NASHVILLE -- Dennis C. Bottorff, a former engineering student, has helped engineer a remarkable turnaround at First American Corp. The company lost $62.4 million in 1990 and then came back with force, chalking up $102 million in 1993 earnings and a 1.50% return on assets.

But Mr. Bottorff, who took command at First American in late 1991 as president and CEO, faces a question familiar to other turnaround managers: What does one do for an encore? Sure, nonperforming loans have been whittled down to a comfortable level - 0.93% of total loans.

But First American's efficiency ratio is high by peer standards, 64%. And noninterest income provides a rather low 25% of total revenues, which Mr. Bottorff would like to raise to one-third. Clearly, he still faces a considerable challenge in getting First American's earnings power up to high performance standards.

One of his solutions has been to create a subsidiary known as First American Enterprises to build side businesses outside the bank's core, particularly in the electronic payments area.

As he explained during a recent interview, Mr. Bottorff believes that the banking business - basic lending and deposit taking - is a mature industry with little real growth potential. To ramp up First American's earnings growth, he feels the need to venture into other areas.

Mr. Bottorff, 49, brings a wealth of banking experience to bear on these kinds of strategic problems. He began his career at Nashville's Commerce Union Corp. in 1968, rising through the ranks to become president and CEO.

After Commerce Union was bought out by Norfolk-based Sovran Financial Corp. in 1987, Mr. Bottorff was appointed president and CEO at Sovran. When Sovran agreed to merge with Atlanta's Citizens and Southern Corp. in 1989, Mr. Bottorff became C&S/Sovran Corp.'s president and chief operating officer.

That merger unraveled in 1991 amid mounting real estate problems and C&S/Sovran was acquired by Charlotte-based NCNB Corp., now NationsBank. Mr. Bottorff then returned to Nashville to accelerate the turnaround already under way at First American.

Q.: Why did you create First American Enterprises?

BOTTORFF: Today, if you look at First American Corp., 95-plus percent is core banking business, which still has some opportunity. That business is beginning to grow again. And we have some growth opportunities as we get more focused on the market.

But a time will come when the growth of that will be tied to the basic growth of the primary geographic market, Tennessee, which is going to be a moderately growing area. So down the road - and we don't know if that's two years or four years - we see the basic growth rate of the core business being moderate.

There are more rapid opportunities for growth. Changes that are occurring in the payment system create those. We're really modeling this after Bell South Corp., which eight to 10 years ago established something called Bell South Enterprises.First American Corp.At a GlanceHeadquarters NashvillePresidentand CEO Dennis C. BottorffTotal assets $7.3 billionNumber ofemployees 3,210Return onassets 1.25%Return onequity 15.5%Data as of first quarter

The person that heads Bell South Enterprises, William O. McCoy, is on our board, so we're able to draw on those experiences. You start by taking a broad view of financial services. They took a broad view of telecommunications, which got them into cellular and offshore.

We're not going to limit the geographic focus, [of First American Enterprises] but we are trying to invest in things that will, three or four years from now, produce an appreciable percentage of the growth of earnings of this company. It still won't be a large part of the absolute dollar earnings but it will be an appreciable percentage.

We used the trust area as a cornerstone to Enterprises because Enterprises is responsible for the investment area. What we've done is re-look at the way we do product development and product management and distribution of investment products in the core business. But the real opportunity has to occur outside (the core banking business).

The core business is throwing off capital. We have three choices. We can increase the dividend, buy back stock, or we can find other investments. Now if we want to just become a kind of utility, we can do the two financial transactions. What we're trying to do is try to leverage that capital through other investments that ramp up the growth rate.

Directionally, we have a better opportunity to sell information than we do to sell products. We have contracted with a firm in Atlanta, ADAM Investment Services, that has an asset allocation model that helps [private banking customers] to sort through some 4,100 mutual funds and make decisions about those 4,100 funds. We are the exclusive distributor for that in our geographic market.

