Bank of Akron for $21 million, and Society Corp. closed 13 branches in Cleveland and Akron to eliminate overlapping territories. Society Corp. chairman Gordon E. Heffern continued as chair and CEO, and Wilson M. Brown Jr., chairman, president, and CEO of Centran, became president and chief administrative officer of Society Corp. Robert W. Gillespie, president and chief operating officer of Society Corp., became deputy chairman and chief operating officer. All three combined to maintain the tripartite “office of the chairman.”

The merger was deemed a success when the positive results started pouring in as early as 1985: both Society Corp. and Centran chalked up record earnings for the year, and once their two primary banks were integrated, Society National Bank ranked second in Cleveland. Society Corp.’s assets reached $9 billion, up from $6.1 billion before the acquisition, while the company saved $28 million in annual operations in the process of the merger. Society Corp. became Ohio’s third-largest bank holding company, next to National City Corp. (Cleveland), with $12 billion in assets, and Bane One Corp. (Columbus), with $9.6 billion in assets. Society Corp. had 250 bank branches statewide and about 6,500 employees. One of the reasons for the bank’s continuing success was its tradition of conservatism. The company’s executives were proud of the fact that it had avoided most of the decade’s banking pitfalls: agricultural, energy, and foreign loans, and especially the financing of leveraged buyouts.

In 1987, Society Corp.’s Gordon E. Heffern retired and was succeeded as CEO by Robert W. Gillespie, who, at 42, became the youngest chief executive in Ohio’s top-ten bank holding companies. The promotion gave Gillespie a total of four titles: CEO and president of Society Corp. and CEO and president of Society National Bank. Gillespie had spent his entire career at Society Corp., starting out as a part-time teller while in graduate school at Case Western Reserve University. Also in 1987, Society Corp. was able to set earnings records by repurchasing some of its stock after the October 1987 stock market crash. Profits rose to $89 million, and the stock appreciated almost $10 per share within less than a year.

Ohio’s interstate banking legislation opened the state to banks from virtually any other state with similar legislation in October 1988. By 1990, new state laws enacted around the country had made old federal laws against interstate banking irrelevant, and in the summer of 1989, a federal thrift reform law that permitted the purchase of savings and loans was passed.

The country had entered an era of “super-regional banks,” like NBD Bancorp of Detroit, PNC Financial Corp of Pittsburgh, and Bane One Corp. of Columbus. To prepare for the increased competition that would come from these powerful banks, Society Corp. began to consolidate its holdings. Society Bank of Eastern Ohio was merged into Society National Bank, creating a bank with assets of $7.5 billion and 132 offices. Society National was then reorganized into nine districts to take advantage of the growing bank’s economies of scale. Late in the year, Society Corp. increased its impact in Central Ohio with the purchase of 13 branches of Citizens Federal Savings and Loan Association. The acquisition increased Society Corp.’s number of offices in the Columbus area by 50 percent, and raised the assets of the newly-merged bank to $2.75 billion. Society Corp. sold BancSystems Association Inc. to Electronic Data Systems Corp. of Dallas to garner an estimated $6 million profit late in 1989.

Society Corp. entered the 1990s with two major acquisitions that placed it among the area’s super-regional banks. In 1990, the purchase of Toledo’s Trustcorp, Inc. through an exchange of $430 million in stock gave Society Corp. operations in Ohio, Michigan, and Indiana and raised its total assets to almost $16 billion, thereby ranking the company among the United States’ 40 largest banks. Trustcorp’s BB credit rating pulled Society Corp.’s A-plus down to an A because of several loan losses on downtown Toledo real estate projects. Society Corp. was also obliged to settle a $5.6 million shareholder lawsuit against Trustcorp and assign extra funds to reserves that would cover any defaulted loans. But by the fall of 1991, Society Corp. had turned its newest subsidiary around and renamed its affiliates Society Bank & Trust; Society Bank, Indiana; Society Bank, Michigan.

Society Corp. worked to pare down its non-interest expenses during the recession of the early 1990s that slowed loan demand and cut into profits. In March 1990, it repurchased Marine Midland’s interest in the corporation for $49.25 million, thereby saving the preferred dividends paid on the stock. That spring, Society Corp. vowed to cut about ten percent, or $40 million, from its $390 million in annual non-interest expenses.

In September 1991, Society Corp. announced the largest bank acquisition in Ohio history. It merged with Cleveland’s Ameritrust Corporation. The tax-free agreement called for an exchange of $1.2 billion in Society Corp. stock, and created a new corporation with combined assets of $26 billion. The addition of Ameritrust’s retail and trust locations throughout Ohio, Indiana, Michigan, Texas, Florida, Missouri, Colorado, New York, and Connecticut made Society Corp. the largest bank in Cleveland and the 29th-largest in the country. The two banks’ trust departments became the 15th-largest in the country in terms of revenues. Merging Ameritrust and Society Corp. required the elimination of about 2,000 positions and closing or selling 90 branches. Society Corp. also had to divert about $46 million to Ameritrust’s reserve against problem loans. An integration team was formed late in 1991 to coordinate the merger.

In 1992, Society Corp. launched a carefully planned advertising campaign to “reintroduce” itself to customers. The multimedia campaign featured the theme, “Where to grow,” in radio, television, print, and outdoor outlets. Society Corp.’s acquisitions in 1992 and 1993 were modest, compared to the purchases made in the first two years of the decade, but they expanded the Great Lakes corporation geographically. In 1992, the corporation purchased First of America Bank-Monroe (Michigan), a $149-million bank, from First of America Bank Corporation. And early in 1993, Society Corp. completed its purchase of First Federal Savings and Loan Association of Fort Myers, a $1.1 billion thrift with 24 branch offices in central and southwestern Florida.

In October of 1993, Society purchased Scaenen Wood & Associates Inc., a privately held investment management firm based in New York. While Society Corp. concentrated on relatively small acquisitions and customer relations, the holding company’s leader, Robert W. Gillespie, predicted more large mergers in the near future. He noted that the desire to increase earnings and simultaneously cut costs fueled the corporation’s drive to consolidate. Meanwhile there seemed to be a lull in Society Corp.’s acquisition fervor in the early 1990s, although it appeared to be only a matter of time before a major merger was announced. Indeed, on October 4, 1993, Society Corporation and KeyCorp of Albany, New York, announced the signing of a definitive agreement to merge. The transaction, which requires approval of shareholders of both Society and KeyCorp, as well as the receipt of regulatory approval, was expected to close in early 1994.

Principal Subsidiaries

Society National Bank; Society National Bank, Indiana; Society National Bank, Michigan; Society Capital Corporation; Society Community Development Corporation; Society Equipment Leasing Corporation; Society First Federal Savings Bank; Society Life Insurance Company; Society Management Company; Society National Trust Company; Society Trust Company of New York; St. Joseph Insurance Agency, Inc.; Trustcorp Financing Service; A.T.-Sentinel, Inc.; Schaenen Wood & Associates, Inc.; Society Assest Management, Inc.; Society Investments Inc.; Society Lease Inc.; Society Mortgage Company; Society Shareholder Service, Inc.; Society Venture Capital Corporation.