Of the thousands of banks in the country that use the words First National in their names, only one literally lives up to it. First National Bank of Keystone, W. Va., is, in fact, first in the nation with the highest 1995 return on equity of any nonspecial-purpose bank and, indeed, national in that it bought loans in 32 states and intends to do business in all 50. It would do business on the moon if it could get there, said chief executive J. Knox McConnell Jr., who's used to shooting for the moon. There are three banks in this county and five in the next county, and I want to make more money this year than all of them together that's my goal, said Mr. McConnell. They may get mad at me, but I don't care because they don't pay me. First National, with $230 million of assets, was the country's most profitable bank as measured by return on assets in 1994. It also had the highest ROA of any community bank averaged over the last three years, beating out the perennial contender for that spot, Kentucky Farmers Bank of Cattletsburg. But Mr. McConnell, 68, is still not satisfied. He wants to be No. 1 for 10 years running because maybe then they'll remember us. Nobody remembers No. 2. The yearend 1995 numbers are way off the map: an ROA of 7.44%, about seven times higher than its peer average, and a staggering 81.35% ROE. (That's not a typographical error.) Two-thirds of the profits came from the bank's mortgage subsidiary, which First National has built into its specialty business. The subsidiary's 18 employees canvass the country for loans to buy, securitize them, then sell them on the secondary market at a huge profit. We're seeing a trend toward securitization in mortgage banking, said John Kline, vice president at Ryan, Beck & Co. in West Orange, N.J. But the extent to which this bank is doing it must be incredible. These are pretty off-the-chart numbers, to say the least. But with the rewards of such a profitable business come risks. During the warehousing period, before the loans are sold on the secondary market, the bank is exposed to massive interest rate risk. To appease examiners, it had built up a substantial capital stockpile 16% of assets by the end of 1995. The bank expects that cushion to reach 33% of assets by this time next year, Mr. McConnell said, more than three times the industry average. The capital position does not hinder First National's ROE because we make a fantastic amount of money, he said. We are very unusual, he added. I would say there isn't a bank under $5 billion of assets that is doing what we are doing. Mr. McConnell also attributes the bank's success to a stringent loan policy, resulting in very few bad loans. Those sort of borrowers were not plentiful in the coalfields of West Virginia when Mr. McConnell was building up the bank in the late 1970s and early 1980s, so he went out-of-state to find them. He went where he knew the money was to physicians in his native Pittsburgh. He offered urologists, ophthalmologists, surgeons, and other doctors there a rate on 15-year mortgages a quarter-point lower than market. The bank now has about 900 such loans on its books all of them pristine. Partly as a result, Mr. McConnell said, his bank doesn't have a single mortgage that it could not sell on the secondary market. Unorthodox strategies clearly don't make him nervous. As a means of cutting down on office romances, which could become distracting, all the bank's other 40 employees are women. Mr. McConnell is the only man in the office. I'm not afraid of women dating women, he said; it's a guy from the loan department dating some teller that I don't want. Mr. McConnell added quickly that his pay scale is not any lower than it would be for a male-dominated office. One employee, for example, who retired in January after 18 years with the bank, discovered after looking over her pension benefits that she had become a millionaire, he said. He said he believes his 40 employees are more likely to be driven than their counterparts at most banks for the simple reason that they are also owners with about a 60% stake, in total. Mr. McConnell holds 28% of the stock, worth about $5.9 million at its current trading price. To get the most out of them, Mr. McConnell expects each employee to know how to do at least four jobs. His personal secretary does six, including opening deposit accounts, taking board minutes, and handling the stock ledgers. And he proudly proclaims that the bank has had no turnover in the past 11 years. He said he holds employees in such high regard that he is not interested in growth through acquisitions, unlike most competitors. Personnel is almost a study in itself, he said. So when you eliminate people through an acquisition, I think you make enemies, and I don't think communities like that. The bank also owes its impressive numbers to a cost-conscious operation no company cars, no first-class flights, and no country club memberships. To save on postage, the bank mails dividends to its stockholders only twice a year, instead of the customary four times. Mr. McConnell estimated the switch saves the bank about $1,100 annually. Only one stockholder, a 78- year-old widow, has complained. He seldom socializes with his fellow bankers and is not interested in serving in his state's trade group, he said. I'm interested in getting a 10% ROA, he said, not in sitting around and talking about who the next association president will be. No conversation about Mr. McConnell's ambitions and how he got where he is today lasts very long without his mentioning Billy Conn, a light heavyweight boxing champion in the 1940s and a fellow Pittsburgh native. Mr. McConnell was 8 years old when he met the fighter, who was 10 years older, before a bout in 1935. The two became lifelong friends. In 1984, Mr. McConnell wrote a book, The Boxer and the Banker, an adoring account of the fighter's career and the impact he had on Mr. McConnell's life. He has written two other, banking-related books. His association with Billy Conn has led to four years' service on the state boxing commission, and 18 months ago, he was appointed chairman. In that time, several fights have been broadcast nationally on cable out of Chester, W. Va., and ex-champion Roberto Duran will be fighting there in coming months. I lived by what he told me, Mr. McConnell said of his boxer friend. He told me to be the best at whatever I do and that the only way to do that is to surround yourself with the best people. I have done just that.

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