Robert S. Engelman Jr.'s favorite quote these days is the mantra of Northwestern University's football team: "Expect victory."

Like the once-laughable Wildcats - who won the Big 10 championship last year - Mr. Engelman's Avondale Federal Savings Bank also has exorcised some of its demons and may be looking at a brighter future.

"I thought it was an appropriate metaphor," said Mr. Engelman, 54, who used Northwestern coach Gary Barnett's motto at a recent shareholder meeting. "What I had when I came in was a staff that expected defeat."

It's not hard to understand why. In the past four years, Avondale was buffeted by management scandals, anemic earnings, poor Community Reinvestment Act ratings, and a controversial failed merger- conversion attempt.

But Mr. Engelman is working to lay the groundwork for a better future. He is hoping a host of new initiatives, including stock repurchases and an emphasis on consumer financing, will boost the institution's meager 5.29% return on equity as of March 31.

In the next three years "we want to get ourselves, from a return on equity perspective, into the upper half of specialty finance companies and the upper quartile of thrifts," Mr. Engelman said.

Robert C. Ollech, a Milwaukee-based analyst with Principal Financial, says Avondale has "obviously kind of picked itself up and gone forward."

It hasn't been easy.

The $610 million-asset thrift was the first Chicago-area institution to offer home-equity lending and money-market accounts in the 1980s. But many of the loans brought credit problems and previous management became more interested in the mutual fund business than loans and deposits, Mr. Engelman said.

Then, Avondale was hit with a "substantial noncompliance" Community Reinvestment Act rating in 1991, the worst possible mark, followed by two "needs to improve" ratings.

Moreover, the Office of Thrift Supervision in 1992 banned former Avondale president Irving V. Boberski from banking. Among other things, Mr. Boberski allegedly had the thrift donate a $1.4 million piece of land for "Boberski Park" in his suburban community and used thrift funds to buy a Mercedes-Benz and other unauthorized purchases, though he did not admit wrongdoing.

Arriving in 1993 along with other new management and an almost completely new board of directors, the Dartmouth-educated Mr. Engelman brought to Avondale 20 years' experience at Chicago's American National Bank and 12 years at University Financial Corp., where he bought and turned around two troubled thrifts.

"It's a perfect combination of skills," said Tom Eiff, the thrift's chairman since 1991 and the only director to survive the 1993 purge.

Mr. Engelman began to shape a new Avondale. "The traditional thrift business ... isn't enough to cover the overhead of an institution today, let alone return anything to the shareholders," he said.

First off, he wanted to go public. He decided to do so through a merger- conversion. Avondale would simultaneously become a stock company and merge with another company. The newly merged company would then go public.

After talking with more than 20 companies in Illinois, Wisconsin, and Iowa, Avondale in August 1993 struck a deal with Des Moines-based Central Resource Group (now Amerus Group), a financial services company whose holdings included a thrift and an insurance company. Avondale management, after the merger, would be in charge of the newly merged thrifts.

Mr. Engelman even planned to move to Des Moines and run the resulting $1.4 billion-asset thrift from there.

However, the deal became controversial. Some depositors said it was lucrative for management at shareholders' expense. Depositors argued that they would have benefited from a run-up in the company's stock in a straight conversion.

Although regulators approved the deal, the controversy contributed to the eventual moratorium on merger-conversions.

However, Central Resource killed the merger in June 1994, citing changes in regulations and company performance.

"I say I got fired before I got hired," Mr. Engelman said. He cited personality conflicts as well as an increase in Avondale's value.

After the breakup, management again reassessed Avondale's future. Mr. Engelman saw three options: sell the company, adopt a more community bank- like philosophy, or focus on specific lines of business with good returns.

He rejected the first two options because selling wouldn't bring much shareholder value and he didn't see high returns in full-service community banking.

So "we began to convert part of ourselves into a consumer finance company," he said.

Avondale also opted to go public on its own. After waiting for new CRA exam results - a "satisfactory" rating in 1994 - it went public in March 1995, forming its holding company, Avondale Financial Corp.

The consumer finance business - selling home equity loans through brokers using credit scoring - now encompasses 11 states and Mr. Engelman hopes that number will double or even triple soon. The company has originated about $250 to $300 million in loans a month. Avondale will securitize and sell the loans in the capital markets, he said. The business is not risky if the loans are priced right, he added.

"I will not stand up at these investor conferences and talk about our pristine portfolio," Mr. Engelman said. "Frankly ... maybe we have 10% chargeoffs. It doesn't matter to us as long as we're pricing for it and we still get the 2% ROA" down the road.

"At the same time," Mr. Engelman said, "we are not losing focus of the traditional Avondale retail franchise." The thrift has improved and added products and services, such as automated teller machines in 1994 and telephone banking last summer.

"This is a dual strategy," said Mr. Engelman. "In some senses, building the core banking business is the fallback position if (consumer lending) doesn't work."

After selling a north suburban branch to First Chicago NBD Corp. this year for $4.4 million, Avondale has five branches. The consumer finance operations are based in suburban Glen Ellyn.

Mr. Engelman said he would consider additional sales or purchases of branches in the market, as well as acquisitions of other niche lending businesses.

Analysts said the company seems to be on track to improve profitability. "In a macro sense, I think they are absolutely headed in the right direction," said Michael E. Sammon, senior vice president, Howe Barnes Investments Inc., Chicago, who expects the company to be a longer-term takeout candidate.

Ask Mr. Engelman if Avondale will be independent three years from now, and he again offers three scenarios: Avondale does poorly, and the decision is not his; Avondale does fine but not spectacularly, in which case "my guess is that somebody else makes the decision other than Bob Engelman;" the company does extremely well, and can write its own ticket.

"I expect victory," Mr. Engelman said. "I expect to be this very fine performer."

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