2 Pennsylvania Banks Are Turning Analysts' Heads

Two banks in central Pennsylvania offer convincing proof that staying close to home pays off.

Keystone Financial Inc. and Dauphin Deposit Corp., both located in Harrisburg, rank among the country's most profitable banks whose assets are less than $5 billion.

"They are probably under-followed and underappreciated by Wall Street," said a regional bank analyst who tracks both companies.

The stock of both banks sells at about 140% of book value. Even though these premiums reflect the success they have enjoyed lately, the two banks still offer good value to investors, according to analysts.

Dauphin rose 50 cents on Wednesday to $35.25, and Keystone was up 50 cents to $23.25.

Neither Boom Nor Bust

Neither bank has strayed from home turf, a region that did not join in the boom enjoyed by much of the adjacent Northeast during the 1980s -- or suffer in the subsequent collapse that has tarnished competitors.

Consequently, there has been no call for huge and costly reserves against problem assets that are not producing full income. In the first quarter, when many banks were forced to record large loss provisions, Keystone's provision was 0.36% of net loans and its loss reserve was 1.18% of net loans.

Currently, the area economy is sluggish but stable. But the two banks do relatively well, placing either first or second in most of the submarkets in their territory.

Dauphin drew notice two weeks ago when it won approval from the Federal Reserve Board to underwrite corporate debt and equity. The only other banks with such approval are a pair of New York money center giants: J.P. Morgan & Co. and Bankers Trust New York Corp.

Keystone recently reported a 5.5% increase in second-quarter earnings per share from a year earlier, and Dauphin tallied a 6% increase. At yearend, both were among the 100 top earners in the industry, according to a survey by the American Banker.

Keystone president and chief executive officer Carl Campbell does not disagree with analysts' estimates that that company will earn $2.35 a share this year, up 5.5% from the $2.23 earned last year. Projections for 1992 are $2.55 to $2.60.

Among banks with assets under $5 billion, Dauphin ranked ninth, with a 1990 return on assets of 1.39%, and Keystone was 13th at 1.23%. Dauphin was 10th in return on equity, at 15.66%, and Keystone placed 14th at 15.31%.

Dividends Raised

Keystone increased its quarterly payout to 25 cents from 21.6 cents a share and was one of only 11 banking companies to post dividend increases of 15% of more in the first half.

Dauphin increased its dividend in the fourth quarter last year. [Graph Omitted]

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.