from GFS Bancorp's book: When loans can't be found at home, hit the road. The $71 million-asset company's exclusive agreement with a Madison, Wis., mortgage bank, effective this week, is just the latest in GFS' quest to diversify its loan portfolio and deploy capital from its January 1994 initial public offering. Steven L. Opsal, president and chief executive of the Grinnell, Iowa- based thrift and its holding company, stressed that GFS has not abandoned the Grinnell area and has not experienced community backlash for its out- of-town endeavors. "We have not backed off one dollar from the local community," he said. "The population growth is flat. So you end up with three or four institutions fighting over the same-size pie. If we're in a situation where our capital doubles, we need to get out and find new growth opportunities." Analyst Daniel Cardenas of Howe Barnes Investments Inc., Chicago, said he hasn't seen many small institutions with similar strategies. "A lot of them seem to be staying in their own backyard," he said. "As competition gets tighter and as loan demand dries up, they may be forced to other ways to look at their revenues." GFS, which owns Grinnell Federal Savings Bank, launches its relationship as lead lender for Bache Funding Corp. this week. Bache will originate one- to-four-family, multifamily, and commercial real estate loans up to $5 million in the Madison area, giving Grinnell Federal first-refusal rights. The thrift will sell participation interests in the loans to a network of 12 thrifts in Iowa, South Dakota, and Illinois. Although the lead-lender role is new to Grinnell Federal, the Madison market and loan network are not. Since 1993, it has purchased loans through another lender, Harvest Savings Bank, Dubuque, before Firstar Corp. acquired that institution. The agreement, as well as other loans in Wisconsin and Iowa, brings Grinnell Federal new servicing and fee income that the company hopes will be substantial over time. It also provides use for excess capital and lead- lender authority over what credits to accept, Mr. Opsal said. The main risks involved are the reliance on interest rates and that the loans still are outside Grinnell Federal's traditional market. Howe Barnes' Mr. Cardenas concurred that the company previously has managed out-of-state loan risk well. In the 1980s, the thrift bought loans in Colorado, Texas, and Utah. Today, it's solely in Iowa and Wisconsin.

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