TROY, Mich. - For years, CEO Thomas R. Ricketts has been frustrated by the consistently low stock price of his Standard Federal Bank. Now, he's making a series of moves to boost it.
Analysts agree that Standard Federal has not gotten the respect from Wall Street it deserves. They call it one of the best-run thrifts in the country, a highly efficient mortgage generating machine with a nearly dominant presence in the nation's fifth-largest market, Detroit.
But several factors, ranging from basic interest rate fears to the Motor City's reputation for urban blight, appear to have combined to keep Standard's stock from breaking the $30-per-share price level.
"We have a Cadillac-type of franchise here," Mr. Ricketts laments. "But we haven't gotten the rewards we deserve."
The numbers bear him out. In 1994, the $12.1 billion-asset thrift earned a record $119 million, or $3.70 per share, up 3% from the previous year despite the tough interest rate environment.
Standard's return on average assets stood at a respectable 1.05%; its return on equity was 15.68%. Nonperformers make up only 0.43% of its assets, and the company's efficiency ratio stands near the top of the industry, at 48%.
Analysts say that the thrift, which is based in suburban Troy, weathered the interest rate increases of the past 14 months, compiling an average net interest margin of 3.11% for 1994, despite a dip in the fourth quarter to 2.98%.
To top it off, Standard's name now comes up frequently as a prospective takeover target. These rumors have been fueled by National Australia Bank's recent acquisition of Michigan National Corp. for 79% more than book value, which spurred interest in the Detroit market.
Almost all analysts who follow Standard now have strong "buy" recommendations. Their yearend target prices are in the mid-$30s but could go higher in the event of a takeover.
For all that, however, Standard's stock price has remained stagnant in the mid- to upper-$20s, with a price-earnings ratio in the 7-to-1 range.
To turn things around, Standard in January announced it would shift its organizational structure to a unitary thrift holding company, a move that would let it bolster the stock price by buying chunks of itself "and shorten up the supply," Mr. Ricketts says.
At next month's annual meeting, shareholders also will vote on an ambitious bonus plan that would, for the first time, tie management's rewards directly to the stock's price and dividend performance.
The plan would gauge how Standard's shareholder return stacks up against both the nation's top 25 thrifts and the S&P 500 index during the next three years.
If the thrift hits its target in the 60th percentile in both rankings, Mr. Ricketts, who has been CEO since 1974, will get a $200,000 bonus. If the stock does worse than half in each index, he will get nothing. And if it ranks at the top, he will get $600,000.
Beginning this year, too, top managers are required to own specific dollar amounts of the stock, based on their salaries.
"We want to show the shareholders that our interest and theirs (is) the same," explains Mr. Ricketts. "If we don't at least meet the average, we get no bonus. . . . If we perform, the rewards will be very sweet."
Mr. Ricketts, 63, admits that he doesn't know whether the plan, which bars any bonus payment for the next three years, will pay off. But if past performance is any indication, it just might.
When he joined the company in 1956, Standard Federal was a $70 million- asset thrift with four offices in Detroit. Back then, he recalls, it took a big room full of people to type out all the company's monthly mortgage statements.
Today, parts of Standard's operations still look like those of an old- style thrift, with a steadily rising deposit base and 89% of its earning assets in residential mortgages.
The company, which ranks as the nation's 24th-largest mortgage originator, has not invested in foreign loans, junk bonds, derivatives, or anything else peddled by what Mr. Ricketts calls "snake oil salesmen."
"Safest loan there is," he says of the residential mortgage. "When the chips are down, people will give up a lot of things, but they won't give up their home."
But Standard's homey facade covers a highly efficient firm that is riding the technology wave for all it is worth. In 1994, Standard earned $11.6 million on its computerized servicing operations, while a new proprietary program allows real estate people in the Detroit area to tap directly into Standard's computers to track the progress of loan applications.
The thrift also is one of nine pilot institutions in the "Loan Prospector" program of the Federal Home Loan Mortgage Corp. The program, which is slated to be rolled out to the public this year, lets mortgage applications be approved in as little as 30 minutes.
"Standard Federal is typically on the cutting edge of anything to do with mortgages," says Michael Moran, a Detroit-based analyst at Roney & Co. "They're a mortgage machine."
Standard, Mr. Ricketts boasts, services about 1,300 loans per employee, compared with an industry average of just more than 600. "Automation is the secret," he says.
It is that successful blending of old and new, observers agree, that has enabled Standard to weather the thrift storms of the past decade in relatively exemplary fashion.
"Standard is a traditional thrift in the sense that it focuses on one- to four-family paper" (loans made for single-family to four-family homes), Mr. Moran says. "But its asset quality is pristine, its management team is strong, and its overall performance is stellar."
Standard's headquarters building is in the heart of the Motor City's rich northern suburbs. Mr. Ricketts, who occupies a modestly appointed office on the top floor, is known for his frequent visits to the building's lobby branch, where he banters with the tellers and security guards.
But in the boardroom, Mr. Ricketts has distinguished himself as a shrewd and innovative mortgage man who happens to be pretty acquisitive, too. In 1994, when mortgage originations nationally declined by about 25%, Standard saw its volume rise 1%. The company controls 13% of Detroit's big residential home lending market, more than the next two competitors combined.
To keep its balance sheet healthy, the thrift aggressively sells its fixed-rate loans, while holding onto adjustables.
About half of its loan portfolio today is in adjustable-rate mortgages, and analysts expect the company's net interest margin to climb this year, as those loans reprice.
Meanwhile, the 1993 acquisition of Ann Arbor, Mich.-based InterFirst Bankcorp has given Standard a national wholesale mortgage operation and enhanced servicing fee income.
When interest rates rise, as they did last year, the servicing portfolio acts as a sort of counterbalance, helping to maintain earnings.
The addition of InterFirst also bolstered Standard's ARM-generating capability. Detroit's low-cost housing market does not produce the volume of ARMs the company wants, but InterFirst's national network does.
Thomas O'Donnell, an analyst at Smith Barney, says rate risk remains Standard's biggest vulnerability. He projects that its average net interest margin will decline to about 2.80% for 1995 - tight when compared with margins at thrifts that have more consumer loans.
Another problem is Detroit itself, which Mr. Ricketts candidly admits has a "terrible" image. But he says the auto industry's recent upsurge has made for a strong economy, and made him bullish on the region.
Since acquiring InterFirst, Standard has bought three other nearby thrifts with total assets of $1.3 billion.
The company has made 20 acquisitions in the past 14 years in Michigan, Indiana, and Ohio. Today, it ranks as the nation's seventh-largest thrift, with 167 branches and $8.2 billion of deposits.
Michigan, where it ranks as the third-largest financial institution behind NBD Bancorp and Comerica Inc., accounts for 80% of Standard's business and is home to 141 of its branches.
Mr. Ricketts says the company continues to shop around, looking as far east as Cleveland and west to Chicago.
But Standard, which is presently trading at about 110% of book value, has gained more interest of late as a potential takeover target.
Roney's Mr. Moran says that a number of former Michigan National suitors, having done their due diligence on the Detroit market, may give Standard a look.
Those banks reportedly include Norwest Corp., First Bank System Inc., Banc One Corp., and the two big Detroit banks, Comerica and NBD.
An acquirer would get "a very strong retail operation and the best brick and mortar in Michigan," says Mr. Moran.
Mr. Ricketts, who has a $2 million golden parachute if the thrift is bought, is frank about such speculation.
"We are either going to be a bank through our activities, or we are going to be acquired by a bank. That's the way the financial industry is going," he says.
Mr. Engen is a freelance writer based in Minneapolis.
