Star Banc Corporation

1863–1993

Star Banc Corporation is a bank holding company for nationally and state-chartered commercial banks in the tristate area of Indiana, Kentucky, and Ohio. The holding company oversees 198 bank branches, an automatic teller machine (ATM) network, and two 24-hour telephone systems, the Automated Voice Response line for general information and the Financial Services Center telemarketing unit, which handles loan applications and opens new accounts. Diversifying both its holdings and corporate plan in the 1990s, Star Banc became a leading provider of consumer, commercial, and financial trust services in the tristate region. The company also became known for creating new financial tools and experimenting with nontraditional investment products. The corporation, headquartered in Cincinnati, shares the 26-floor Star Bank Center with its largest subsidiary, Star Bank, N.A., which reported assets of $6.6 billion in 1993.

Star Banc's history began with the founding of the First National Bank of Cincinnati in 1863. Over the years, First National would engage in numerous acquisitions, mergers, personnel changes, and reorganizations. In 1957, Oliver Waddell, a law school graduate from the University of Kentucky, joined First National as a management trainee; his name would eventually become synonymous with both the First National Bank of Cincinnati and later Star Banc Corporation.

In January 1974, Star Banc's immediate predecessor, the First National Cincinnati Corporation, was formed as a bank holding company in Delaware to acquire assets of the First National Bank of Cincinnati. The following year, First National Cincinnati acquired Miami Deposit Bank of Yellow Springs, Ohio, from the Midwestern Fidelity Corp. for over $3.56 million. Exactly one year later, on September 30, 1976, the holding company acquired two more Ohio banks, the First National Bank of Ironton for $7.05 million and the First National Bank & Trust Company of Troy for $9.23 million. Oliver Waddell, after little more than five years as vice-president, was appointed senior vice-president in 1976.

On December 1, 1977, the holding company acquired the Third National Bank of Circleville, Ohio, for $2.91 million, then the Commercial and Savings Bank of Gallipolis for $5.44 million in August 1979. The following year marked the ascension of Waddell to president and director, as well as the sizeable acquisition of Portsmouth Banking Company for $15.36 million on August 1. In March 1982, First National's vast holdings gained another bank, the Second National Bank of Hamilton, for its largest payout to date of $22.2 million. As president and chief executive officer, Waddell aggressively continued the holding company's expansion the next year with the March 1 acquisition of the Farmers & Traders National Bank of Hillsboro for $6.8 million in cash and notes. Three months later, in June, another $8.6 million in cash and notes acquired Banc One of Fairborn, to be quickly followed on July 1 by the $3.27 million purchase of the Peoples National Bank in Versailles. As a crowning point of the year, Waddell was named chairperson, in addition to his titles of president and CEO.

The following year marked the ascension of Waddell to president and director, as well as the sizeable acquisition of Portsmouth Banking Company for $15.36 million on August 1.

1977–1992

The next five years mirrored the previous as a time of immense growth and development for First National and its subsidiaries. In 1985 and 1986, there were five acquisitions (Preble County Bank of Eaton, Ohio; Ohio State Bank of Columbus; New Bancshares, Inc. of New Port, Kentucky; People's National Bancorp of America, Lawrenceville, Indiana; and the Second National Bank of Richmond, Indiana) through stock exchanges totaling approximately two million shares. While 1977 was a quiet year without buyouts or mergers, it was one of internal consolidation. By January of 1988, First National was back in the acquisitions game, with the First Sidney Banc Corp. (Sidney, Ohio) and Aurora First National Bank (Aurora, Indiana) coming on board as a pooling-of-interests for a combined stock exchange of 1.82 million common shares. February delivered a similar transaction for the Peoples Liberty Bancorporation of Covington, Kentucky, for 1.52 million shares, and July's pick-up of the First National Bancorp of Miamisburg, Ohio, for 892,000 shares.

Perhaps most notable that year was First National's reincorporation under the laws of Ohio and the amalgamation of all subsidiaries to the Star name, for what the company deemed "unified product development and marketing, to enhance convenience and customer service and to increase shareholder value." The company adopted the name Star Banc Corporation on April 12, 1989. Acquisitions over the next two years included all outstanding shares of Fir-Ban, Inc. in May of 1990, and the $393 million in total assets of the Kentucky Bancorporation Inc. in July 1991. By late 1991, Star Banc posted modest gains from 1980, with a net income of $65.83 million (up from $64.89 million) and $6.33 billion in total assets (up from $6.02 billion).

To shareholders and customers alike, 1992 was a pivotal year with many repercussions. Star Banc began strengthening its retail markets and continued expansion in Kentucky and the Cleveland area. As a solid outfit with steady growth, Star Banc became a perfect target for the consolidation craze sweeping the country. On April 16, 1992, Fifth Third Bancorp issued a $1.2 billion bid to take over Star Banc. The ensuing battle of wills often found Waddell and Star Banc's officers at odds with their own trust department, which had fiduciary responsibility to consider Fifth Third's offer on behalf of shareholders, regardless of the management's stance.

Despite Fifth Third's offer of $38 to $40 per share for Star Banc's 30 million shares (Star's stock was valued at $28.50 the day of Fifth Third's announcement, Fifth Third's at $46.75), Star Banc boardmembers unanimously refused the merger--sparking industry-wide debate and rumors of a hostile takeover between Cincinnati's two biggest banking firms. The furor also managed to split the city's generally close-knit financial community, many of whom had stock in both Star Banc and Fifth Third. Then City Councilman David Mann urged city officials to look into anti-trust implications, doubting "the public interest" would be served by allowing Fifth Third to completely dominate the Cincinnati market and become Ohio's fourth largest banking firm with $16 billion in assets.

