First Union's Austin A. Adams, reserved, gentlemanly, and slow to take credit for his success, appears to be more the old-fashioned southern banker than your typical fast-talking, fat-ego computer systems executive.
It is therefore somewhat ironic that it is on the strength of the technology and automation division headed by him, the North Carolina company has emerged in recent years as a model for the superregional bank.
Mr. Adams, a senior vice president, joined First Union Corp. in 1985 as the man designated to bring to life chief executive Edward E. Crutchfield Jr.'s vision of an interstate banking company based on a common computer system.
At the time, the Charlotte-based bank had $16.6 billion of assets and was just beginning to execute an aggressive expansion plan based mainly on acquisitions of other institutions in the region.
While the common-systems concept, in which disparate computer operations from acquired institutions are discarded in favor of a more centralized system, was relatively new to the banking industry in the mid-1980s, First Union embraced it in the belief that it could eventually bring about tremendous cost savings.
Now, nearly nine years later, the commitment to those early intuitions is paying off. First Union has acquired 37 banks since 1985, nearly quintupling assets to almost $80 billion.
Kudos from the Experts
That the bank has been able to expand at this speed while consistently keeping operating costs down is a credit to Mr. Adams' management of the technology division of the bank, experts said.
But do not try and get Mr. Adams to acknowledge that fact.
"I admit that I have a bias toward minimizing the emphasis on my personal involvement in the bank," said Mr. Adams. "I've got a lot more interest in talking about the objectives of the [technology] group relative to those of the whole corporation."
While his praise of the technology, group, which became a part of the bank in 1988 after functioning for years as an independent unit, is muted, Mr. Adams is clearly proud of its accomplishments over the past few years.
And according to the reports from analysts who follow the bank, Mr. Adams' pride is well founded.
On Most |Buy' Lists
First Union stock is almost universally rated a "buy" by the major brokerage houses, and these ratings are based, in large part, on the technology unit's ability to hold the line on costs.
According to figures from Merril Lynch & Co., less than 19% of First Union's total noninterest expenses are technology related.
This figure falls well below that of the average bank and would probably be even lower "if it were not for the need t continuously strive to enhance technology/delivery information systems," according to Merrill analyst Sandra J. Flannigan.
The bank's overhead efficiency, which is depicted in the ratio of noninterest expense to total revenues, is similarly excellent, analysts said. For 1993, First Union said its overhead efficiency will be about 61%.
Merrill Lynch projects that by the end of 1994, this percentage will drop to 57% - about 4% beneath the median projected efficiency ratio for the large banks that Merrill tracks.
Slower Acquisition Pace
The reason that the efficiency numbers are expected to fall so dramatically in the coming year is that First Union has slowed its acquisition pace and is thus unencumbered by the typically high expense ratios that acquired banks would add to its corporate numbers.
Also contributing to the efficiency improvements is the fact that 1994 will be the first year all of First Union's business units are operating on the common systems that Mr. Adams and his group began constructing in 1985.
The deposit and branch systems in Maryland, Tennessee, and Virginia, and the District of Columbia, are the last remaining noncommon systems. All will be converted by, yearend. First Union officials said.
To illustrate how common systems allow First Union to cut costs, Mr. Adams pointed to the savings associated with bringing 1993's acquisition onto First Union systems.
Expenses Cut in Half
At the nine banks that First Union acquired this year, the technology and automation expenses were on average more than halved once the banks were converted to First Union systems.
These savings come from from reducing computer maintenance costs and from improved economies of scale in volume-intensive businesses.
In addition, common systems also allow for speedy branch consolidations, which create cost reductions of their own.
And while branch closings have a definite impact on customers of acquired banks, First Union said common systems ease the transitional pain by quickly making the customer's information available to all of the bank's branches.
"You can only consolidate branches in an effective way if you are on common systems," Mr. Adams said. Even with the acquisitions made this year, he said all First Union customers will be able to use any of the bank's 1,300 branches by yearend.
Edge in Interstate Branching
Beyond these initial cost reductions and customer service advantages, though, First Union also believes that common systems prepare the bank well for the advent of interstate banking, if and when it is permitted under federal laws.
Lastly, Mr. Adams believes that First Union's full conversion to common systems will help its future acquisition efforts. "The speed with which we are able to convert [an acquired bank] to common systems provides a competitive advantage in the bid process, to be candid," Mr. Adams said.
As an example, Mr. Adams said First Union was able to keep its bid for First American Metro Corp. lower than other banks' because First Union would cut $7 million from First American's monthly operating expenses by a move to common systems. And since the conversion took only five months to complete, these savings were realized quickly.
"First Union does have the ability to integrate an acquisition and get the cost savings more quickly than a lot of its peers," said Moshe A. Orenbuch, an analyst with Sanford C. Bernstein in New York.
Branches Taken Care Of
"They have delivered handily on everything they've said they were going to do in their acquisition strategy over the last three years."
It is important to note, observers said, that First Union was not so obsessed with. its huge common-systems project that it ignored the needs of the individual branches.
The bank's branch system, known as Emerald, is a state-of-the-art delivery system that allows for differentiated pricing of the common set of banking products that are offered in seven states and the District of Columbia. Emerald also tracks employee sales performance for use in incentive plans.
The bank is in the process of improving technologies that will allow employees to sell annuities and other investment products through the branches. About 400 First Union branch workers are currently approved to sell these products, and that number is expected to rise to 2,600 by the end of 1994.
No. 2 in Deposits
In addition, all of the bank's branch data - from new account information to automated teller machine transactions - are sent to the host computer over a satellite network, which reduces the bank's reliance on expensive, land-based communications lines.
On the strength of these systems, First Union has been able to maintain the second-largest share of deposits in the territory in which it operates, according to Merrill Lynch.
On the commercial bank side. Mr. Adams said First Union is involved in a comprehensive re-engineering program designed to dramatically improve the time it takes to make a decision on a credit application.
Mr. Adams was noncommittal on the bank's stance on emerging retail banking technologies, such as home banking and so-called smart cards - credit or debit cards with computer chips.
Observers said this conservatism was not surprising, given that the bank has been reluctant ot adopt new retail technologies before there is proven demand.
But that does not keep First Union from researching new technologies, said Thomas Bennion, president of the Southeast Switch Inc., a Maitland, Fla.-based company that operates the Honor automated teller machine network.
"Without question, the bank is very much a proponent of having the network develop some of the new technologies on behalf of the banks that participate in it." Mr. Bennion said.
"Their idea is to take this [network] that they own a piece of and have it do the research and development and have it be the entity that handles some out-sourcing for the bank."
Mr. Adams placed his interest in the future in this perspective.
It's easy to be involved in the future activity at the exclusion of the basic blocking and tackling tasks," he said.
"We try to keep an eye on new technologies, but we don't like to get so distracted by the latest and greatest that we neglect the basics of banking."