First of America Bank Corp. has scrapped residential mortgage programs in the Carolinas and Florida and is focusing its lending efforts in the Midwest.

The pullout was part of a cost-cutting campaign by the Kalamazoo, Mich., banking company, which has also divested branches and sold off parts of its credit card portfolio.

First of America reduced the size of its mortgage lending operation in June when it closed or sold 20 banking sites in the South that had been acquired in the early 1990s. The largest chunk was a $1.1 billion-asset operation established in Florida through three acquisitions. The operation lacked bulk to be competitive and ended up as a drag on earnings, analysts said.

First of America, like many other midsize lenders, has learned a hard lesson about overreaching, analysts said. These institutions are now focusing on core business lines and geographic areas, steps that may make them attractive as takeover candidates.

Indeed, First of America's core operations have long held allure, and a more efficient mortgage operation could raise the company's profile. "They could definitely become more appealing as a takeover target or a stock holding," said Joseph A. Stieven, a banking analyst at Stifel Nicolaus, St. Louis.

First of America is primarily targeting Illinois, Indiana, and Michigan, with programs to improve efficiency. "The lender who can provide the fastest answer is the one the customer will choose," said David Stimpson, director of mortgage banking. "We plan to be that institution in the Midwest."

As a result of the retrenchment, originations are expected to fall to about $1.3 billion this year from $1.6 billion in 1996, when the lender ranked 75th among originators.

But the operations will become more profitable on a per-loan basis, said production chief Rick A. Smalldon, who declined to discuss figures.

First of America appears to be taking the right steps by retrenching the mortgage program, observers said.

A mortgage business in the Southeast, where markets tend to boom and go bust, is especially challenging, said Felix Beck, a longtime mortgage banking executive. The Midwest "is much more consistent," said Mr. Beck, who is now chairman emeritus of Chase Manhattan Mortgage.

First of America's approach requires the lender to balance new technology with old-fashioned people skills. Loan officers are working with regional managers on ways to improve relationships with customers.

First of America is following an industry trend and outfitting loan officers with laptops so that originations can be made at home or at work. Systems software provided by Fannie Mae is expected to help cut underwriting decisions to minutes from days.

"We're going to make this operation as efficient as possible," Mr. Smalldon said.

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