Home Federal Clears Hurdle in Switch to State Charter

The Federal Home Loan Bank Board on Tuesday approved Home Federal Savings & Loan’s application to quit the federal insurance fund for thrifts, clearing the first and biggest hurdle in Home Fed’s conversion to a state charter.

Home Federal seeks to switch charters to escape the special premiums that the Federal Savings and Loan Insurance Corp. has levied against its members since 1985. The premiums are intended to prop up the fund depleted by the failure of hundreds of S&Ls; over the past decade.

Home Fed’s special premium to the FSLIC last year was $13.7 million, on top of its basic FSLIC premium of $9.6 million. If it successfully completes the charter switch, it would join the Federal Deposit Insurance Corp., which charges only a basic premium.

A switch of charters to a state commercial bank will also improve the “public perception of Home Fed,” which can translate into a better stock price, Home Fed counsel Ray Mercado said Tuesday.

Home Fed still expects, however, to absorb a $25-million special charge in changing to a state charter. A loan-loss reserve fund that was tax-exempt under federal statutes would then be taxable.

Would Be Largest to Secede

Home Fed must now receive approvals from the FDIC, and the state banking and state savings and loan departments to complete the conversion. Mercado said his institution foresees no problems in getting those approvals.

If approved, Home Federal--with $17.6 billion in assets--would be the largest S&L; to successfully secede from the FSLIC, bank board spokesman Mark Adams said Tuesday. Thirteen other S&Ls; have received approvals for the switch, but all were much smaller than Home Fed with assets “way less than $1 billion,” Adams said.

Home Fed initially filed for the switch in March, 1987, applying to the FDIC and the state authorities under grandfather provisions of Competitive Equality Banking Act of 1987. But the FDIC and the state departments told Home Fed that they wouldn’t process the filing until the thrift received approval from the Federal Home Loan Bank Board to exit the FSLIC.

Home Fed filed an application with the board under protest in June. After the FHLBB requested more information from Home Fed, the S&L; filed suit last month in U.S. District Court saying the bank board had no statutory jurisdiction.

Home Fed said Tuesday that it is dropping the suit because it has been rendered moot.