National Penn Bancshares has a unusual distinction: For three years running, stock in the Boyertown, Pa.based super community bank was trading at an astounding -- for a bank three times book value. Although the stock fell from those lofty heights a few months ago, it recently has been trading at nearly 2.5 times book. "At the beginning, I explained it as an acquisition premium;' said Anat Bird, managing partner with Financial Management Advisors, a New York consulting firm. But over time, she came to believe the stock price was too high for too long to simply be attributed to a built-in takeover premium.

So what is the secret of National Penn's success? Wayne R. Weidner, president and chief executive of National Penn Bank, the lead affiliate, says it's due to net interest margins that have been at or above 6.00% for three years, the sales culture it has built over the last decade, lean staffing, a series of aggressive but prudent acquisitions, and the stability of the markets where it does business.

Indeed, the $1.1 billion-asset company has grown so much in recent years that it changed its name last May. The original National Bank of Boyertown, which Mr. Weidner joined 32 years ago when it had $20 million of assets, became National Penn Bank, as did virtually all the holding company 's affiliates. Three branches in Philadelphia's Chestnut Hill section continue to operate under another name.

"The reason we changed it is that we had outgrown the [National Bank of] Boyertown name. Geographically, it restricted us," said Mr. Weidner. "And it also denoted a very small organization as [we] grew out of the greater Boyertown area." Boyertown and the surrounding area, with a population of around 18,000 people, today represents about 10% of the bank's business. In recent years, National Penn has moved into Lehigh County, Reading, Pottstown, and the suburban Philadelphia communities of Montgomery, Chester, and Bucks counties.

"We have a philosophy. We are not purchasing for growth's sake." said Mr. Weidner. "We're purchasing very carefully. We have refused to pay the large premiums that have been requested in some of the deals. We have walked away from some of those opportunities."

Mr. Weidner said National Penn's strategy involves making acquisitions that will fill in its presence in exist'mg markets. And, he added, "We have a vision to [expand] out of Bucks County and go into Lancaster County."

The growth strategy of the 41-branch institution also involves setting up what the bankers refer to as limited production offices. The locations, which operate out of rented space, offer full banking services without the cost of building or buying a brick-and-mortar branch. "You can take deposits with miniteller operations," said Mr. Weidner. "You can jump-start in 30 days. It's real easy.

"After we have a year or 18 months under out belt and like what we see, then [we can] go into a permanent site," he said. "You don't drop anchor without having a good feel that it's there. Once you make an investment in brick and mortar, you are pretty well in."

The bank used that strategy to move into Bucks and Chester counties and Allentown in Lehigh County.

Ms. Bird noted that with the bank's stock now trading at a lower multiple, National Penn will have more opportunity to make acquisitions than it did six months ago. At that point, she said, they would have been "horrendously expensive."

Today, Ms. Bird said, National Penn is in a better position to maintain growth and stay independent. Not that National Penn doesn't have an enviable performance record. Last year, return on assets was a strong 1.60%, up from 1.50% a year earlier. At midyear 1994, the figure stood at 1.35%. The bank's return on equity has also been stellar: 17.36% in 1993, up from 17.15% in 1992.

Mr. Weidner conceded, however, that the bank's rapid growth has adversely affected one number, the efficiency ratio. Noninterest expense per dollar of revenue has increased from a lean 48.26% in 1991 to a projected 57.00% for 1994.

"That [number] has increased. We are very aware of that," said Mr. Weidner. "We have every intent of working it back to 50%."

One way the bank plans to move down the efficiency ratio is to continue its aggressive consolidation of back-office operations.

When National Penn makes an acquisition, it moves quickly to consolidate the back-office operations. "We convert to our systems immediately, overnight--eliminating all of the back-office duplications and expenses."

He noted that when the bank acquired Chestnut Hill National Bank a year ago, within 60 days, we had e'hminated all of their back office, all of their accounting divisions, computerization, the whole works. And we transferred it to our central processing area" in Boyertown.

But while Mr. Weidner says the bank has a lean operation, there is one area it needs to improve. "With the competitive pressure in providing more efficient, more timely turnaround for customer requests, we are in the process now of getting ready to finalize the [decision] on installation of our first platform automation system."

He said the bank is close to choosing a vendor, and will move rapidly to install the system when the decision is reached. National Penn has budgeted $5 million for the system over five years.

