FOR MORE THAN two decades, acquisitions have been the name of the game for First of America Bank Corp.
The Kalamazoo-based company began gobbling up banks long before merger mania struck the rest of the industry. It has acquired more than 100 since 1971, when it was chartered as the first multibank holding company in Michigan.
In the process, it has attempted to stay close to its community banking roots, even while growing from $300 million in assets to more than $20 billion.
In addition to its home state, First of America has added banks in Illinois and Indiana.
"We've gone as far as we care to go in Michigan, with one or two exceptions," Richard F. Chormann, president and chief operating officer, said during a recent interview.
First of America's plain-folks approach is evidenced by the building where its top executives work. Instead of an ornate office tower, Mr. Chormann and other managers work out of a compact building whose classical appearance belies its prior life as a YWCA.
"Community banking, I think, is a matter of philosophy, an approach to the marketplace," said Mr. Chormann, 55. "We've centralized most of the functional areas in order to free the bankers and local boards of directors, and have them focused on selling and servicing the customer."
Concerns for both marketing and efficiency have driven First of America's recent consolidation efforts, Mr. Chormann said. The company's efficiency ratio, or noninterest expense as a percentage of revenue, has hovered around 65%, higher than many of its peers.
Stung by some one-time accounting charges, First of America also saw a drop in net income in 1992 to $147.5 million, or $2.46 per share. However, the strong performance of the bank's continuing operation's continued in the first quarter of 1993, when it reported net income of $60 million, or $1 per share, with a return on assets of 1.17% and a return on equity of 17.16%.
Mr. Chormann said First of America's bulging network of more than 550 branches accounts in large part for the company's high efficiency ratio, but he still believes costs can be driven downward, calling a ratio in the mid-50s "doable."
To achieve that sort of improvement would be "a big stretch," said Joseph Stieven, an analyst at Stifel, Nicolaus & Co., St. Louis.
However, Mr. Stieven said First of America could probably bring its efficiency under 60%, which he said would place it in the top 25% of the regional banks he follows.
Mr. Stieven said the bank is "not yet done" realizing the cost savings from two of its most recent acquisitions, Illinois' Champion Federal Savings and Loan in late 1991, and Security Bancorp in 1992.
Another acquisition initially triggered the bank's transition to common systems. At one time, Mr. Chormann said, "common data processing wasn't really an issue," because priority was given to more basic operational tasks such as restructuring pricing schemes and standardizing loan policies and audit techniques.
As it continued to acquire banks, First of America decided to give them "the capabilities we had developed, namely products," Mr. Chormann added.
That approach was solidified when the company acquired New Century Bancorp in 1986.
"It was an interesting partnership since as the acquiring bank, we were adopting ... primarily the systems of the acquired organization," said Peter Purcell, a senior vice president at First of America Services, the company's technology arm.
From a systems standpoint, the centerpiece of that acquisition was New Century's deposit accounting system, which was developed by Hogan Systems Inc., Dallas.
At the time, First of America had been pondering whether to standardize on the Hogan system or another package. The acquisition swayed things in Hogan's favor.
"We got a lot of bang for the buck as well as a jump start by taking the Hogan approach," said Mr. Purcell.
Prior to the acquisition, First of America was running six deposit accounting applications, as well as maintaining service bureau relationships for a number of its affiliate banks. By standardizing on a single system, Mr. Purcell said, the bank was able to reduce its maintenance costs while significantly increasing the number of products it offered to customers.
Former New Century employees worked on First of America's conversion to the new system. Then the services unit created two distinct programming staffs, one for standard systems and programming and another for conversion development.
This configuration, said Mr. Purcell, helped First of America maintain an even keel during a spate of successively larger acquisitions that continued through 1992.
"We said, let's track the number of hours to do a conversion and the number of hours we spend post-conversion fixing problems," Mr. Purcell recalled. "Just by managing this process, we were able to dramatically decrease these numbers." Conversions are now perceived within the organization "as a non-event."
Although the Hogan deposit system had a reputation as a software only for the biggest banks, First of America found it supported the demands of its community banking structure.
"Even though we have common systems, the community bank environment requires different pricing," said Donald J. Kenney, senior vice president of the holding company and chairman of the technology unit. "Some banks with a centralized structure have an approach to common systems of developing one product and getting it in plain vanilla fashion."
