Illinois savings and loans continue to switch charters more than in any other state, though the trend is slowing.

A need to diversify loan portfolios, reduce regulatory costs, and find a new path as the federal thrift charter's future becomes more uncertain is driving the move toward commercial bank and state savings bank charters in Illinois. The state still has many small savings institutions.

"When the Congress begins talking about" abolishing the thrift charter, "that has to make you wonder where you're going to fit," said Jay Stevenson, Illinois' chief deputy commissioner of savings and residential finance. "I think they feel in many cases that they're taking their destiny in their own hands."

In Illinois and nationwide, savings and loans have sought commercial bank charters to expand lending and to prepare for the likely demise of the federal thrift charter. But they cannot yet escape the Savings Association Insurance Fund's higher premiums - because their deposits are still covered by the SAIF - or the tax liability on certain bad-debt reserves.

From January 1995 through the beginning of May this year, 17 savings and loans nationwide switched to commercial bank charters, and 22 moved to state savings bank charters.

During that period, four Illinois savings and loans became commercial banks, and six got savings bank charters - more such switches than in any other state. Texas had six S&L charter changes; Pennsylvania, five. All but one of these 11 were to savings bank charters.

Illinois is one of about 30 states that offer a savings bank charter. The state only began offering the charter after the S&L debacle and bailout of the late 1980s.

The numbers show a slackening of the mad rush to state savings bank charters in Illinois. Forty-eight S&Ls had made the switch from 1991 through 1994.

The Illinois savings bank charter offers a bit more lending flexibility, requiring 60% of portfolios be in mortgage loans as opposed to the 65% at savings and loans.

But the main incentive for switching to a savings bank charter likely is to reduce regulatory costs, said Mr. Stevenson, the state official. The charter cuts regulatory costs by one-half to one-third compared with the federal thrift charter, he said.

However, S&Ls that primarily want to change their loan portfolios are becoming commercial banks.

They want ways to improve earnings, said Christopher J. Zinski, a Chicago lawyer in the Schiff Hardin & Waite firm. "They really have to find ways to improve their competitive position," he said. "One area they probably feel comfortable with is diversifying lending."

The residential loan requirement for thrifts "hampers you from being as profitable as you should be," agreed Shirley Kessler, chief executive officer of Community Bank and Trust, Olney, Ill., which went public and switched to a bank charter last year. It had converted to a savings bank charter in the early 1990s.

Less than a year after the latest switch, only about one-third of its $150 million in loans are mortgages, Ms. Kessler said.

Thrifts also may switch charters to influence customer perceptions, said Judith Muncy, a lawyer at Barack Ferrazzano Kirschbaum & Perlman, Chicago. "There seems to be a perception in the business community that you don't take your corporate business to a thrift, you take that to a bank," she said.

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