"We are looking at it as a tool that we can handle an increased incremental amount of business [with] at a lower cost," said Mr. Weidner. The bank has also invested in other technology recently. An automatic telephone voice response system is expected to go on-line this month. The bank is also in the process of pulling in a wide-area network so its offices can more easily share data. And to gain efficiencies, National Penn is planning a major reengineering effort.

"We're going to look at every process throughout the bank as to what process we can eliminate and do it better," said Mr. Weidner. "I think we are going to find areas of improvement in our back office." And as the bank grows, management also plans to continue nurturing the sales culture it has spend a decade building.

While just about every retail bank worth its salt these days is talking about pushing sales, Ms. Bird said National Penn is "way ahead of the game."

Mr. Weidner said that some 9% of the bank's 600 employees do nothing but sell. "I'd like to see that number double in the next 18 months," he added. "Everyone needs to sell. We can't afford to have anyone on our team who is not willing to sell."

Mr. Weidner traces the beginnings of the sales culture to about 10 years ago, when the bank began to promote cross-selling in the branch network. "From there, we have really changed the whole incentive program for our retail branch network," he said.

Three years ago, National Penn put out word to branch managers that their annual raises would be cut every year until the base salary was frozen.

"At the same time, we have brought in commission programs for their ability to book new business," said Mr. Weidner. "Their whole compensation... increase will be based on their ability to sell and ability to motivate their sales team." Mr. Weidner said a typical branch manager, who makes between $27,000 and $32,000 a year in salary, can expect to augment that income with between $3,000 and $5,000 in incentive pay.

"I wish I had been paid during my early years in banking for my production," said ML Weidner, who started out at the bank as a teller. "I would have made a lot of money." National Penn also employs "personal bankers" and "business developers" who are paid on a base-plus commission basis. They look for business

leads, refer them to lending officers, and follow up to cross-sell other services.

"To make sure we are paying the right commission, we have all of the products on individual [profit and loss sheets]," said Mr. Weidner. "All the commissions are based on the profitability of these individual products."

The bank has also put laptop computers into the hands of 50 loan officers, to take applications while they are on the road.

Mr. Weidner said National Penn also looks for a different kind of banker when hiring. "We are out there hiring people with positive attitudes, with sales ability," he said. "I feel we can teach the technical side to those people."

Still, the bank has managed to engineer the cultural change with a minimum of pain. With the exception of a few middle managers, the bank has not fired anyone for failing to fit the new mold.

"We've had a branch manager or two leave us, moving to organizations that are not in a sales-driven environment," he said. "You're going to have some branch managers asking to be relocated. And we accept that."

But Mr. Weidner added, "We have offered jobs to everyone and I am very proud to make that statement." The sales culture is also supported by the management structure, which involves eight so-called cluster managers. Instead of a layer of regional managers, eight branch managers each have responsibility for five additional locations.

"We've done that in an attempt to eliminate executives and eliminate unnecessary overhead," said Mr. Weidner.

Mr. Weidner said that branches average about $30 million of deposits. Yet each location employs one full-time manager, two fulltime tellers, and one customer service representative.

'"We use 60% part-time staffing in our branch network," he said. In recent years, the bank has also returned to its roots as a community bank with a consumer banking focus. Mr. Weidner said that when Lawrence Jilk, the chief executive of the holding company, joined the bank 17 years ago, he brought with him experience in commercial lending.

'"We were really very committed to commercial lending, and that took us away from the retail side as our main thrust," said Mr. Weidner. "When the recession hit, we very quickly recognized the need to get heavily committed to retail... but we found a real oppommity for us to get very active overnight."

The bank again began to beef up its residential mortgage lending. "I believe we leamed a lot. We will not make that mistake again," said Mr. Weidner.

Looking ahead, National Penn bankers also see the need to boost fee income. "Our income has been derived from spread income. Over the years, we have been at 6% or better. We see that narrowing," said Mr. Weidner. "There is a lot of pressure on loans," he added. "Spread income is not going to do it if you want to continue at a 17.5% return on equity and a 1.50% return on assets."

To boost income, National Penn saw an opportunity in its trust business. The $200 million-asset department produced just $100,000 in profits. He said the bank was faced with a tough decision. "Do we continue to operate with a department that has mediocre performance, with aminimat contribution to the bottom line? Should we sell it? Or should we go out and bring in some trust professionals?"

In February, National Penn chose the third option, hiring three experienced trust bankers. By June of this year, the bank had spun off the trust business as a separate subsidiary operating under the Investors Trust Co. name.

National Penn, which plans to sell trust services to smaller banks, expects to begin to reap the rewards of the decision by 1996, Mr. Weidner said.

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