Academic journal article ABA Banking Journal

The Future of Banking Is Already Here

Academic journal article ABA Banking Journal

The Future of Banking Is Already Here

Article excerpt

Out of Kalamazoo comes a glimpse of the future from First of America, whose CEO, Dan Smith, is ABA's next president

When Time magazine ran an article last June entitled "Are Banks Obsolete?" it either didn't talk to anyone at First of America Bank Corporation or, if it did, it didn't get the message.

For while the article swarmed with gloomy quotes about the increasing irrelevance of commercial banks, a group of senior managers from this $20 billion-assets banking company in Kalamazoo, Mich., all of whom have spent their entire careers at the company, has quietly but aggressively pushed the boundaries of banking beyond its traditional limits. They did this without compromising the solid foundations upon which traditional banking was built, and as a consequence, have produced consistently strong performance.

The leader of this team, Chief Executive Officer Daniel R. Smith, is the man who will pilot the ABA for the next year. Not only does he not think banks are obsolete, he's proving they can be resourceful and adaptable, despite being perhaps the most highly regulated private industry in the country.

There is no better example of First of America's resourcefulness than its foray into mutual funds. This was no toe-dipping exercise. All the way back in 1985, FOA's management recognized the changing roles of deposits and investments.

That year, the company became one of the first institutions to convert its common trust funds to mutual funds when federal regulations changed. First of America had about 30 years experience managing common trust funds. Not coincidentally, Dan Smith had spent the first 21 years of his career at First of America in the trust department of the lead bank, part of the time as an investment advisor to the funds.

Now, eight years after the conversion, First of America is the 5th largest mutual fund manager among U.S. banks, even though it is only 39th largest in total assets.

Its 14 proprietary funds, which go by the name "Parkstone," have reached approximately $4.5 billion in assets. Nearly 90 licensed investment specialists sell mutual funds for the company--mostly from its branch offices.

Will size matter? This month, Dan smith will become the 108th president of the American Bankers Association, duly elected at its Annual Convention in San Diego. Although several senior officers from big banks have served with distinction as ABA presidents in the recent past, Smith, 59, will be the first top officer of a large bank holding company in many years to hold the ABA post. Part of the reason he sought the position, he says, was to encourage some of his peers in the ranks of the regional and superregional bank CEOs to do the same from time to time.

At $20 billion in assets, First of America is about 200 times larger than the First National Bank of Phillips County, Helena, Ark., where Smith's predecessor as ABA president, William H. Brandon, Jr., is CEO. Will this size differential affect community bankers' interest in ABA?

"I'm going to try hard to make sure it doesn't," Smith responds. The fact is, he says, "Bill Brandon and I were on the same wavelength this past year. I don't think all year there was an issue that we disagreed on. Just because my bank has more assets on its books, I don't know why I can't represent community bank members if my issues are the same as theirs."

Big in community banking. First of America Bank Corporation comprises some 20 banks and 575 branches in three states--Michigan, Illinois, and Indiana. Each of the subsidiary banks operates as a community bank. This strategy--sometimes called "supercommunity banking'--is not unique to First of America, but it happens to do it particularly well.

Here's how Smith defines community banking: (1) Each bank is funded by deposits from the locations where it has offices. "We have no money desk and we have no brokered deposits," Smith explains. …

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