Statewide Savings Bank was generally content during its first 51 years to build its assets by making home loans.

But in the last two years, the Jersey City thrift has looked to a new source of growth: commercial loans. Taking the view that superregional banks weren't addressing the needs of small-business owners, the thrift entered the commercial loan market in late 1995.

Since then, Statewide, with $700 million of assets, has gained more than 100 small- and midsize-business customers and has built a $40 million commercial loan portfolio.

The term "thrift" implies mortgage lending. However, as the financial services marketplace becomes more competitive, thrifts are exploring new ways to make money. And for some-but certainly not all-that means jumping into the less-certain world of commercial lending.

"This is the one product we have to add if we want be considered full- service community banks," Richard P. Coughlin, president and chief executive officer at Stoneham (Mass.) Co-operative Bank, told a group of community bankers at a conference here last week.

William A. Donius, chief executive officer-elect at Pulaski Bank, St. Louis, said: "If we don't do it, somebody else will."

Last year Congress doubled the amount of commercial lending a thrift may do to 20% of assets, provided that half of that amount is made up of small- business loans.

Not that big commercial banks should be running scared. According to Office of Thrift Supervision statistics, only 1.3% of the thrift industry's $769 billion of assets consist of commercial and industrial loans. By contrast, Citicorp made more than $100 million in business loans last year and has 36% of its assets tied up in commercial and industrial lending.

There appears to be enough commercial lending business to go around. A recent survey by Inc. magazine found that 68% of all business owners expect their businesses to grow in the next year. What's more, as one banker at the America's Community Bankers conference put it, "the large regional banks no longer think that a $500,000 loan is worth its services."

That's what led First Indiana Bank, Indianapolis, into the commercial lending arena six years ago. Although the $1.5 billion thrift still relies on mortgage lending, it's the commercial lending program that has boosted annual margins to 4.4% from 3.03% six years ago.

First Indiana president and chief executive officer Owen B. Melton Jr. attributes the thrift's success mainly to marketplace demands. He also credits his commercial lending officers, all of whom once held similar posts at larger banks.

"You cannot use traditional savings and loan talent to build a commercial and industrial portfolio," Mr. Melton said.

Still, most thrift executives remain hesitant about plunging into commercial lending. Despite his belief that thrifts need to offer customers more choices, Stoneham's Mr. Coughlin still isn't ready to offer business loans.

"Our job is to manage risk and commercial lending is just another risk," he said.

Steve Rippe, president of Highland Federal Bank, Burbank, Calif., said he doesn't make commercial loans because he fears it would be years before the bank would gain enough market share to justify the initial expense. That's time-and money-Highland's shareholders are not willing to invest, he said.

"We have a good business niche in small-apartment and commercial real estate lending," said Mr. Rippe. "For us, that's a better strategy."

Indeed, in its early stages, a commercial lending program can wreak havoc on a company's financials.

Statewide, for example, is operating at an efficiency ratio of 66%-lower than its ratio this time last year but still far higher than the 50% range that analysts favor.

That said, Statewide chief executive officer Victor M. Richel has no plans to stop making business loans.

"When you decide as a company to get into (business lending) you need to recognize that you're going to have to spend money to make money," Mr. Richel said.

Statewide's not just making money on interest, either. Mr. Richel said the bank has added more than $4 million in business checking account deposits-the bulk of which has come from new loan customers. And other thrift executives who have recently launched business loan programs are reporting higher fees from cash management and trust services.

"That customer is already conditioned to one-stop service," said Curtis L. Hage, president and chief executive officer at Home Federal Savings Bank in Sioux Falls, S.D. "When they decide to come here, they bring us everything."

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