Eight months after Robert N. Shuster became chief executive of Mutual Savings Bank in Bay City, Mich., analysts are giving this latest of its would-be turnaround gurus high marks for beginning to tackle rate risk and other problems.

"We applaud the efforts he has made as far as reviving that franchise," said Michael M. Moran, an analyst with Roney & Co., Detroit. "He's taken very logical, very pragmatic, prudent approaches."

The $795 million-asset thrift has seen more than its share of troubles in recent years.

As at many thrifts, prior managements used unsuccessful interest rate hedging agreements that squeezed margins and brought losses on securities sales.

Mutual lost $2.7 million in the first quarter, largely from the sale of two mutual fund investments. In 1994 the company lost $1.6 million, down from $2.4 million in 1993.

Mutual is on its seventh management team in about as many years. But observers say Mr. Shuster appears to be on the right track. And recent interest rate declines don't hurt either.

Before coming to Mutual, Mr. Shuster orchestrated a turnaround at Central Holdings, Mount Clemens, Mich. Central was sold to Troy-based Standard Federal last year.

At Mutual, said analyst Tony Howard of Detroit's First of Michigan Corp., Mr. Shuster's strategy is to reduce rate risk, increase mortgage lending, and generate capital.

His predecessors spent more time dealing with problems than generating loan growth, Mr. Howard said. The result: a 34% loan-to-deposit ratio in the first quarter.

Mr. Shuster said his main focus now is "to increase our lending and try to increase our loan-to-asset ratio."

To reduce rate risk, Mutual sold the securities that contributed to its first-quarter loss. Analysts said thrift is likely to sell off more and face more losses before it can move ahead.

Partly to increase capital, the thrift recently agreed to sell three branches, reducing its total to 22.

Two of the branches, in Clawson and Canton, suburbs of Detroit, will be sold to D&N Financial Corp., Hancock, Mich. The price was not disclosed; the branches have $30 million of deposits.

The third branch, in Ann Arbor, Mich., is being sold to First Security Savings Bank, Bloomfield Hills. Deposits at that branch total $3.9 million.

For Mutual, the three branches did not offer the prospect of "growth and meaningful market share," Mr. Shuster said. The sales, subject to regulatory approval, are expected to close during the fourth quarter.

Mr. Howard, the analyst, said Mutual is likely to sell about five more branches in the near future. Mr. Shuster said the company is evaluating all of its offices.

Trouble is nothing new to Mutual. After steep losses in the late 1980s, a run that depleted capital, and several management teams, a group led by Wendell L. Evans Jr. arrived in 1990 to clean up problems with loans and asset-liability management.

Though the group worked through some problems, the company had new one - with hedging and derivatives - in 1993 and 1994.

Mr. Evans, who specialized in turnarounds, resigned last year. Two members of his turnaround team remain.

This year Mutual, which went public in 1992, has been the target of two shareholder lawsuits. The suits say some current and prior officers, including Mr. Evans, made false and misleading disclosures about Mutual's business plan and its exposure to interest rate risk in 1993 and 1994.

Mr. Shuster, who is not named in the suits, said they are without merit.

Despite its other problems, Mutual's asset quality is very good, with nonperforming assets at 0.17% for the first quarter, Mr. Howard said.

He said he expects Mutual's stock - which dipped to $3 late last year and has now topped $7 - to surpass book value of $9.48 as turnaround efforts continue.

The thrift, which last year hired and then dropped an investment firm to explore the possibility of sale, will be a good takeover candidate as its problems clear up, analysts said.

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