Wisconsin's State Financial Services Corp. is abandoning its multibank structure in favor of efficiency, a move it hopes will not jeopardize customer relationships when four banks become one.

Daniel L. Westrope, an analyst at Howe Barnes Investments in Chicago, lauded the move, however, initiating coverage of the $222 million-asset company with a "buy" rating.

State Financial Services at a GlanceHeadquarters: Hales Corners, Wis.President Michael J. Falboand CEO:Assets: $222 billionReturn on 0.88%assets:Return on 7.85%equityFirst-quarter $485,267net incomeTier 1 leverage 11.07%ratio Source: Howe BarnesInvestments/State Financial Services Corp.

"By '95, their earnings will justify a higher price on their stock," Mr. Westrope said. "Now's the time to buy it ... while it's still undervalued in the marketplace."

Four Predecessors

State Financial, based in Hales Corners, Wis., has consolidated its four banks -- State Bank, Hales Corners; University National Bank, Milwaukee; Edgewood Bank, Greenfield; and Eastbrook State Bank, Brookfield -- into State Financial Bank.

"They had kept them deliberately separate for a while, thinking the customers would be more responsive to that," Mr. Westrope said.

But now, Michael J. Falbo, president and chief executive of the holding company and vice chairman and chief executive of the bank, says, "The goal is to get ourselves in a position so we can be more efficient and look at expansion."

$200,000 Savings Seen

While retaining existing employees and board members, the consolidation will generate data-processing and administrative cost savings of about $200,000 annually. for instance, the company's preparations for call reports will decrease from 16 to four.

In addition, Eastbrook Bank, a 1990 start-up that has been losing money since before State Financial acquired it in 1992, is on the brink of profitability, as State Financial has worked through the bank's bad loans, Mr. Falbo said.

Finally, the company's former Edgewood Bank has ended a special program that paid about 150 basis points higher on its certificates of deposit.

Brighter '95 Expected

So, while first-quarter return on equity of 7.85% and return on assets of 0.88% will lower State Financial's overall performance this year, its new developments "all point to considerable cost savings for the second half of this year," said Mr. Westrope. He forecasts ROA of 1.1% to 1.2% and ROE at about 11% for 1995.

He expects earnings per share to grow 16% in 1995 and has a 12-month target price of $17. The southwest suburban Milwaukee-based company closed at $13.75 on Wednesday.

Too Much Cash

As Mr. Falbo indicated, State Financial wants to expand. However, it has had trouble fully deploying the proceeds of its April 1993 public offering on the acquisition of banks or thrifts.

"What we're finding is nobody wants cash," Mr. Falbo said. And State Financial's stock isn't trading at a big multiple-to-book ratio. Prices also have been driven up by active consolidation.

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