A Lynn, Mass., institution has become the first bank to begin originating commercial mortgages for Prudential Insurance Co.

Eastern Bank Corp. will make loans of $2 million to $20 million on behalf of Prudential's Pru-Express program and the insurer's new company, Prudential Mortgage Capital Co.

For $2 billion-asset Eastern, which began the partnership program last month, it is a way to earn fee income and make larger loans than it normally could offer, said Stanley J. Lukowski, chairman, president, and CEO of both the bank and its holding company.

"We can make a $15 million loan through Prudential," Mr. Lukowski said. "We don't like to lend more than $7 million or $7.5 million. Five percent of capital is our house limit."

Mr. Lukowski said Prudential expects Eastern to originate about $50 million this year-and at least $50 million for its conduit company, Prudential Mortgage Capital, in 1998. The conduit packages the loans and sells them.

Prudential is looking for fixed-rate commercial mortgage loans with terms of 10 to 20 years, long-term financing that has become a staple in insurance company lending.

As part of the arrangement, Eastern shares loan fees with JHP Realty Advisors Inc., a New York firm that acts as Prudential's mortgage marketing adviser in the Northeast.

The Prudential arrangement came about when Eastern decided to hire Gary R. Leach as senior vice president and head of its commercial real estate group. Mr. Leach had been at JHP Realty Advisors as a regional director.

When Mr. Leach came to the bank, JHP asked whether he and the bank would represent Prudential in the Boston market.

Mr. Leach, who had been a commercial lender at Fleet Bank for 10 years, persuaded Eastern that the Prudential link would be a good way to increase its customer base and income without putting loans on the balance sheet. Prudential funds the loans and assumes the risk.

"We use no Eastern capital whatsoever," Mr. Leach said. "There is no risk."

Life insurance companies use third parties to originate commercial mortgages, typically affiliating with small mortgage companies, Mr. Leach said.

Mr. Lukowski said fee income is especially important in the competitive New England market, where the slow-growing economy leads bankers to try to steal business from each other.

Mr. Lukowski said he did not want to tip off competitors by revealing how much Eastern expects to earn through its new program.

Eastern reported $17 million of noninterest income for the nine months through Sept. 30.

Jeffrey L. Cohn, a portfolio manager at M. Kraus & Co., Burlington, Vt., who follows community banks, said the agreement with Prudential gives Eastern a chance to improve its liquidity and give customers more product choices.

"For Eastern, which has traditionally been a savings bank, it allows them to offer a commercial-oriented product that they might not have had," Mr. Cohn said. "It would have taken them years to build up to the way Prudential is doing it."

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