Pennsylvania's Keystone Financial Inc. said last week that it would not meet earnings estimates for this year, throwing further doubt on the long-term prospects of the $6.9 billion-asset company.
Harrisburg-based Keystone said it expects to earn $1.90 per share in 1999, down two cents from 1998 and 13 cents off what analysts had estimated for this year, according to First Call/Thomson Financial.
Keystone's shares sank to a 52-week low on Thursday after the news was released, closing at $23.75, down from a high of $37.50 in January. Shares were trading at $25 late Friday.
"I am sure institutional investors are not happy," said Cassandra Toroian, a research analyst at Ryan, Beck & Co. in Livingston, N.J. With the announcement coming at a time when most of Keystone's rivals are thriving, Ms. Toroian said, she would not be surprised to see some investors calling for the company to be sold.
Keystone officers blamed the company's woes on an ongoing cost-cutting campaign that they admit has turned away some customers. The company is combining seven banks in three states into one, centralized institution.
"We set goals for the retail side of our franchise that, frankly, we are not going to be able to reach," said Donald F. Holt, Keystone's chief financial officer.
Specifically, Mr. Holt said that Keystone's drive to combine the banks has taken too much power away from branch managers. Though third-quarter numbers will not be released until later this month, he said retail loan volume has been lower than expected and the cost of funds has gone up.
"We didn't give our people in the field enough opportunity to utilize their knowledge of individual markets to make decisions," he said. "In short, we did not do a good job sustaining the close contact with our customers that we believe has been our hallmark over the years."
Mr. Holt said the company has adjusted its credit-scoring guidelines in order to return some control to branch managers. And Keystone is still on pace to meet its goal of cutting costs by $20 million per year, he added.
But it remains to be seen how much longer investors are willing to wait for management to produce a turnaround. Activist shareholder Seymour Holtzman introduced a petition at Keystone's annual meeting last April that called for the company to put itself on the block. Though it failed then, Mr. Holtzman's effort could gain ammunition from the latest announcement.
In an interview last week, Mr. Holtzman said he believes investor support for a sale has grown in recent months. He said he has received "countless" letters from shareholders criticizing Keystone chief executive officer Carl L. Campbell.
"The popularity of the president of a company is in direct proportion to the price of the company's stock," Mr. Holtzman said. "I can tell you that Mr. Campbell is not a popular person right now."
Analysts, meanwhile, said Keystone may not be able to rebuild its relationships with alienated customers.
"The challenge for them now is to reinstate the trust and loyalty of customers," said Collyn Bement Gilbert, an analyst at Ferris, Baker, Watts Inc. in Baltimore. "Once a bank loses that, it is tough to get it back."
Mr. Holt said bank executives are aware of investor rumblings but hope shareholders will give them time to let the changes they have made take hold.
"We can not control the markets," he said, "but we are certainly mindful of their concerns. Our focus is simply to do the best we can to improve the performance of Keystone."
