Most of the thrifts itching to go whole hog on small-business lending are not the western behemoths but small community institutions, according to an analysis of thrift commercial lending.

Thrifts could become a newly vigorous source of small-business competition as Congress lifts the restrictions on charter switches. As banks, former thrifts could make unlimited amounts of small-business loans.

Such a development could occur if President Clinton signs a bill that would free the industry of more than $3 billion of a tax liability associated with its bad-debt reserves.

In the interest of diversifying their assets and obtaining higher yields, 114 of the country's 2,000 thrifts have commercial loan portfolios totaling 5% or more of their loans, according to March 1996 data from Sheshunoff Information Services. No more than 10% of a thrift's assets can legally be in commercial loans.

Some thrifts are interested in flipping charters for greater lending flexibility but have been held back by the prospect of subjecting all their reserves to taxes.

"It is something we've talked about and discussed," said Kevin Hammer, executive vice president of $53 million-asset First Federal Savings Bank, Morris, Minn., which has been up against the 10% limit for two years. "It depends on events in Washington."

Most thrifts bumping against the limit are relatively small, like First Federal. All but three of the 114 thrifts with sizable commercial loan portfolios have less than $3 billion of assets, according to the Sheshunoff data.

The limit has hampered the ability of the Minnesota savings bank to serve businesses and farmers, Mr. Hammer lamented. "I had 10 people in here in March and April asking about loans, and I had to tell them I'm not in a position to do anything."

The former Olney Savings Bank in Illinois was in a similar position until last year. Then it changed to a commercial bank charter and changed its name to Community Bank and Trust.

"We're in an agricultural area with small towns where you can't generate real estate business," said Wayne Benson, executive vice president of the $178 million-asset company. "We were trying to structure ourselves like a commercial bank." The bank has $10 million of small-business loans and another $15 million of agriculture loans.

Commercial lending requires different skills from traditional real estate lending, but thrift executives seem unfazed. Officials of small institutions say they have a good grasp of their communities and, besides, experienced lenders are easy to find in an age of banking consolidation.

Seb Melluzzo, former president of the Dayton, Ohio, district for Cleveland's Society Bank, has been senior vice president of commercial lending the last six months for Dayton-based Citizens Federal Bancorp. The thrift has $2.7 billion of assets and is starting to push into business lending.

He is comfortable with the thrift's expertise but concerned about its support technology; the business lending system now in place lacks the capacity to handle commercial loans secured by real estate.

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