WASHINGTON - Congressional concern about thrifts' mutual-to-stock conversions was heightened last week by a Milwaukee deal that gave thrift managers $56 million in stock and options.

Security Bank, a state-chartered savings bank with $2.23 billion in assets and 13.66% capital, finished selling $270 million in stock for $25 a share last Friday. The initial offering was oversubscribed.

The Nasdaq stock (SECP) hasn't started trading publicly yet.

Management's Share

The deal, which was approved by Wisconsin state regulators, awarded and sold to management nearly a quarter of the thrift's stock. Officers and directors received $9.3 million in stock for free, bought up to $22.2 million in stock, and got options to buy $24.6 million at $25 a share anytime over the next 10 years.

Some members of Congress, notably House Banking Committee Chairman Henry B. Gonzalez D-Tex., have contended that thrift executives are too generously compensated in the stock conversions under state rules, and have introduced legislation to increase federal oversight of such deals.

On Nov. 22. Rep. Gonzalez, along with Rep Stephen L. Neal, D-N.C., and Rep. Jim Leach of Iowa, the banking committee's ranking minority member, introduced legislation on the matter.

Fresh Ammunition

Advocates of the new federal legislation have seized on the Security deal as fresh ammunition. "It clearly raises the kind of concerns that have motivated this legislation," said Peter Kinzler, staff director of the House Banking Committee's financial institutions subcommittee. The deal "reinforces the need to take some action."

But William G. Schuett Sr., Security's president and chief executive officer said he and the other two senior officers "have 108 years of service at this bank, which is something I think was taken under consideration by our directors when they awarded some of this compensation."

But Chris Lewis, director of banking and housing policy at the Consumer Federation of America, said that mutual thrifts are owned by their depositors. "This is another case in which the balance seems to be tipped toward insiders at the expense of depositors."

Reward for Success

Mr. Schuett, 71, who is also a director, said the free stock rewarded management for successfully navigating the thrift through the troubled 1980s as well as serving as motivation for them to perform well in the coming years.

Staff at the Federal Deposit Insurance Corp. looked unfavorably on the Security deal, but took no action because it complied with state laws.

"We don't like it, but we don't have any official means to challenge it," a spokeswoman said.

State regulators agree with Mr. Schuett. The Wisconsin savings and loan commissioner who approved the Security deal, Harold N. Lee Jr., said those who criticize it are "a bunch of crybabies."

"It is structured the way we want it structured," he said. "It recognizes the management's contribution to the institution over the years."

|Dollars Seem Enormous'

Mr. Schuett said the amount of newly issued stock going to Security's officers and directors only seems large because Security is Wisconsin's second-largest thrift. "So the dollars seem enormous, but the percentages are not." He said the OTS allows similar compensation packages.

OTS regulations allow insiders to buy or be given up to 25% of the stock of large thrifts that go public.

But thrift attorneys said that in two key areas Security's deal differed from what would have been allowed if Security were still under federal rules. (It changed its charter from an OTS-regulated S&L to a savings bank in October 1992.)

They said the appraisal seemed low and that most of the deal's proceeds are going to its holding company, not the thrift.

Heavy Demand for Shares

If the thrift is appraised for less than it is worth, the stock price is likely to appreciate more than it otherwise would.

Security Bank had $304 million in capital in June, and had more orders for stock than it could fill at its maximum appraised value, $270 million.

Thrift lawyers familiar with such deals said Security was worth $350 million to $420 million.

"The numbers sound very conservative," said SEC commissioner Richard Y. Roberts, when told about the Security deal. "There is a concern that insiders are motivated to lowball the deal. That should be explained satisfactorily in the disclosures to the investors."

Proceeds to Holding Company

In addition, about $200 million of Security's proceeds are going to its newly formed holding company instead of adding to the insured financial institution's capital.

Office of Thrift Supervision rules would allow just $20 million to be taken out of the thrift's capital and given to its holding company.

Security's proxy statement said the purpose of the stock conversion was to

raise capital for the thrift.

A Matter of |Semantics'

Asked why most of the proceeds were going to the holding company, Mr. Schuett said the document used terms for the thrift and its holding company interchangeably and said it was a matter of "semantics."

Mr. Schuett said that is because Security Bank does not need additional capital. He said the proceeds of the stock sale going to the holding company may be used to acquire other banks and thrifts across state lines, buy back the Security's stock, or expand the company's existing mutual fund, insurance, mortgage banking, and leasing company subsidiaries.

"We have a war chest, and we intend to employ it," Mr. Schuett said.

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