Q.: So First American Enterprises is heavily investment-oriented at this point?

BOTTORFF: No. I'd call Enterprises at this point an R&D operation. One of the legs of that is investment products-oriented and it's the most substantive piece.

But they're also looking at changes in the payment system: the move from paper to electronics and the share of payment systems that banks have versus other institutions. It's really strategic planning in looking back at those broad changes and trying to figure out where that might end up eight or 10 years from now.

Q.: Have you made any big bets yet?

BOTTORFF: No. We won't make big bets. We'll make little bets. We're a niche institution.

We need to talk three years from now. That's when we'll see whether we've really been able to do something.

I would expect you might even see a portfolio approach take place, that we could have some small entities that are in existence that we buy that have an opportunity for rapid growth but maybe are capital-deficient and we try to support them.

The core banking business can be a good business, but it is not a dynamic business. And it is a business that is steadily losing market share. So the business is on the wane in terms of its importance.

If you're going to be just part of this waning business, you stay in this core banking business. What we're trying to do is broaden the scope of the company, look at financial services and see if we can complement a core business that is mature. We would like to enter things that would produce returns on equity greater than 16 to 16.5% and have growth rates better than 20%.

Q.: You sell mutual funds under the First American Enterprises umbrella. What's the outlook for that business, given the recent market downturn?

BOTTORFF: The growth of mutual funds is a secular growth. It's not a cyclical growth although there are cyclical trends. So while the growth rate has been very high recently, that will slow and you might get a slight outflow so you get some decline. But my guess is that the growth rate will just moderate for a while.

It's driven by a combination of demographic changes and the interest rate cycle. When interest rates are lower, you're going to get higher growth and when interest rates are higher, you probably won't get as high growth.

Q.: Do you see danger for banks from angry customers who might lose some principal?

BOTTORFF: Yes, there is. Banks have built up a substantial trust over many years. That trust is one of the biggest assets we have in the industry.

And if, as we become more sales oriented as an industry, we look more like insurance salesmen or brokerage house salespeople and begin to lose that trust, we will have lost tremendous value in the franchise. So there is a lot of risk and you need to be very careful and protect that trust.

I tell people here that the revenues are not as important as ensuring that the customer understands what they're buying. The revenues will follow.

Q.: How do you restrain your salespeople in the branches?

BOTTORFF: You go back and inspect all the tickets. You do all these suitability tests. There are checks and balances after the fact to determine whether or not you had proper disclosure to the customer. We say we have to be perfect on those. So if you have a bad audit, there are going to be consequences to that.

Q.: What are the consequences?

BOTTORFF: I think the management of that operation thinks the consequences are that they probably won't be in charge of that operation anymore. I haven't said that to them that directly. But I think if you went and asked them, they'd say, I'd better not mess this thing up.

While the broker has the responsibility, where we're really making accountability is the management of the operation. They know their brokers had better not mess up.

Q.: Do your salespeople have incentive to favor your proprietary funds?

BOTTORFF: No. The trust area, where the proprietary funds are managed, would love for us to encourage the sales force to give some preference to their product. What we have said to the trust department is you have to compete through performance.

The customer is going to be better off if you're forced to compete against all other product lines. So if you can't compete your funds won't be successful.

The trust department hasn't been particularly excited about that because they would love a proprietary sales force.

Q.: What's the outlook for bank acquisitions in Tennessee, given the movement toward national interstate banking?

BOTTORFF: If you look at market opportunities, Tennessee is a good market, but it's not a great market. There are other markets that are more rapidly growing with larger institutions. When you get to be $50 billion in assets, if you can buy a $15 billion institution in Washington, D.C., that is better than buying a $5 billion institution in Tennessee.

The next round [of acquisitions] is going to be $15 billion to $30 billion banks. If you take a $7 billion institution like us and a $165 billion institution like NationsBank - we're peanuts to them.

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