Bob Leech has been paying dearly for exceeding the distance allowance on his leased car. Last year, he clocked 5,000 extra miles, and this year he may run up even heavier charges.

Mr. Leech, president of the asset management division of Keystone Financial Corp., Harrisburg, Pa., has been on the road constantly this year because of Keystone's acquisition in August of MMC&P, a Pittsburgh employee benefits consulting firm, and in connection with other acquisitions he is planning.

"I cost myself a lot of money this way," said Mr. Leech.

But he sees the extra lease charges as a small price to pay. He started from scratch six years ago and has built Keystone's investment management business into a recognized player in the industry.

With the launching of the seven-fund family of KeyPremier funds late last year, Mr. Leech's division now oversees $830 million in mutual fund assets and about seven lines of investment business staffed by 275 employees.

It has been a busy road for Keystone and Mr. Leech to this kind of growth. The super community bank, which has $7 billion of assets and nine member banks in central and southeastern Pennsylvania, Maryland and West Virginia, has grown its investment management muscle through a spate of acquisitions. All of a sudden, Keystone became the little bank that could.

First came the purchase of West Conshohocken, Pa.-based asset management firm of Martindale, Andres & Co. in late 1995, which gave Keystone access to a top money manager. Martindale's chief investment strategist and the founder of the firm, William Martindale Jr., was named one of top five stock pickers to have outpaced the Dow since 1990 by Money magazine in this year's September issue.

"They are a very good example of an organization that strategically is doing the right thing," says Jeb Britton 3d, a senior consultant with San Francisco-based Spectrem Group. "Keystone had a very clear objective in mind when they decided to acquire Martindale: shed the stodgy image that banks typically have. It has turned out extremely well." Soon after the Martindale acquisition, Mr. Leech decided to sell its corporate trust business and convert some $700 million worth of common trust funds into the KeyPremier mutual funds and put it all in the care of its new money manager.

In addition to its own portfolio of about $300 million in individual investment accounts, Martindale, Andres primarily manages the KeyPremier mutual funds, which are marketed by Keystone retail arm of Key Investor Services. And Mr. Leech turned the bank's former trust officers into investment advisers.

At the core of Mr. Leech's vision is his integrated distribution strategy that has the bank's various investment vehicles - Martindale, Key Investor Services, its discount brokerage arm of Keystone Brokerage, the various bank affiliates, MMC&P and the trust arms - feed assets into the KeyPremier mutual funds.

"We see our mutual funds as the common link of all our businesses and as the opportunity to link them all."

Mr. Leech says that one of the reasons he took his present position six years ago was the opportunity to oversee the growth of the entire asset management business. That differs from the style of other banks, where the investment business is fragmented into "fiefdoms" and thus more dysfunctional because of various "turf battles."

Mr. Leech predicts that his arrangement will help grow the mutual fund assets at a rate of 50 to 75% a year, and on track to achieve $1 billion by year's end. Fee income from the asset management business is expected by 2000 to reach $50 million.

Several vehicles have been put in motion to achieve that end. For one, Keystone is in the process of rolling out an investment platform program, which could increase the number of investment reps in its six banks to 300, from a current 30. In addition, an international mutual fund will be added to the existing KeyPremier portfolio by the end of the year. Plus, even while digesting the recent MMC&P purchase, Mr. Leech is already on the lookout for a good value-style money manager as an acquisition target.

An important part of Mr. Leech's mutual fund "feeder" strategy has been in the 401(k) arena. The acquisition of MMC&P, which brought with it $750 million of assets under administration, is expected to grow Keystone's 401(k) business at a rate of 10 to 15% and channel more KeyPremier funds to MMC&P's customers.

"We see the (defined contribution) arena as a vehicle to get to savings," Mr. Leech says.

Mr. Leech seems to have a pulse on consumer savings habits. According to a study recently released by the American Bankers Association, based on figures from the Federal Reserve Board, investments in stocks, bonds, mutual funds and retirement plans have increased to 81%, up from 66% in 1975. Conversely, bank and trust deposits accounted for only about 19% of household assets in 1996, down from 34% in 1971.

Mr. Leech says that, like most banks, he pondered whether acquiring investment management talent was better than growing its own. He decided on the former because in most cases buying a talented manager is cheaper and far speedier than creating one's own. And in an unusual manner for a smaller bank, Keystone allows its acquisitions to operate independently, which attracts entrepreneurs like Martindale and MMC&P. Their compensation works under a bonus pool system, which is based on a percentage of profits and driven by investment performance, success in business development, and teamwork, Mr. Leech says.

"It's refreshing to see that (Keystone) doesn't try to turn them into bankers," says David Master, a consultant with Optima Group. "Most banks do."

And other industry observers applaud Keystone's boldness in their acquisitions.

"They're on the leading edge," says Mr. Britton. "There aren't too many banks of their size that are doing it," although Mr. Britton admits that many are now considering making similar investment acquisitions.

Large banks, on the other hand, keep racing each other to buy money managers and securities businesses. Birmingham, Ala.-based Amsouth Bancorp., for example, in March became an equity partner in Pittsburgh- based Rockhaven Asset Management, which will serve as subadviser to the bank's equity income fund. In August, Amsouth also signed on Atlanta-based Peachtree Asset Management to serve as subadviser to its new, capital growth fund.

In the securities arena, blockbuster alliances like the one between NationsBank Corp. and Montgomery Securities, which is due to close soon, are becoming commonplace, as commercial banks are frantically entering the brokerage business.

Mr. Leech doesn't pretend to go against the likes of Amsouth or NationsBank. But he says that on a "local level we go head to head with anyone. That didn't happen three years ago."

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