HANCOCK, Mich. - When George J. Butvilas arrived in the far reaches of Michigan's Upper Peninsula in 1990 to rescue a failing thrift, his military side came shining through.

"We were under fire in terms of our survival and it was pretty clear what had to be done," said the U.S. Naval Academy graduate who served two tours of duty in Vietnam. "They needed somebody to pick up the flag and say, 'Here's where we're going, folks.' "

And today D&N Financial Corp.'s flag snaps crisply in the wind, a testament to some hard decisions. In the past four years, Mr. Butvilas has slashed 260 jobs, sold assets, and completely reshaped the $1.1 billion- asset thrift, which, he says, was "a step away" from government hands.

Now, D&N is posting profits - $3.1 million for 1994 - after a $67 million loss in 1993.

Mr. Butvilas landed in Hancock after a nine-year stint at Chicago's Boulevard Bancorp in 1989.

The 49-year-old, who holds a master's degree in business administration from the Illinois Institute of Technology, had attended an advanced management program at Harvard University that convinced him he should run his own business.

D&N, which owns D&N Bank, was a tempting challenge.

"This franchise is as good as gold," he said. "All it needed was some leadership."

With his youngest child almost in college, the Chicago native and his wife left suburban Oak Brook, Ill., for the Hancock-Houghton region - population 13,000, including students at nearby Michigan Tech University - where the annual snowfall can be 284 inches and where violent crime is so rare that residents are still talking about a murder that occurred two years ago.

John Snow, a bank analyst in the Chicago office of Rodman & Renshaw, describes Mr. Butvilas as steady, solid, and calm. He said the banker understood D&N's situation before jumping in.

"As Ronald Reagan said, 'If you see a big pile of manure, there's got to be a pony in there somewhere,' " Mr. Snow said. "I think George saw the pony before he went up there."

Once there, Mr. Butvilas fired, hired, moved employees around, and built a new management team.

He eventually eliminated 260 jobs, many in Hancock. About a third of the 104 employees initially fired were middle management, Mr. Butvilas said. Cuts across the board included shrinking the marketing department from 19 people to two over two years.

Such extensive firings were more difficult in a small town because the mentality in Hancock - a town built on copper mining - said that a company would take care of you for life, he said.

"There are people that still won't talk to me," said Mr. Butvilas, whose office walls remain "Aztec gold," circa 1972, because the company hasn't spent money to redecorate.

However, Hancock's mayor is still speaking to him - even though she was a victim of D&N's downsizing.

"I have the greatest respect for George Butvilas as a leader," said Mary Tuisku, mayor since 1990, who lost her job in D&N's mortgage department in 1991.

"If George hadn't come in and made the changes, I'm afraid D&N would no longer be here, and D&N is a critical part of the community," she said.

When Mr. Butvilas met with the Office of Thrift Supervision in Chicago in 1990, he says he told officials, "Give me a year, let me see what I can do with this before you really push us into the RTC."

"They gave me a year, and we're still here," he said.

D&N's troubles resulted from prior management's decision to engage in risky out-of-state commercial real estate lending, derivatives, junk bonds, and interest rate hedging techniques.

In the year regulators gave him, Mr. Butvilas' teams examined the credit quality of the commercial real estate portfolio, and he boosted the loan-loss provision.

D&N sold high-yield junk bonds and wrote off or sold problem mortgage- related investments.

"George is very tenacious," said Richard Schroeder, former chairman and president of Boulevard, which was acquired by First Bank System Inc. early last year. "If you have a turnaround situation, you have to be very clear in your focus. It's a survival instinct."

As part of the 1991 cease and desist order, D&N was supposed to look for potential buyers and hired an investment banker. But there were no takers, and a modified 1993 order said they no longer had to consider selling.

Mr. Butvilas also has given the thrift a more banklike philosophy. He organized 15 regional "community banks" within the company in which the presidents have significant decision-making authority.

Consumer lending, now the central focus of business, increased 36% last year, he said. The company also recently began lending to small businesses.

"George has taken a blend of what he viewed as the best components of a core banking effort and the best of the core thrift," said Michael Moran, an analyst at Roney & Co., Detroit.

D&N, established in 1889, went public in 1985 and reached $2.2 billion in assets in 1988. But under Mr. Butvilas, it sold assets to shore up capital ratios. Further, D&N held a $23 million rights offering in late 1993 to boost capital.

And last year, D&N completed the sale of its purchased mortgage servicing rights, and its cease and desist order was lifted.

Besides posting a profit last year, D&N made progress cleaning up bad assets. D&N's nonperforming assets declined to $24.5 million last year from $43.6 million in 1993. Foreclosed real estate fell to $6.5 million, down 51%.

Mr. Butvilas said $104 million in interest rate swaps will mature by the end of 1995.

"It's not as if the swaps roll off and, shazam, we're there," said Mr. Butvilas.

Though he's been at the company for nearly five years, Mr. Butvilas has a lot more work to do. D&N currently has 41 offices throughout Michigan and may close some unprofitable locations, he said.

It recently opened three branches, including one in Wisconsin, and will continue investigating expansion in northern Wisconsin, eastern Minnesota, and downstate Michigan. The company already plans a full-service bank office in Troy, Mich., where commercial lending operations are based.

D&N also has resurrected the mortgage company it shut down in 1992, opening two offices in Michigan last year and shooting for two more this year.

Mr. Butvilas envisions D&N growing to $3 billion to $5 billion in assets.

"Unless someone pays a real premium for this place, our strategy long term is to grow and to be a survivor here," he said.

Despite how far the thrift has come under his leadership, Mr. Butvilas, an avid sailor who owns a new 34-foot yacht, still hesitates to say D&N is out of choppy water.

"When I'm making 15(%), 16% return on equity and over a 1% return on assets for my shareholders and paying them a dividend," he said, "then I'll be able to sit back and take out a cigar and put my feet up and say, 'Hey, we did it.' "

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