Despite the risk, Illinois' Calumet succeeds in lending far from home.

CHICAGO--If lending far from your local market is a recipe for disaster, someone forgot to tell Ted Walczak.

His Calumet Bancorp, based in Dolton, Ill., has posted solid results by lending in resort areas in Colorado, Idaho, and New Mexico. In fact, nearly 60% of the thrift's home loans are outside Illinois.

"I got to know those areas because I was a skier - and still am - and got to know a lot of people," said Mr. Walczak, who is chairman and chief executive of the $507 million asset thrift. "I thought this was the safest lending we could do."

Seen as Exception

That flies in the face of conventional wisdom, which holds that bankers lending in distant places risk losing touch with subtle shifts in market dynamics. But some analysts suggest that Mr. Walczak is an exception to the rule.

"I have to say, even though it appears to be a risky strategy on paper, they've done just a super job executing what some would say has been fraught with risks," says Wayne R. Bopp, a thrift analyst with Stifel Nicolaus & Co., St. Louis.

Not only has Calumet avoided a debacle, it has enjoyed steadily improving asset quality. Nonperforming assets have fallen to 2.47% from 4.40% in 1988. The ratio is now only somewhat higher than the 1.8% norm for similar size banks. Meanwhile, Calumet, which operates Calumet Federal Savings and Loan Association, has been returning an attractive 1.33% on its assets.

Colorado, Idaho Markets

Mr. Walczak, 65, began getting involved in the Colorado and Idaho markets in 1978.

"We've been there so long, they think we're part of the community," he said.

Today, while 40.9% of the company's loan portfolio is on local turf in Illinois, Indiana and Michigan, 33.9% is in Colorado, 11.8% in Idaho and 8.4% in New Mexico.

Many of Calumet's out-ofstate loans were originated by the company's further subsidiary, American United Mortgage Corp., in Colorado. Calumet sold American last year to a group that held a minority interest in the company, but continues to purchase a large portion of its mortgage production.

Bolstering Its Portfolio

Calumet also has beefed up its portfolio by buying loans in the secondary mortgage market secured by properties in Colorado and Idaho.

And last year Calumet established its own loan origination offices in Ketchum, Idaho, and Santa Fe, N.M., staffed with local lenders.

Closer to home, Calumet has tried to bring in more mortgage business from Schaumburg, a fast-growing suburb northwest of its headquarters.

"A lot of the thrifts that are in the older neighborhoods in Chicago have had a harder time generating mortgages," Mr. Bopp said. "They're great deposit neighborhoods, but the people have paid off their mortgages."

Prospers Through Oil Bust

While many banks and thrifts in Colorado and other western werc put out of business by the oil bust of the 1980s, Calumet came through with just few scrapes.

"We ran American United through Denver's most difficult period," Mr. Walczak said. "During that time, there were a lot of people [institutions] that went under, but we always made money."

"I think it's the caliber of the people we were working with and the long-term relationships," he continued. Loans never were more than about 2% delinquent, he said.

While Mr. Walczak can't a ways personally examine a loan applications, hc discusse many of them with loan officers and associates in western state

Breakdown of Mortgages

Calumct's out-of-state mortgage loan portfolio included $8 million in loans secured by primary residence, $53 million secured by secondary residence and $74 million secured by multifamily, commercial properties and land at yearend 1993.

About 34% of Calumet's total one-to-four family mortgage loans were in the Denver area which Mr. Bopp calls "the hottest real estate market in the U.S."

Both Mr. Bopp and Daniel Cardenas, assistant vice president at Howe Barnes Investments, Chicago, see Calumet as a possible takeover candidate in Chicago's hot thrift market.

Seen as Well Capitalized

Mr. Cardenas, who initiated coverage on the company this month with a "buy" rating, calls it well capitalized with very strong fundamentals.

"Their nonperforming [assets] are a little bit higher that they were doing just Chicago and Chicago suburban locations," he said. But "while they do have high nonperforming, their net chargeoffs are very low."

Mr. Bopp, who rates Calumet a "long-term buy," likes the fact that the thrift originates mainly one-to-four family residential mortgages, which are generally safe credits. He's also high on the thrift because it independently underwrites every mortgage application and generates adjustable-rate loans, which it holds in portfolio.

About 70% of Calumets total portfolio is adjustable-rate mortgages.

Risky Business

Despite Calumet's succcess the analysts caution that out-ofmarket lending is a tricky business.

"It's... harder to monitor the loan, because you're not in the area," Mr. Cardenas said.

And being the new lender on the block may not net the best credits, Mr. Bopp said. "They're every borrower's last choice," he said.

In addition, lending for nonprimary residences can be risk he said. "When push comes to shove, people will pay their mortgage first on their primary home," Mr. Bopp said.

But then again, people who buy second homes in ski resorts usually aren't the highest-risk borrowers, Mr. Bopp said.

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