Kentucky thrift seen as appealing after mutual-to-stock conversion.

As a banking analyst for Morgan Keegan & Co. in Memphis, Peter Tuz follows such hot southeastern stocks as Mark Twain Bancshares, of St. Louis, up 22% for the year, and Bank South Corp. in Atlanta, up 29%.

But earlier this week, Mr. Tuz was talking about an institution in Kentucky with something less than household name recognition.

Great Financial Corp. is "an interesting story right now," he said, referring to a Louisville thrift with $1.8 billion of assets and 40 branches around the state. "It's a newly public company, creeping up toward book value. It's a low risk, decent upside kind of stock."

Mr. Tuz has been following the region's banks for 3-1/2 years for Morgan Keegan, and for 10 years before that for the New Orleans firm of Howard, Weil, Labouisse & Friedrichs. In general, the bank stocks he follows have been "flattish" this year, while the markets have been taking a beating.

Price Appreciation

Takeover speculation has driven Mark Twain and Bank South stock price sharply upward. Mark Twain was trading at $30.25 on Tuesday, up from a low earlier this year of $24. Bank South was at $19.625, up from $14.75.

With the exception of Trans-financial Bancorp. of Bowling Green, Ky., which Mr. Tuz characterizes as a well-managed company whose expenses are running too high after some acquisitions, there isn't a bank he follows that isn't "doing well."

By those standards, Great Financial would appear to be unremarkable. In addition to its branches, which conduct savings and loan activities, it has a small out-of-state mortgage banking business with $4.5 billion of servicing. Its return on assets of about 0.80% is merely average, the analyst conceded.

But Mr. Tuz said Great Financial has considerable appeal to investors because it was one of the last mutually owned thrifts to convert to stock ownership before recent rules changes in Washington that made the conversions less attractive to management.

As in most conversions, Great Financial shares were made available to depositors at a discount. The stock went public March 31 at $14.25, and has more than held its ground in the tough stock market since then. On Tuesday, the stock was trading at $16.25, a 13.3% gain in just over a month of trading.

"These things have a definite pattern," Mr. Tuz said, predicting that Great Financial will trade before long at its book value $16.40 per share. Great Financial has potential to trade higher than that, he said, because of its potential appeal to out-of-state acquirers.

"Great Financial is now the largest independent financial institution in Kentucky," he said, noting that the larger institutions have been acquired or are in the process of being acquired by Banc One Corp., National City Corp., Fifth Third Bancorp, and PNC Bank Corp.

"The Southeast is fortunate to be one of the steadiest and best-growing regions in the country, [and] Kentucky has one of the better growth profiles" in the region, he said.

He acknowledged that the thrift's 15% equity-to-assets ratio after the conversion might make it hard for an acquirer to earn a decent return. But he said that the scarcity of takeover targets in the state would render that consideration a "moot point."

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