Home Federal Considers Switch of Structure From S&L; to Bank

Home Federal Savings & Loan is “seriously looking” at the possibility of breaking away from the troubled Federal Savings and Loan Insurance Corp. and reestablishing itself as a commercial bank that would be insured by the Federal Deposit Insurance Corp., Chairman Kim Fletcher said Thursday.

The San Diego-based S&L; has been considering the “big job” of converting to a state or federally chartered bank for the past five years, Fletcher said during a briefing for reporters Thursday. However, Home Federal could enter “a decision mode” during the next two years because of the FSLIC’s growing capitalization problems, Fletcher said.

Home Federal at present has no plan to make the switch, but the conversion would be attempted “if it’s in the best interest of our shareholders,” Fletcher said. If such a move were to be made, a “typical” account holder would notice little or no change, according to a company spokeswoman.

Home Federal has considered transforming itself into an FDIC-insured bank because of the increased premium payments being demanded by the FSLIC. The federally controlled insurance corporation has used the added premiums in its efforts to recapitalize failing and troubled thrifts, Robert Adelizzi, Home Federal’s president, said.

Home Federal officials are merely voicing publicly the same frustrations that executives at other large California savings and loans have been expressing privately for months. The larger and healthier the institution, the more it has to pay in additional premiums to FSLIC.

Banks’ premiums for FDIC insurance have not risen as abruptly because the American commercial banking industry as a whole is not suffering nearly as much as the savings and loan business.

Home Federal paid about $20 million in premiums during 1986, about $15 million more than it would have paid as a bank, Adelizzi said.

Making the switch from FSLIC to FDIC could be an expensive and time-consuming project, according to industry observers, some of whom doubted whether federal regulators would allow that kind of move.

The prospect of major savings and loan firms leaving FSLIC would be likely to force changes in federal laws and regulations, said Allan G. Bortel, a San Francisco-based financial institutions analyst for the brokerage firm of Shearson Lehman Bros. “If you get strong companies like Home Fed (trying to switch to the FDIC) something would happen legislatively,” said Bortel.

When a pair of East Coast banks recently acquired savings and loan firms and reopened them as banks, the Federal Home Loan Bank Board, which regulates S&Ls;, responded with decisions ordering that withdrawal penalties be paid to FSLIC.

When Marine Midland Banks recently acquired a New York-based S&L;, the bank board ordered the firm to pay a “final insurance premium.” And, the FHLBB recently went to court to stop Barnett Banks of Florida from acquiring a thrift and reestablishing it as a bank.

At least one California S&L; has made the transformation into a bank. In 1982, Point Loma S&L; of San Diego won regulatory approval to convert itself into the Bank of Southern California.

In another announcement Thursday, Home Federal reported that its net earnings rose 42% to a record $103.4 million for the year ended Dec. 31. Deposits rose 15% to $8.6 billion, and assets increased by 21% to $12.1 billion. Fletcher linked Home Federal’s “exceptional performance” to “record-breaking loan volume and a favorable interest rate environment.”