To counter declining mortgage business and take advantage of commercial bank mergers, more thrifts will vie for traditional bank business, bankers and analysts say.

Take OSB Financial Corp., a 108-year-old thrift in Oshkosh, Wis. OSB this month started a commercial lending department from scratch. The $215 million-asset company expects it to be open for commercial accounts in about six months.

Mike Milunovich, an analyst at Robert W. Baird & Co. in Milwaukee who calls OSB Financial "a nice, clean thrift," said that diversifying its services will allow the company to rely less heavily on the mortgage business when factors such as recent rising interest rates hurt it.

More Like Each Other

"The problem with thrifts is they're so one-sided - and that one side has kind of gone to pot this year," Mr. Milunovich said. "I think it's an industry that's pretty much going to be absorbed by commercial banks. Or, if not, they [thrifts] will try to become like commercial banks like this one is trying to do."

OSB Financial used to redirect commercial inquiries to a bank, said Ronald J. Timmerman, president and chief executive of OSB Financial and its wholly owned subsidiary, Oshkosh Savings Bank.

But the thrift decided to capitalize on a small-business lending niche it identified after Marshall & Ilsley Corp. acquired Valley Bancorp earlier this year. Both institutions previously had locations in many of the towns OSB serves.

"With the M&I-Valley merger here in Oshkosh, we've had a lot of inquiries from small business, which is what we want to specialize in," Mr. Timmerman said. "There's [no bank] here who wants to do that. They all want the big ones."

Seeking an experienced commercial lender, Mr. Timmerman hired Thomas Dunham, previously an assistant vice president of commercial lending at a local office of Milwaukeebased Firstar Corp.

Mr. Dunham joined OSB Financial this month as vice president for commercial lending.

"I think there is a niche for small-business customers," said Mr. Dunham, eager to start a department from scratch. "I believe there's going to be more work than I can handle."

The company's plans for long-term profitability also call for opening branch offices to increase asset size and to raise return on equity to at least 10%.

ROE Only 6%

Because of excess equity since OSB converted to a stock institution in 1992, ROE has hovered near 6%, Mr. Timmerman said.

OSB now has six offices, including a branch in Ripon opened this spring. It plans another in Wautoma next month.

It also has repurchased shares to lower equity.

Last week, the company reported earnings for the quarter ended June 30 of $367,000, down from $733,000 for the same quarter in 1993. For the first half of 1994, it earned $867,000, down from $1.7 million a year ago.

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