With First of America's accounting and delivery systems, Mr. Kenney added, "we may put the product out, but when it hits the street, it may have five or six different flavors, depending on how the local bankers want to present it and price it." He added that the system can support as many as three separate pricing scenarios for different branches within a given affiliate bank.
After more than five years of conversion efforts, the streamlining culminated with the consolidation of First of America's data processing functions in a new data and operations center, which opened last year.
Affiliate banks within Michigan and Illinois now look like single entities to their customers -- meaning a Kalamazoo First of America customer can cash checks and obtain account information in Detroit.
With all of its acquired banks now running on the same core processing systems, the bank estimates it has created $50 million in improved operating efficiencies and customer service opportunities.
"I think now we have the foundation of the company solidly in place," Mr. Chormann said. "Now we're in a position to convert any future acquisitions quickly."
With that task completed, we're starting to look at being able to leverage the capabilities of the standard systems we have in place," Mr. Purcell said.
Mr. Purcell said that rather than modifying purchased software such as the Hogan system, First of America tries "to add value around those core systems."
For instance, the bank has given considerable attention to its branch automation system, which uses a combination of personal computers as workstations, connected over a local area network to NCR Corp. computers running the Unix operating system.
"We put that branch automation system out there several years ago knowing that there was going to be a second development of software," said Mr. Kenney. In the first phase, the bank acclimated branch workers to the new hardware and to using the system as a selling tool.
The first version, introduced in the late 1980s. "was a sales assistant. The new version incorporates product delivery but also controls the sales process." Mr. Kenney added.
"We've learned that what you need to look at is a more natural sales flow," said Mr. Purcell. "You collect the information and integrate that into the sales lead-throughs." In other words, branch personnel no longer need to follow a fixed script when working with a customer, but can use the system as needed.
The fine tuning of the branch automation system dovetails with First of America's "focus on selling the customer and servicing the customer," according to Mr. Chormann. "You don't maintain a long-term advantage with products alone, because this is a copycat business."
The bank has adopted a number of programs for training and tracking its efforts in sales and service. Such programs are attended by non-sales types, as well as branch and marketing workers.
Those employees are also looking for more products to sell. Like many banks, First of America is looking to augment its menu of financial services. Its Parkstone family of 14 mutual funds, introduced in 1988, were among the first proprietary mutual funds to be offered by banks. The company is currently the nation's sixth largest provider of proprietaries.
It also added $600 million to its credit card portfolio in the Security Bancorp acquisition.
"We just have to be able to vend more products through our stores," Mr. Chormann explained. "By the end of this decade, I think the balance sheet and income statement of the typical community bank is going to look a lot different."
"Technology is going to drive the product delivery more efficiently than we are doing it today," he added.
With movement on the M&A front quieted for the time being, First of America Services has turned its attention to cutting costs and investigating areas for future development.
"There's been a renewed focus on information technologies," as the backlog of conversions was completed, Mr. Purcell said. Those technologies include such applications as electronic mail, profitability analysis, and executive information systems.
Mr. Purcell said another challenge within the technology unit has been to keep a lid on core production expenses during a period when mainframe computing requirements continue to grow at a rate of 20% to 30% annually.
The possibility of off-loading applications from the mainframes is being evaluated. The bank currently outsources its mortgage and credit card processing, as do many others. It has also developed a client/server-based trust application, using the OS/2 operating system of International Business Machines Corp.
Despite his roots as a hardcore technologist -- he began programming professionally at the age of 16, when he was hired by Mr. Kenney at the Federal Reserve Bank of Boston -- Mr. Purcell is no fan of technology for its own sake.
First of America's latest version of its branch automation system eschews the graphics-oriented, point-and-click user interface of the latest PC operating systems like Microsoft Corp.'s Windows in favor of a more traditional approach. The reason: The hand-eye coordination needed to control a mouse can interfere with the eye contact needed to sell a customer.
"We try to stay away from the flashy stuff," Mr. Purcell explained. "You're on lunch hour, opening a checking account, you don't want to watch cartoons.
"Too many things are done because of technology fever," he added.
Given its deliberate approach, First of America probably doesn't have to worry about that malady sweeping through its organization in the foreseeable future.