Up, up, and away: Boatmen's conquers new markets.

WHEN ASKED HOW Boatmen's Bancshares Inc. plans to follow its recent string of successes, chairman Andrew B. Craig 3d has a simple answer: "More of the same."

Such clipped responses are typical of the chairman, president, and chief executive officer of the $24.6 billion-asset holding company, based in St. Louis.

Mr. Craig's brevity, however, may work to his advantage. Since becoming Boatmen's chairman and CEO in 1988, he has kept the bank and its 13,000 employees focused on a short list of goals: growth through acquisition, at least a 15% return on equity, and diversifying the bank's product offerings while simultaneously limiting noninterest expenses to no more than 60% of revenues.

Boatmen's shareholders would probably be more than satisfied to have the bank's stock remain on the roll it has been on since the beginning of the decade. Management recently announced a 2-for-1 stock split, after the price of the shares more than doubled since 1990. The bank also has raised its dividend for 13 straight years.

The fundamental performance of the bank is also on the rise. After several years of middling performance, Boatmen's second-quarter profits hit a record $76.2 million, or $1.55 a share, while returns on assets and equity climbed to 1.28% and 16.19%, respectively.

"We've achieved our recent goals," said Mr. Craig. "Now we've moved it up to a sustainable 16% return on equity and a 1.30% return on assets. We're not far away from that now."

Nevertheless, industry analysts remain mixed as to whether Boatmen's can maintain its aggressive growth. For example, Joseph A. Stieven, the banking analyst at Stifel, Nicolaus & Co., St. Louis, recently dropped his rating from a short-term buy to a long-term purchase.

"Andy Craig has to move the valuation of the stock and earnings to the next level. His job is tougher than [Mr. Craig's predecessor] Don Brandin's was," said Mr. Stieven. Still, he also notes that the company is in its best shape in more than a decade.

After making a number of dillutive acquisitions in the late '80s, Boatmen's has had better luck of late, entering into a succession of deals between 1990 and 1992 that both moved the bank into new markets and added directly to its bottom line.

Today the bank operates in nine states. Missouri banking laws prohibit Boatmen's from making more in-state acquisitions, but those laws also effectively prevent other super-regionals from doing deals in Missouri. Only out-of-state banks that are based in states contiguous to Missouri can make acquisitions there.

The bank's technology and operations staff also has become adept at quickly integrating acquired banks, usually within six months after an agreement becomes final.

"When we make acquisitions, we believe in making those [systems] conversions very rapidly," Mr. Craig said. "That does two things. One, it gets some costs out. It also allows us to better serve the markets we are entering." Boatmen's can usually offer a much wider range of products than the community banks that are its primary competition in most of its. markets, which stretch from Tennessee to New Mexico.

When doing a conversion, "we have a timetable in our mind, [where] sooner is a whole lot better than later. And the boss likes it even earlier than sooner," joked J. Robert Brubaker, an executive vice president and senior operations officer, when talking about Mr. Craig's approach to conversions.

The infrastructure necessary to easily absorb new institutions was among the spoils of a 1988 bidding war Boatmen's won over a St. Louis competitor, Mercantile Bancorp., to acquire another local bank, $5 billion-asset Centerre Bancorp.

"From there on out, we had a much more modern data center than the [prior] Boatmen's organization did, when we occupied another building in downtown St. Louis," said Mr. Brubaker.

The deal also prodded management into long-range planning for future acquisitions. The data processing group chose a mixture of Boatmen's and Centerre software to the new institution.

On the hardware side "we had a relatively clean opportunity to look at the latest technology and more closely look at our data communications links," Mr. Brubaker noted.

The merged institution was ripe for such a review. By Mr. Brubaker's count, Boatmen's was supporting telephone switching systems from no less than 37 vendors. Working with Southwestern Bell Telephone Co., the bank replaced its aging, incompatible equipment with a backbone network equipped with latest digital and fiber-optic technology, integrating both voice and data communications.

"Frankly, the network is probably the key to doing conversions," said Mr. Brubaker. "It's not so easy to design that level of sophistication in a backbone network. It permits us to run a single data center and do the acquisitions easily."

Today, "one of the big potential cost savings is moving everything into this single centralized data center," said James W. Kienker, an executive vice president and Boatmen's chief financial officer.

After Boatmen's acquired Albuquerque, N.M.-based Sunwest Financial Corp., a $3.4 billion-asset institution last October, "we had their systems running in our St. Louis data center within a month," Mr. Kienker said. The conversion to Boatmen's systems was completed six months later.

Still, Mr. Brubaker said that even with a lot of practice, conversions never go as planned. Often, he said, "it looks like you're a hero, but you have to have a little luck."

