Home Federal S&L; Seeks State Charter as Bank

Home Federal Savings & Loan has asked state and federal regulators for permission to reestablish itself as a state-chartered bank, a move that would cut Home Federal’s ties with the financially troubled Federal Savings and Loan Insurance Corp.

If Home Federal--the largest federally chartered S&L; ever to attempt such a conversion--is successful, the San Diego-based thrift would become the state’s fifth-largest bank, with $12 billion in assets and 168 offices throughout California.

Home Federal opted for a state charter, company officials said, because a federal banking charter would impose limits on real estate development, one of Home Federal’s best businesses.

The conversion would be a “natural progression, consistent with our strategic direction to become a regional banking force,” said Home Federal Chairman Kim Fletcher, who added that the applications for conversion would be reconsidered if FSLIC’s capitalization problems are solved.

Home Federal, one of 36 savings and loan firms that have asked to leave the FSLIC system during the last 18 months, filed its conversion request Monday in hopes it will avoid paying exit fees that have been levied by the Federal Home Loan Bank Board on thrifts that leave the system.

The House is considering an FSLIC recapitalization bill that would exempt S&Ls; from exit fees that are included in the bill if they filed applications before March 31. However, there is no counterpart for the House “grandfather” clause in a Senate recapitalization bill.

Apart from the 36 S&Ls; that have already asked to leave FSLIC, another 320 of the more than 3,000 S&Ls; insured by FSLIC are believed to have strong enough capital bases to convert themselves into banks, FSLIC spokesman Pat McKelvey said.

Fletcher last month suggested that Home Federal would withdraw from FSLIC because of its increasing fund-shortage problems. FSLIC, the governmental body that insures S&L; deposits, has been battered by a host of thrift failures over the past several years. To temporarily address those problems, FSLIC has collected additional insurance premiums from large S&Ls;, a policy that has been criticized by most S&L; executives.

Costs associated with converting to a state-chartered commercial bank could be prohibitive if Home Federal is required to pay severe “exit fees.” The insurance fund has been trying to force thrifts to pay exit fees equal to twice the S&L;’s annual insurance premiums. Premiums are determined by an institution’s total deposits, and Home Federal last year paid $20 million.

Bank board policy requires “substantial participants in our system . . . to make amends for dropping out,” McKelvey said.

However, the exit fee policy suffered a setback last December when a U.S. District Court in Jacksonville, Fla., ruled that Barnett Banks of Florida was not required to pay exit fees on a Florida S&L; it acquired and subsequently converted into a bank.