Old Kent Financial Corp.

Stock Index: NASDAQ

SICs: 6712 Bank Holding Companies; 6022 State Commercial Banks; 6021 National Commercial Banks

Old Kent Financial Corp. is one of the country's best performers, with 21 bank subsidiaries and over 200 branches in Michigan and suburban Chicago. The institution dominates western Michigan, with more than twice its nearest competitor's market share. Hallmarks of Old Kent's performance include dependable earnings and dividends as well as conservative, yet aggressive, growth strategies. Moreover, the bank's exceptional overhead ratio (a comparison of noninterest overhead to net operating revenue) has earned it a high rank among the most efficient banking companies in the United States. The holding company also operates five non-bank subsidiaries, offering mortgage, insurance, brokerage, and other financial services. These operations extend Old Kent's reach into Ohio, Indiana, Pennsylvania, Kentucky, and even farther south into Florida. The relatively little-known institution gained national recognition in the 1980s, when a spate of acquisitions nearly tripled its assets and catapulted it to the top of its home state's bank roster. The company's 16 affiliate banks and over 200 branches were considered a prime takeover target in the late 1980s and early 1990s, but John Canepa, chairperson, president, and CEO, asserted that Michigan's top-performing bank was not for sale.

Over the course of Canepa's first decade at its helm, the holding company took over 45 banks and virtually tripled its assets to $8.8 million.

1853–1993

Old Kent Financial Corp. was incorporated in 1971 to acquire the assets of Old Kent Bank & Trust Company, which traced its history to the establishment of the Daniel Ball Exchange Bank in 1853. At the time, any entrepreneur who met relatively lax minimum state requirements could open a financial institution. Thousands of banks were created and failed during this largely unregulated period before 1862, when Congress established a federal charter (with more stringent requirements) and national currency. The industry was further reformed with the 1913 creation of the Federal Reserve System. Moreover, the banking crises of the Great Depression brought increasing regulation, separating commercial and investment services and permitting statewide branching for national banks for example. The cautious banking environment that lasted throughout World War II and into the postwar era provided the backdrop for the 1958 union of Michigan's Old National Bank and Kent State Bank.

Taking advantage of state legislation permitting the creation and expansion of bank holding companies in the early 1970s, Old Kent was incorporated in 1972. The firm acquired three banks--Peoples State Bank, Peoples Bank & Trust, N.A., and Central Michigan Bank and Trust--over the course of the decade.

The pace of acquisitions at Old Kent increased in the 1980s, especially after the 1982 ascension of John Canepa to the chief executive office. A Harvard graduate, Canepa had started his career in New York in the 1950s at Chase Bank, moved to American Financial Corporation in the 1960s, and started at Old Kent in the 1970s. Over the course of Canepa's first decade at its helm, the holding company took over 45 banks and virtually tripled its assets to $8.8 million. Old Kent added non-bank affiliates over the course of the 1980s as well, including a mortgage service, an insurance subsidiary, and other financial services. Canepa applied three basic criteria to potential acquisitions: good financial performance, a reliable management team, and especially stable assets. Old Kent's integration strategy centralized office processing functions of new affiliates for efficiency but encouraged local autonomy through maintenance of local boards of directors. In April 1992, Canepa told Bank Management that "our strictest merger standard is that every acquisition must increase shareholder value." Nevertheless, the holding company paid the Resolution Trust Corp. $1.7 million for St. Charles Federal Savings Association's $80 million portfolio of cash, residential mortgages, and other deposits in 1990. Consolidation resulted in a roster of 16 affiliate banks and over 200 bank branches by 1993.

1991–1994

Old Kent managed to avoid the speculative real estate loans, Third World debt, and other 1980s pitfalls that troubled many banks. The firm's conservative approach earned it a high credit rating and praise from Salomon Brothers. Efficiency was also a frequently cited factor in Old Kent's success. Although many banks made acquisitions their primary vehicle for achieving efficiency as well as growth, Old Kent relied on some time-tested methods for increasing profitability. While the banking industry's cost to service a single loan stood at $88 in 1992, Old Kent averaged only $60. The bank's overall efficiency, at less than 58 percent, also compared favorably with an industry average that consistently exceeded 60 percent. On a smaller scale, everyone, including the CEO, flew coach class on business trips. Management maintained that while this did not save significant amounts of money, it reinforced a spirit of efficiency. Old Kent also encouraged competition among its largely autonomous affiliates and subsidiaries through a monthly scorecard that ranked all 16 on a variety of standards.

Acquisitions slowed somewhat during the early 1990s. Old Kent bought eleven bank branch offices in 1991 and 1992, but negotiations for the acquisition of Hasten Bancorp, which would have taken Old Kent into Indiana, failed. Nevertheless, Canepa asserted that Old Kent was still "in the business of making acquisitions" and was constantly evaluating and negotiating prospective affiliates. In 1994, Old Kent increased its Chicago presence with the $62 million acquisition of EdgeMark Financial Corporation, a five-bank holding company with assets of $534 million. Future expansion targets included Indiana and Wisconsin.

As commercial loan demand declined rapidly during an early 1990s recession, Old Kent diversified its strategy to include more fee-based retail banking. Interest rates plummeted to their lowest levels in decades, and the bank turned to mortgage refinancing and mutual fund brokerage to bolster its asset base. In 1993 alone, Old Kent's consumer loans increased 20 percent, mortgage servicing revenues nearly doubled, and the proprietary Kent Funds swelled to over $2 billion in assets. A regional mortgage production office in Columbus, Ohio, was established that year to serve Ohio, Indiana, Michigan, Pennsylvania, and Kentucky. Old Kent further bolstered its mortgage service business and ventured outside the Midwest with an agreement to purchase Princeton Financial Corporation of Orlando, Florida. The acquisition, which was completed early in 1994, brought 13 origination offices and a comprehensive network of independent brokers into the Old Kent fold. The holding company shifted an extra $1 billion into its investment portfolio during this transitional period to maintain returns.

1972–1997

Old Kent Financial Corporation has articulated several core tenets of its business philosophy, including: maximizing shareholder value, customer service, employee enrichment, and corporate citizenship. The firm has reported increasing earnings per share in every year since its formation in 1972, and Salomon Brothers has characterized Old Kent as "an increasingly profitable franchise that is driven by prudent acquisition policy and superior credit quality." Through 1992, Old Kent's ten-year total return to investors ranked eighth among the 100 largest banks and 21st in Fortune magazine's ranking of the 500 largest services companies in the United States. In 1994, U.S. Banker rated Old Kent the top performing bank in Michigan and eleventh in the nation.

In 1993, the bank set up an organized transition of leadership, selecting David J. Wagner (president of the Old Kent Bank and Trust Company in Grand Rapids) to succeed John Canepa as president and CEO in 1995. Canepa planned to continue on in the capacity of board chairperson through 1997. As consolidation in the industry continued in the 1990s, Old Kent's appeal as a target for takeover remained a concern.