To compete with larger rivals, Farmers and Merchants Bank of Granite Quarry, N.C., is redesigning its retail delivery systems to take advantage of client/server technology.

Officials hope the $400,000 they are investing will help the $155 million-asset bank keep pace with competitors and grow.

The bank is installing PC-based Pedestal, an integrated loan origination and platform automation system from Denver-based Formation Technologies Inc., a subsidiary of John H. Harland Co., Decatur, Ga.

The system will automate the bank's consumer and commercial lending, including compliance, documentation, and completion of lending files.

"With Pedestal we will be able to offer innovative services on a par with our larger competitors," said Darlene Treece, vice president of operations and security officer.

She added that the bank's branch delivery redesign would establish a foundation permitting growth without accompanying large staff increases.

"The new technology will also help us to remain an independent community bank," she said.

The project - to be completed by yearend - involves linking six branches on a PC-based network that will replace a system based on "dumb" terminals. Dumb terminals rely on host computers for their processing power.

Pedestal will run on OS/2 servers and will be accessed through PCs running under Windows.

A document-imaging system will be attached to the network, letting the bank store loan documents and signature cards electronically.

Like many community banks, Farmers and Merchants is aware of the important role technology plays in offering better service in an industry where the number of small banks is declining.

As a result, many are beginning to spend more on hardware - replacing dumb terminals with PCs - and are turning to outsourcing services to upgrade their system capabilities and improve their ability to maintain market share.

Farmers and Merchants, which intends to start expanding its branch and automated teller machine networks beginning at yearend, views technology as a way to do this efficiently, said Ms. Treece.

Pedestal will automate many of Farmers and Merchants' loan processing functions and enable many manual tasks to be handled electronically.

The system will let the bank take loan applications on-line and transmit loan packages among branches. Currently, branch employees take applications on paper and enter the information on their terminals.

An immediate benefit of on-line origination capability is that loan officers can use laptop personal computers to take mortgage applications in the field.

The bank is increasing its mortgage underwriting and servicing activities in the secondary market. With the new system, it will be able to generate mortgage documentation automatically and track all loans on-line.

Through automation, the bank will also be able to free employees from mundane tasks and redeploy them into more productive functions, said Ms. Treece.

On the deposit side, Pedestal will automate compliance with regulations such as the Truth-In-Savings Act. Bank employees will also be able to use the system to cross-sell products to customers.

In the back office, the bank will boost productivity with the system's electronic interface to its mainframe core processing system. This interface will let information be updated, correcting data entry errors, bank officials said.

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