In the mid-1980s, John C. Warren headed Shawmut Bank's capital markets group in Boston. Now he runs a savings bank in the nearby suburbs of Waltham.

Steven P. Worwa used to book commercial loans for First Bank Minneapolis. Today he's calling the shots at a savings and loan on the Minnesota-North Dakota border.

Manuel J. Mehos sold bonds for Goldman Sachs & Co. back in the '80s. Now he heads a $1.3 billion-asset thrift in Houston.

Crossing Over

Call them the new breed. For the past several years, more and more commercial bankers, investment bankers, and other outsiders with financial expertise have been crossing over to thrifts, bringing new blood to an old industry.

These executives share a common belief: They can carve opportunity out of the upheaval that has caused the industry to shrink by 40% in five years.

Their backgrounds contrast sharply with the stereotypical image of the unsophisticated, stodgy thrift manager.

"The new breed is brighter, better educated," says John Lyons. senior principal of Lyons, Zomback & Ostrowski, a New York-based bank and thrift consulting firm. "They recognize the necessity to be flexible. They understand that if you conduct your business the way it was conducted five years ago, you will die."

The new executives are popping up at large institutions as well as smaller ones. For example, when H.F. Ahmanson & Co., the parent of the nation's largest thrift, was looking for a second-in-command in 1989, it turned to Charles R. Rinehart, who was running a diversified financial services company.

A Clear Pattern

Though there are no firm numbers on how many financial executives have crossed over, the pattern is unmistakable, according to observers like Paul A. Schosberg, who heads the industry's largest trade group, Savings and Community Bankers of America.

"I can't quantify it, but the trend is significant," Mr. Schosberg says.

He describes the new breed as serious, eclectic, and open minded.

"They are less oriented in the social and cultural aspects. When they go to industry meetings, their idea is to get in early in the morning and get out late in the day. They don't care if they spend 12 hours" working.

Of course, there are plenty of well-run savings institutions operated by savvy, old-line managers.

But the new-breed executives stand out in their willingness to shake things up and embrace strategies more common to commercial banking and other industries.

Veteran thrift operators have taken notice of these executives and their styles.

"I think they are smarter than we were," says Allen Pierce, the 72-year-old chairman and chief executive of Amity Federal Bank, a profitable thrift in Tinley Park, Ill. "They are impatient. The pressure from their peers is unbelievable. Everybody is out to make a buck."

Still, Mr. Pierce, a Northwestern University graduate who attended law school, worries that personal service will suffer under the faster pace. "Nobody knows you," he says. "You are a number."

Paul L. Eckert, 65, chairman and president of Citizens Federal Savings Bank, Davenport, Iowa, agrees. "There's a lot to be said about the friendly banker. You don't necessarily have to be steely eyed to be good."

Following are profiles of three members of the new breed.

A Clash of Cultures

In E. Grand Forks

When he took over American Federal Savings Bank in February 1989, Steven P. Worwa immediately moved to shake up the thrift. He admits that culture shock ensued

American Federal, which is based in East Grand Forks, Minn., was about to report profits of $1 million for 1988. But after reviewing the loan portfolio, Mr. Worwa decided it would be prudent to beef up loan-loss reserves and write down questionable loans. Instead of showing a profit, American lost $143,000.

"I was a real hero," jokes the 35-year-old executive.

But his point was made loud and clear: He meant business.

Soon employees were working 80 hours or more a week to keep up with the changes, and a number of executives left. "There was a tremendous culture shock," he says.

Shock Tactics

Some employees were resistant to change. "After I heard, |If it isn't broke, don't fix it' for the fifth time, my reaction was: |if it doesn't look broke, go out and break it.'" Mr. Worwa says.

He continued to clean up the loan portfolio in 1989, sold investments, and paid off "hot money" and short-term Home Loan bank advances. American's assets shrank by $30 million, to $150 million.

Mr. Worwa, who holds a master's degree in business from the University of Minnesota, was attracted to American because he wanted to run a company and own a piece of the action.

He also believed that the thrift industry had a future, and that the differences separating it from the banking business were disappearing.

More Like a Bank

Since taking over as president and chief executive, his mission has been to make American look more like a commercial bank.

When he joined, about 70% of American's loan portfolio was was in mortgages on homes for one to four families. That share has now dropped to 50%, because American has stepped up its lending to consumers and agriculture and on commercial real estate.

"We just didn't have any choice" except to make all these changes, Mr. Worwa says.

"The world is changing. Unless we move very quickly, we don't have to worry about what it is going to change to" - because thrifts "will not be around."

Rocking the Boat

In Waltham, Mass.

John C. Warren, too, was eager to run his own show. So when a headhunter approached him in 1988 about the top job at Waltham Savings Bank in Massachusetts, he jumped at the chance.

Culturally, the thrift was worlds apart from Shawmut, where Mr. Warren had worked for 15 years.

One evening he stepped out of his new office around 5 o'clock and found that the lights in the building had been turned off. "I thought my watch had stopped," the 48-year-old executive says. "I was a little shocked."

Among his first moves was to press for changing the thrift's 137-year-old name. The new one, Sterling Bank, demonstrated his desire to make the institution more like a commercial bank and was also aimed at making it easier to expand into nearby communities.

We Couldn't Sit Back'

The thrift's bread and butter had long been home and auto loans, but Mr. Warren soon hired away two lending officers from Shawmut to spearhead a drive into business and real estate lending. Sterling also started offering cash management services.

"We couldn't sit back and do the old-fashioned ways of savings banking," he says. "We would never be able to produce the bottom line that was fair to our shareholders."

Since Mr. Warren took over, Sterling has grown to $931 million in assets, from $325 million. In the first quarter, the thrift's parent, Sterling Banc-shares Corp., earned $1.9 million and posted a 12% return on equity and a 0.79% return on assets.

Its ROE was 48th best in the state out of 272 banks and savings banks, and its ROA was 111th, according to Veribanc Inc., a Wakefield, Mass.-based bank ratings firm.

"We are looking to get up to the kinds of returns you see from the commercial banks," Mr. Warren says.

Wall Street Savvy

In Lone Star State

Manuel J. Mehos stepped into the thrift industry during the height of the Texas savings and loan crisis.

A former securities sales associate at Goldman Sachs & Co., Mr. Mehos lead a group of investors in 1986 to acquire a $10 million-asset thrift in the Lone Star State.

Today, he's the chairman and chief executive of Houston-based Coastal Banc Savings Association, which has grown rapidly by feeding on failed thrifts and branches.

Its eight acquisitions since mid-1988 include four thrifts acquired at once in the first transaction under the Southwest plan. Coastal now has $1.4 billion in assets.

After a $973,000 boost to earnings from an accounting change, Coastal earned $3.5 million in the first quarter, up from $2.1 million a year earlier.

A Fresh Approach

Mr. Mehos says his Wall Street experience has come in handy.

For one thing, he has steadily plowed the institution's liabilities into mortgage-backed securities. And he has kept costs down and used hedging techniques to reduce interest rate risk; about 60% of Coastal's assets are now in mortgage-backed securities.

Coming from the outside was a definite advantage," he said. "I didn't have a predisposition as to how a balance sheet should look. If you don't have a predisposition ... you can take a fresh approach."

Its yearend ROE was 48th best in the state out of 272 banks and savings banks, and its ROA was 111th, according to Veribanc Inc., a Wakefield, Mass.-based bank ratings firm.

You have to be nimble with your balance sheet," he says. "The business is much more scientific than it ever was."

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