To generate fee income, Nashville-based First American Corp. is investing in technology companies that operate outside the banking company's core businesses.
Its First American National Bank has invested $1.3 million in First American Network Inc., a two-year-old information management company that services the insurance industry.
And First American Enterprises, another division of the banking company, has agreed to pay about $8.6 million foor 49% of SSI Group Inc., a subsidiary of privately held Southern Medical Health System Inc., which provides health care payment processing services.
The SSI transaction - the bank's first foray into health payments processing - is expected to close in the first quarter, subject to the approval of the Federal Reserve Board.
Both deals came as a result of First American's drive to complement its core competencies in commercial and consumer lending with related, nontraditional business activities.
Last year, the $8.1 billion-asset institution established First American Enterprises to investigate these opportunities.
"First American is aggressively looking to invest in new businesses that will add to (the corporation's) overall earnings growth," said Robert A. McCabe Jr., president of First American Enterprises.
He added that the bank's objective is to attain one-third of its earnings growth from nontraditional businesses.
In its quest for new opportunities, First American Enterprises narrowed its focus to two primary areas: the securities business, particularly third-party marketing companies that distribute securities; and payment systems.
Both areas were chosen because they are "likely hunting grounds" for meeting the bank's investment criteria, said Mr. McCabe.
He said First American hopes to invest in companies that offer early stage opportunities, meaning those that are in a business in which no one company possesses all capabilities to meet customer needs.
The bank is also looking for businesses with national or regional, rather than local, potential. It also will invest in business areas that are closely related to banking and in noncommodity businesses.
In addition, he said the bank is on the lookout for businesses with growth rates, revenue, and profits exceeding 15% - which surpasses what the bank can get through its loan and deposit activity - and businesses where the return on investment exceeds 20%.
Through such acquisitions, the bank hopes to build competitive advantage by creating services that are difficult to duplicate or by capturing a market before others see an opportunity, said Mr. McCabe.
Both the First American Network and SSI acquisitions are seen as meeting these conditions.
First American Network, now a wholly owned subsidiary of the bank, translates data for communication among different insurance companies.
The company's principal client is Prudential Insurance Co., with which it recently signed a multiyear contract.
Prudential does business with 23 other insurance companies, enabling its agents to sell other carriers' products along with its own - a practice known in insurance industry parlance as "outbrokerage service."
First American Network's job is to collect data from the insurance companies and convert it to a format compatible with Prudential's systems, enabling the firm to track which products are sold and the productivity of agents.
Officials at the bank see ample opportunity for growth in this area.
"A client of this stature validates the need for this type of service," said Mr. McCabe.
Benson S. Sloan, president of First American Network, agreed that outbrokering is a growing trend within the insurance and health care industries. These large companies, with different computer systems, need a middleman to translate information, a niche that his company fills, he said.
The bank's investment in the health care payment processing company, SSI, is also viewed as a way to boost fee income.
Mr. McCabe said opportunities will become more available as the claims processing business is translated from a fragmented, paper-based process to an electronic process.
Mobile, Ala.-based SSI, as a leading electronic claims processor for hospitals, physicians and dentists, will become a cornerstone company for First American, Mr. McCabe said.