WILMINGTON, Del. -- In 1931, the cover of Artisans' Savings Bank's annual report said: "Thrift is the foundation of all human happiness."

That may sound more like the opening of a philosophical discourse than a motto for a mutual savings banks with $306 million in assets. But chief executive Stephen G. Harris Jr. says it is the credo Artisans' lives by. "Thrift," he adds, "has made me happy."

Highly Efficient

Indeed, based on the yardstick of financial strength, the 62-year-old CEO has plenty to be happy about. For the past five years, Artisans' has been rated one of the safest thrifts in the nation by Sheshunoff Information Services Inc.

It's also one of the most efficient: Overhead is lower than at 95% of other banks of similar size.

To be sure, its cautiousness has hurt profitability. Return on assets dipped as low as 0.3% in 1989, versus a peer-group average of 0.69%.

But Mr. Harris can afford to be more conservative than most bankers. As a mutually owned bank, Artisans' is not under intense pressure to generate returns for stockholders.

And the go-slow approach has enabled Artisans' to come out of the recession in better shape than many rivals. Return on assets rebounded to 0.73% in the first quarter, and asset quality is excellent. Now the bank is poised to expand lending.

That Artisans' arrived in this position is no surprise. Since its birth in 1861 - when the bank opened with $1.93 in working capital - conservative investing has been its hallmark.

A Safe Harbor

The most recent example came in the late 1980s, when the recession was gathering steam on the East Coast. Fearing a downturn in credit quality, Mr. Harris pulled back on mortgage and consumer lending and shifted into safer investments, mostly government securities.

In 1988, 64% of Artisans' assets were loans, but by March 31 that percentage had fallen to 43%. The share of investment securities, meanwhile, rose to 47% from 30%.

"Artisans' reacted rather quickly to the lending problems that developed in the '80s, and they are reaping some of the rewards now," says Francis X. Morris, executive vice president of the Delaware Bankers Association. "It is unequivocally one of the best-managed institutions in the state."

Overly Cautious, Perhaps

In retrospect, Artisans' was too cautious if anything, because Delaware ended up escaping the wrath of the recession.

Mr. Harris acknowledges that "we could have made more money than we did." But he points out that the bank continued to make profits and "was always in a position of safety and soundness."

Falling interest rates are slowly increasing demand for loans, coaxing Artisans' out of its lending shell a bit. Mr. Harris says the bank, which is insured by the Federal Deposit Insurance Corp., is starting to move its assets out of government securities and back into mortgages and consumer loans, a strategy that figures to bolster profits.

The bank is also participating in some commercial loans with Wilmington Trust Co., but Mr. Harris said Artisans' is not likely to be making any blockbuster loans of its own.

|Dead Set Against' Conversion

While many thrifts have converted from mutual to stock ownership over the past few years, the strongly capitalized Artisans' has no plans to do so. "The board is dead set against going public - it's the last option in our business plan," Mr. Harris says.

"The way we're set up now, the bank can pursue long-range goals without worrying about how the stockholders will react to short-term changes," he says. He describes the absence of shareholders as "one less problem to worry about."

The chief executive also doesn't foresee a takeover. "A few banks have expressed interest in merging or buying us out, but unless our board agrees to it, there can be no such event that's one of the reasons to remain a mutual," he says.

Squirrel or Turtle?

Artisans' image is indelibly tied to its conservatism. Bank officials liken the institution's behavior to that of the squirrel used in its logo, but observers opine that a turtle might be a more appropriate mascot. Yet its approach has clearly paid dividends.

Despite dramatically increasing its technology spending in recent years, Artisans' has managed to keep overhead expenses at 0.7% of the total assets. That's less than a third of the average overhead expense for FDIC-insured institutions with assets ranging from $300 million to $500 million, according to Sheshunoff.

The bank uses an NCR Corp. service bureau to handle the majority of its computer operations. While bank officials have been flirting with the idea of bringing the operations in-house, Mr. Harris says the service bureau is the cheapest way to go at the bank's present size. "It might change," he says of the service bureau arrangement, "but probably not in my lifetime."

Inside its five branches, Artisans' is phasing in a personal-computer-base platform and teller system that will improve employee response to customer inquiries. The bank is also converting to a new in-house general ledger system.

Even with the new systems, though, some things will not change. For instance, Artisans' will continue to issue passbooks to any customers that want them.

Though they are a little more expensive to issue and maintain than the abbreviated account statements favored by most institutions, Mr. Harris is more interested in satisfying existing demand than in trying to create new appetites.

"We're not going to force the issue on any front. We know where our business strengths lie," he says.

"We've never been accused of being exciting, but we've never been accused of being unsound either."

He plans to keep it that way.

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