1991–1993

Though Star Banc couldn't compete with Fifth Third's assets ($9.1 billion to Star Banc's $6.7 billion) and earnings ($138 million as compared to Star Banc's $65.8 million in 1991), Star Banc's strength in corporate markets and expansion in northern Kentucky were a major attraction in the merger. Yet Waddell and Star Banc's top brass didn't believe Fifth Third's stock would maintain its inflated value and were furious that their rival had broken an agreement not to go public without prior board approval. While insiders speculated about a "white knight" rescue of Star, Detroit-based NBD Bancorp officials came to town with the supposed intention of launching a bidding war for Star Banc. For those who wanted the merger between Star Banc and Fifth Third, one stumbling block was the inevitability of job losses when the two companies combined personnel and closed overlapping branches.

Though most analysts regarded Fifth Third's offer as too good to ignore, Star Banc hired advisers from Chicago and Washington, D.C. and remained steadfast--incurring ire and a class-action lawsuit on behalf of shareholder Thomas A. Abrahamson and others who felt Star Banc's rejection was wrong. As a last attempt to rein in Star Banc's board, without going directly to shareholders, Fifth Third increased its offer to $42 per share. Again, Waddell issued a flat denial, Fifth Third withdrew its offer, and the ordeal was finally over--though many believed Fifth Third would have gone even higher if Star Banc had indicated interest and entered into negotiations. In the attempted takeover's aftermath, Star Banc stock fell to under $32 and the directors were subject to sharp criticism.

To clean up their image and aggressively move Star Banc into the future, Waddell instituted "Project EXCEL," an extensive restructuring plan "designed to evaluate and examine every aspect of the corporation in an effort to enhance revenues, control costs and realize effiencies through elimination of duplicate functions and nonproductive systems." To prove its commitment to comprehensive change in the wake of the Fifth Third imbroglio, Star eliminated 450 positions by November 1992 for a savings of $20 million. Despite the one-time restructuring charge of $3.96 million after taxes, 1992's total assets swelled to $7.17 billion, with a net income of $76.12 million, up 15.5 percent from 1991. This was due in part to the mid-1992 purchase of 28 Cleveland-area branches of Ameritrust Company, N.A., which had $238 million in securities, $111 million in loans and $937 million in deposits.

In 1993, first quarter net income was up 41.2 percent from the year before, reaching $24.9 million or 84 cents per share, with total assets of $7.4 billion. Then, in May, longtime chairperson and CEO Oliver Waddell stepped down from these posts, three years shy of his mandatory retirement at age 65. He was succeeded by 48-year-old Jerry A. Grundhofer, formerly of Security Pacific National Bank in Los Angeles and well-known in the industry as part of the largest bank merger in U.S. history--between Security Pacific and San Francisco giant BankAmerica Corp. for $6.2 billion in 1992. Waddell continued to serve on the board of directors and retained the title of CEO until June 15, when Grundhofer assumed full control of the corporation.

1993

Under Grundhofer, Star Banc management underwent dramatic changes. High-level executives who had been appointed by Waddell were offered generous compensation packages to leave. Grundhofer then began importing key personnel from the West Coast, including David Moffett (executive vice-president and CFO), husband and wife team John (senior vice-president of sales) and Robin Nenninger (senior vice-president of customer service), Richard Davis (executive vice-president of consumer banking), and others.

In a 1993 letter to shareholders, Grundhofer referred to the year as "one of notable challenges, accomplishments and changes," which included several initiatives to help Star Banc gain market share. Among the new initiatives was the reduction of nonaccrual loans and real estate holdings by 23.6 percent, and the development of more proprietary mutual funds and fee-based commercial services. Another 1993 project was the merger of ten independent Star Banc offices into three major banking units in Indiana, Kentucky, and Ohio. Star Banc further reorganized by separating its regional subsidiaries into two distinct groups: "Community" banks in smaller rural and urban areas and "Metropolitan" banks in larger cities. Metropolitan offices were divided into four groups: greater Cincinnati (with 45 branches); Cleveland (37); Columbus (17); and Dayton (28). Community markets were segmented into Indiana (with 20 offices); Kentucky (27); and Ohio (38), serving almost 500,000 area households. "We expect this realignment," Grundhofer said in the company's 1993 annual report, "to foster greater earnings for Star as each region division leverages its specific strengths."

Having become more sales oriented, more productive, and more cost effective, Star Banc saw its 1993 net income climb 31.7 percent to $100.27 million with a year-end market value of $35 per common share. To show their approval of Grundhofer's efforts, the board increased Star Banc's dividend by 20 percent or 35 cents per share. To coincide with the company's revitalized image, the company's logo was changed, symbolizing, according to the 1993 annual report, "new direction, new initiatives and renewed focus on sales, customer service and convenience in every area of our business." As part of this vision, Star Banc joined up with the MAC (Money Access Service Corp.) electronic network to increase access to its ATMs, while placing them inside Wal-Mart, Sam's Club, Super Kmart, and Twin Valu stores. Putting ATMs in popular retail facilities and supermarkets not only slashed start-up and general operating costs, but afforded Star Banc almost unlimited access to the public. "There seems to be a reinvigoration, an enthusiasm, throughout the bank," board member Thomas Klinedinst, Jr. told the Cincinnati Business Courier about Grundhofer's tenure as president, chairperson, and CEO. According to that publication, Grundhofer "charmed the investment community, won over several large institutional shareholders and inspired fierce loyalty from some employees" in the short amount of time he'd been at Star Banc.