BOSTON - In late 1993, when chairman and chief executive Ira Stepanian announced Bank of Boston Corp.'s third internal restructuring in five years, Brown Brothers Harriman & Co.'s Nancy Bush told the press, "It's put-up-or-shut-up time."

Now, she asks Mr. Stepanian, "What do you do for an encore?"

Since he fired three costly, obsolete executives 14 months ago and instilled an entrepreneurial spirit in the $43 billion-asset company, Mr. Stepanian has rejuvenated what had been a sluggish bank.

Bank of Boston raked in $124 million in 1994's third quarter, a whopping 202% increase over the $41 million it earned for the same period in 1993.

Analysts are hailing the bank's efficiency now that its operating ratio has dropped to 60.4% from the 69% it reported in the second quarter of 1993. Mr. Stepanian is way ahead of his publicly stated goal of reaching 60% by the end of 1995.

But most importantly, analysts say, the bank has made a small, but bold push in retail banking, where it has lagged behind local competitors.

For years the 210-year-old bank viewed retail banking as a deposit- gathering business to support corporate lending. But now Mr. Stepanian has boosted the bank's retail market share by beefing up services.

The numbers speak for themselves.

The bank's retail banking relationships jumped to 9% of households in Massachusetts in 1994, up from 3.5% in 1991, according to Donaldson, Lufkin & Jenrette. Bank of Boston's relationships with all New England households leaped to 7.3% last year, up from 4.4% in 1991, DLJ says.

The bank's consumer loan portfolio more than doubled to $3.5 billion last year from $1.7 billion in 1991, while small business loans reached $9OO million from $2OO million. Mr. Stepanian says Bank of Boston leads New England in Small Business Administration loans.

DLJ also estimates that 9% of Bank of Boston's earnings next year will come from its consumer finance company, Fidelity Acceptance Corp.

Retail banking at Bank of Boston is hardly overwhelming the industry, say analysts, but at least it exists and executives have a plan.

The bank is focusing on affluent communities in its local market while competitors such as Boston- and Hartford-based Shawmut National Corp. and Providence, R.I.-based Fleet Financial Group, Inc. are reaching out nationally with no apparent niche.

"(Bank of Boston) is focused on various counties in New England with high net worth people," says Gerard Cassidy, an analyst at Hancock Institutional Equity Services.

Mr. Cassidy says this kind of focus is a good potential revenue generator for the bank.

Driving New England's oldest bank to these heights wasn't easy, Mr. Stepanian says. But the 58-year-old chief executive said he needed to make his bank leaner at a time when he also wanted to act as more of a visionary leader.

In a move that stunned analysts and attracted headlines a year ago, Mr. Stepanian cut a swath through his executive ranks.

At the same time, the bank promoted Edward O'Neal, head of New England banking, and William Shea, chief financial officer, to vice chairmen and members of the office of the chairman.

Mr. O'Neal's promotion bespoke a new emphasis on retail banking. Mr. O'Neal came from Chemical Banking Corp. where he headed the money center's consumer banking business.

Bank of Boston's structure was rearranged into 26 lines of businesses run by "corporate working committees," consisting of teams that operate everything from corporate lending in the Northeast to mortgage banking and retail. Each team is headed by a chairman who reports to top executives.

Bank of Boston's new structure means those in the office of the chairman, particularly Mr. Stepanian and president and chief operating officer Charles Gifford, can think more about corporate strategy and leave day-to-day operations to employees who meet with customers on a regular basis.

"Everyone felt that 'Gee, it's going from one step to another to another to get a decision made,'" Mr. Stepanian says about the old system.

But now, top executives have a role other than getting in the way.

"We're really just mentors or coaches to these 26 people," Mr. Stepanian says. "They don't report to us. It's not a formal reporting relationship. These 26 people run their businesses."

The move was enough for DLJ analyst Thomas Brown to call it a "defining moment in Bank of Boston's transformation from a below-average performer to an above-average performer."

So, what will Mr. Stepanian do next?

"For us it's a question of what we might acquire, what we might be a part of as we continue to grow by the end of this decade," explains Mr. Stepanian.

"The largest banks in this country, not just the top five or ten, but I think if you take the top 25, they're all going to be over $100 billion (of assets). We expect and want to be a part of that, and it happens that in- market acquisitions and mergers provide the most immediate benefit while our revenue sources continue to grow in different ways."

Consolidation in the oversaturated Massachusetts market is inevitable, he says, adding, "There's more banks in Marblehead than in Canada."

Mr. Stepanian has already slowly begun his surge toward his goal of making Bank of Boston a $100 billion-asset bank. In the past 18 months, assets grew more than $7 billion through the acquisition of four New England banks.

But if Bank of Boston doesn't grow fast enough, some analysts believe it may become lunch for some other, larger bank.

"To me, (Bank of Boston) looks very attractive as a possible target if they can't do a major deal," Ms. Bush says. "I don't see why somebody wouldn't come knocking at its door," she adds.

In response, Mr. Stepanian leaves all options open, but selling the bank is not a part of his plans, he insists.

"Our intent at the moment, if were going to do one thing or the other, is to acquire. Would we consider something else? Sure. We would consider a merger of equals, but it's not our intent to sell the bank," he says.

Still, analysts say competition in Massachusetts is too tough for Mr. Stepanian and his crew to rest on their laurels.

In particular, Bank of Boston must contend with Boston-based BayBanks Inc., a bank so advanced in retail banking that it's known for putting automatic teller machines on virtually every street corner in Boston.

Mr. Stepanian says there's plenty of smaller banks in the region to gobble up. He doesn't necessarily need to look at a merger of equals inside New England.

It doesn't matter to Mr. Stepanian that rumors are also rampant, matching $48 billion-asset Fleet and $30.7 billion-asset Shawmut in mergers with even larger entities such as NationsBank Corp. in Charlotte, N.C., or San Francisco-based BankAmerica Corp.

"We already compete with NationsBank and BankAmerica and Citicorp and every one of the major banks primarily because we are a national and international bank as well as a regional bank. Fleet only has so much activity going on and so does Shawmut. So does BayBanks. So, competition is going to be about the same, but with a different name attached to it."

Despite rumors that Mr. Stepanian has made overtures to Shawmut, Mr. Stepanian denies that a merger of equals is imperative for him now. He also denies talking to Shawmut's president, chairman, and chief executive officer, Joel Alvord.

"Am I talking to Joel Alvord? No. Do I see him occasionally around town? Yes. Are there conversations that take place among bankers about consolidation? Of course there are. And yet, you know, if you say that, people would like to interpret that to mean that that's the only thing we've talked about. And that's certainly not the case with me and Joel."

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