He pointed to Boatmen's 1990 takeover of the deposits of Community Federal Savings and Loan, a St. Louis thrift with $2.5 billion in assets. The accounts were converted in less than two months.

"But one day we came in, and the entire proof department had walked out" when they apparently realized that many of their jobs would be eliminated after the consolidation, Mr. Brubaker said. After a short delay, Boatmen's staffers were nonetheless able to process the accounts. "That's where the knowledge of operations and how to run something really paid off," he said.

Although the bank is in the midst of a steady flow of acquisitions, Boatmen's has not lost sight of its efficiency ratio, or noninterest expense as a percentage of revenue. "We are better than average, but not good enough," Mr. Craig said of that number, which continues to close in on his 60% tart.

"My associates are tired of hearing the term |efficiency ratio,'" Mr. Craig said. But he makes no secret of his dislike of extraneous expenses. Soon after an institution is acquired, "we introduce them to what we call the Boatmen's culture. That means cost control."

For his part, Mr. Brubaker is realistic about the impact such culture has on his operations. "The guy over there," he said, pointing to Mr. Craig's office, "is not going to let me do anything that does not pay back in 18 months. If I can do it in nine months, he's happier still."

Mr. Brubaker concedes that there are additional savings that can be achieved from operations, particularly within some of the bank's newer acquisitions. But, he added, operations are just part of the picture.

"As long as you're running [the data center] and serving your customers well, data processing or operations of any kind are not going to make or break the bank," he said.

However, Mr. Brubaker's group is playing a major role in fashioning the delivery systems that will help Boatmen's make a transition from an institution dependent on corporate and trust businesses to more of a broadly based retail bank.

Boatmen's maintains the 13th-largest trust operation in the country, managing more than $32 billion in assets. This unit generates outsized profits because of a heavy concentration in personal trust, the most profitable portion of the business.

Mr. Craig still sees trust as an effective vehicle for boosting fee income, but he has other plans as well. "There is a big segment of our customer base that should have all their financial services delivered by a bank, and it should be Boatmen's," said.

In this group of services, Mr. Craig includes the usual consumer banking products and some Boatman's specialities. "If you get rich, we have an investment group. If you die, we can manage your estate," said Mr. Craig, covering his bank's version of cradle-to-grave service.

Boatmen's balance sheet reflects this restructuring. "We've changed the liability side of the statement," said Mr. Kienker. "In 1989, we were 70% funded by core retail deposits. Today it's 85%. That reflects the internal growth in that kind of business."

To date, though, Boatmen's most noticeable attempt to heighten its consumer banking profile has been the ATM deal it signed in April with Wal-Mart, the giant retailer.

Under the agreement, Boatmen's will install more than 150 machines in various Wal-Mart stores in the states where Boatmen's operates. "The ATM is one facility that will be used to offer more services, not just banking services, but more service," said Mr. Craig. He expects the venture to be "a meaningful fee generator."

Boatmen's also is in the midst of updating its entire retail delivery system. "That's a big initiative right now," Mr. Brubaker said. "The corporation never really branded itself We never had a color."

These cosmetics are being addressed, as Boatmen's converts its signage to a bold red-and-white theme. Mr. Brubaker and his development staff are working on a common, combined statement, using image technology for the checking portion.

"You can choose what accounts you want to appear on the statement," said Mr. Brubaker of the product, which will be introduced later in the year. "It will be three-hole punched. You can sit down, reconcile all of your accounts at once, and then store the statements in a notebook." He expects that Boatmen's brokerage accounts will be added to the combined statement in another year.

Although Boatmen's has no plans to implement an image-based system for proof of deposit in checking, it is using imaging in a number of other areas.

Mr. Brubaker also has his eye on alternative delivery products. Currently, Boatmen's offers home banking via a telephone-based product and a personal computer service delivered over the Prodigy network. Unlike prior home banking efforts, many of which failed spectacularly, Mr. Brubaker said Boatmen's Prodigy service has been pulling its weight.

"There are three ways to reach the customer in the home: telephone, interactive video, and PCs," Mr. Brubaker continued. "As long as it's not a drain, we want to make sure have our toe in the water in all three."

Despite his devotion to cost controls, Mr. Craig acknowledged that "use of technology will play a role in cross-selling more products to our large customers."

Meanwhile, the executive will remain on the prowl for more acquisitions, while honing his admittedly simple strategies. Execution," he said, "is everything."

For the banker who constantly preaches to his staff to focus on "hitting singles," the rally generated by this slap-hitting approach shows few signs of ending.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER