Standard Financial Inc. spent most of its 87 years as a mutual that its depositors applauded. But it has faced a tough crowd since it started performing in public two and a half years ago.

Standard has shown weak profitability since converting to stock ownership in July 1994, drawing criticism. The ultimate poison-pen review appeared last Oct. 15, when Michigan thrift raiders revealed a 5.2% stake in Standard.

Since then the parties have descended into acrimony and lawsuits, dropping the curtains on an era of neighborly relations between midwestern thrift managements and shareholders.

With the litigation pending, Standard management was circumspect in discussing the hostile moves, but admitted that shareholder activism is part of the new terrain.

"It's a public company," said David Mackiewich, chairman and president of Standard. "That's always a possibility."

Standard is learning a lesson other midwestern thrifts should heed, industry observers said: Shareholder activism is on the rise in the heartland, and good intentions and valid excuses no longer will pardon subpar performance.

"People really have been nasty (in) going after management of some of these institutions," said Robert Ollech, a banking analyst for Principal Financial Securities, Milwaukee. "You probably will see more of this stuff."

"As more and more institutions convert and banking consolidation continues, investors are going to look for acceptable returns one way or another," said Richard Nelson, one of the founders of LaSalle/Kross Partners, the Kalamazoo-based group that bought a stake in Standard.

The high level of conversion activity in the Midwest sets the scene for more shareholder activism, observers said. Of the 373 mutual-to-stock thrift conversions nationwide from 1993 through 1996, 176 were in the Midwest, according to SNL Securities. The Charlottesville, Va., research firm defines the Midwest as comprising Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

Besides the LaSalle/Kross moves, other examples of Midwestern shareholder activism during 1996 include calls by Chicago-based Chiplease Inc. for Indiana's Sobieski Bancorp to convert to a bank, and the unsuccessful fight by Hinsdale (Ill.) Financial Corp. investors against a merger with Liberty Bancorp.

Thrift executives say even friendly investors are noisier about performance. Activism often is a nagging fear.

"There is a heightened amount of interest on the part of shareholders in the companies they own," said Douglas J. Timmerman, chief executive officer of Anchor Bancorp Wisconsin Inc., Madison, which converted to stock form in 1992. "We have a lot of local ownership and we've had good attendance at annual meetings."

Larry Gillie, chief executive officer of Illinois' FirstFed Bancshares, said: "It's always in the back of my mind. ... But I don't want to put a hex on us."

In this atmosphere, it's not surprising that thrift raiders targeted Standard, observers said.

Since its conversion, Standard has struggled to become more profitable by diversifying from its core mortgage operation. It's still a work in progress.

For instance, in the third quarter of 1996 Standard opened a consumer lending operation that focuses on car and home equity loans. Through the end of the year it racked up $40 million of consumer loans, mostly auto.

The year before, the thrift had created a mortgage bank subsidiary, Standard Financial Mortgage Corp. This unit, through a more aggressive advertising campaign, has helped ramp up its loan-to-deposit ratio to 60% in the third quarter of 1996 from 35% in 1994. Standard's assets have grown since conversion, from $1.7 billion in December 1994 to $2.3 billion as of last September.

The thrift has tried to deploy excess capital by repurchasing stock and expanding its branch network to 14 locations; two additional sites were picked in 1996. The thrift has investigated acquisitions but so far with no result.

But for all this, the thrift's earnings trail woefully far behind its peers.

According to Sept. 30 data from Sheshunoff Information Services, Standard Federal Bank's nine-month return on assets of 0.33% puts it in the bottom quarter among thrifts its size. Its return on equity is similarly bad, 3.69%, and has gone down steadily since the end of 1993.

Mr. Mackiewich muses that some friends once told him that managing a stock thrift would be no more difficult than running a mutual.

"It's a different world altogether," he said. "It's much harder."

The genial 57-year-old executive, who represents the third generation of his family to lead Standard, evinces pride in its customer service. But he also sees room for improvement.

"The return on equity is really what stands out" as subpar, said Mr. Mackiewich, who started working for the thrift 35 years ago as an insurance clerk and was appointed chairman and president in 1983. "We need to work on that."

Thrift officials said profitability has been hobbled since conversion because regulators forced Standard to raise what the officials termed an excessive amount of capital. Standard had $96 million in equity at the end of 1993, when it was still a mutual; to convert to a public company it needed to raise $186 million.

Standard has steadily whittled away at this mass of cash, lowering its capital-to-assets ratio to 11% as of September-from 16% just after conversion.

Standard is working toward a capital ratio of 7%, a return on assets of 1% and a return on equity between 12% and 15%, officials said. But they declined to reveal a deadline for those goals.

"We don't want to put a definite time frame on that," said Thomas M. Ryan, executive vice president of Standard.

When LaSalle/Kross announced its stake in Standard, observers predicted it would want to see good results in a hurry.

The two managers of the group, Mr. Nelson and Peter T. Kross, were known as activists in Michigan. Mr. Kross, sometimes working with Mr. Nelson, has helped force three thrift conversions in the past five years.

Last spring the two formed LaSalle/Kross, which within months expanded out of Michigan by buying a stake in MFB Corp., Mishiwaka, Ind. The thrift eventually bought out the group's position.

Once aware of the LaSalle/Kross infiltration, Standard retained Skadden Arps Slate Meagher & Flom, the high-powered New York law firm known for helping management ignore demands of large shareholders or would-be buyers. The thrift threw up procedural roadblocks to prevent LaSalle/Kross from getting board representation before suing the group in December.

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