First American gives loan system credit turnaround.

But the bank's executives are quick to pay tribute to the role that their computer systems played, a sometimes forgotten aspect of such corporate recoveries.

In 1990, First American National Bank, which now has $7 billion of assets and ranks second in Tennessee, was put under a letter of agreement by the Office of the Comptroller of the Currency. More than $770 million of the bank's assets were criticized and classified. Nonperforming loans and assets were slightly under 5% of the total.

The regulatory order was imposed just as First American was in the midst of converting its nine individually in subsidiary banks to a common commercial loan system developed by Automated Financial Systems in Exton, Pa.

Once the system was up and running, the portfoho information it provided underscored the OCC's alarms: First American Corp. was in deep trouble.

"Before AFS, we had a homegrown, antiquated system spread across the nine banks, with no standard way to use or evaluate information," said First American executive vice president James Kelly.

"Not only couldn't we extract the information we needed, he said, but X at one bank meant Y at another."

With the AFS system, Mr. Kelly said, the bank's fixst task was to get a sense of how bad its loan problems were. The executives created a problem-loan data base by extracting information from the AFS commercial loan system.

This data base enabled them to group and analyze loans by any number of categories, including industry, lending officer, and responsibility center. They were also able to analyze the customer base by credk rating, commitment mounts, outstandings, and other factors.

"The end result of this effort was that we were able to provide the Comptroller's office with usable and user-friendly reports," said Mr. Kelly. "We could custom-design information to meet their needs." With the reporting capability in place, Mr. Kelly shid he and his fellow executives began focusing on using the system to better manage the problem loans. AFS had a built-in troubled-debt module that enabled First American to maintain general ledger and balance data at the same time.

"We were able to run a general ledger balance, which represented net of any writedowns," Mr. Kelly said. "We also kept a customer balance so we could continue to bill the customer as if no action had been taken on the account.

"When a customer called us, we always had ready access to payment history and how much was owed. It was a tremendous benefit to our special assets and workout officers."

Mr. Kelly said the troubled-debt module continues to be a major benefit forthe now profitable First American.

"We can continue along with our recovery activities," he said. "We don't have to go back and calculate when the prime rate changes, what the impact would have been if we had been fully billing. It's all there in the system."

When the OCC first arrived at the Nashville bank, senior management estimated it would take three to four years to retum to outstanding asset quality levels. Mr. Kelly said the bank achieved its goal 18 months ahead of deadline.

"In any turnaround, people who manage the effort are critical," said Mr. Kelly. "But having a robust system was vital as well. We were able to know each step of the way what progress we were making, where we were making it, and where we were weak."

After the OCC eased off in 1992, senior management began looking at improving processes and procedures in the commercial loan area. With the help of AFS consultants, the bank put together teams of employees to look at each step involved in making a loan. These teams then came up with suggestions for improving the cycle.

Though still in the midst of this reengineering effort, they say improvements have been made. The booking experts now sit near the lending teams so that when a customer has special big needs they can be dealt with immediately. Redundant processes, like keying in the same information 10 times, has been eliminated. AFS also helped the bank prepare to integrate new modules on the system. As a restfit of these changes customer response times are quicker. Before the OCC interceded, the approval-to-booking time for a commercial customer would sometimes exceed 100 days. Today the average is four weeks. In addition, head count in commercial loan operations has been reduced by more than 15%.

In October 1993, First American felt confident enough to undertake an acquisition of First Federal Savings and Loan, a $200 million-asset thrift in Bowling Green, Ky. In March, the bank acquired First Fidelity Savings Bank in Crossville, Tenn., with $150 million of assets. Both banks are retail oriented, and any commercial loans on their books were converted manually to the AFS system.

"We're currently rebuilding our acquisition-conversion expertise," said Mr. Kelly. "The next bank we acqtfire may have a commercial loan system, and we want to be ready" to integrate it.

In part thanks to its systems, a bank that almost didn't make it is talking about more acquisitions, perhaps with a substantial expansion of its commercial customer base.

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