WASHINGTON -- Savings and loans in large numbers are converting to savings bank charters to escape the costs of regulation by the Office of Thrift Supervision.

In the last 18 months, 91 state and federal S&Ls, about 5% of all private-sector thrifts, have made the switch. They have $18.5 billion in assets, 2% of the industry total.

Thirty more S&Ls are awaiting OTS approval to convert, and another wants to convert to a commercial bank. Those 31 have $5.2 billion in assets.

20 States Issue the Charters

In all cases, deposits in the institutions remain covered by the Savings Association Insurance Fund. But their examinations will be conducted by state regulators and the Federal Deposit Insurance Corp.

Most of the charter converting has occurred in six states that recently passed laws to permit such conversions. But 20 states and Puerto Rico issue savings bank charters.

The new laws were based on a legislative draft prepared by the American Council of State Savings Supervisors. OTS Director Timothy Ryan said it was an attempt by state regulators to save their jobs.

Mr. Ryan, though concerned about the ability of state agencies to handle the influx of thrifts, is not attempting to stop the exodus.

The OTS expects its fees to be reduced by $5 million from the defections to date. That compares with the agency's 1992 budget of $223.4 million.

Ryan Skeptical

"The idea that the [state] regulator is more hospitable brings memories of the 1980s," Mr. Ryan said. "The [S&L] cleanup is almost over. We don't need to deal with this problem in the future."

North Carolina has been a hotbed of activity since passing a law in 1991. There have been 29 conversions, and 11 are pending, according to the OTS.

Pennsylvania s next, with 21 conversions and eight pending; Illinois has had 19, with three more pending, and Washington has had 10.

Some state regulators believe the OTS encouraged the charter migration by becoming over-zealous in the wake of the collapse of the Federal Savings and Loan Insurance Corp. in the 1980s.

"The attitude of federal regulators is, look at the worst-case scenario and make that the norm for everybody," said Harold Lee, Wisconsin's commissioner of savings and loans. "You can't muscle the industry. Eventually they'll just fight back."

Cost Considerations

Thrift executives say pocketbook issues are their primary concern.

Converting thrifts pay a scant $5,700 application fee to the OTS, as well as fees to lawyers and accountants that can add between $5,000 and $45,000 to the conversion cost, depending on an institution's size.

The fees can be recouped quickly because an S&L with $100 million in assets saves about $25,000 in annual supervisory and examination fees.

"We don't have any particular gripe with the OTS, but in our case the OTS was costing us well over $200,000 a year in assessments for really no major benefit that we could see," said Michael T. Crowley Jr.

He is president and chief executive of Milwaukee-based Mutual Savings Bank, a profitable thrift with $1.2 billion in assets that converted on Oct. 1.

Avoiding Taint of S&L Name

Mr. Crowley said an added advantage of converting is that it "gets us one step away from the tarnished [industry] image" by allowing "bank" to be emphasized in the institution's name.

Shirley Kessler, president and chief executive of Community Bank and Trust, Olney, Ill., said her charter flip will save $50,000 a year.

"We needed to cut expenses," she said. "We were tied up three to four months out of the year with examiners."

Reno Massimino, chief executive of Bridgeville (Pa.) Savings and Loan Association, said:

"One of the main reasons we got away from the OTS is because they are stringent. It gets ridiculous when they come every eight months, nine months, 10 months,"

Mr. Massimino said he has had disagreements over the Community Reinvestment Act with OTS examiners. "They criticize you and say you don't do enough."

A. Harold Ausley, president and chief executive of Summit Savings Bank, Sanford, N.C., said he converted in July because he has a close relationship with state regulators.

"I don't have to say, |Hello, my name is,'" he said. "Some people will read into it that you know these guys, so they are going to be easy on you. That's not true."

The American Council of State Savings Supervisors, a group of 35 state thrift regulators, drafted its model savings bank act in 1990 for supervisors across the country.

The OTS refused to act on conversion applications until the FDIC closed a loophole in April 1991 that would have given thrifts powers abolished by the thrift-bailout law passed in 1989.

One Examiner for Each S&L

Mr. Ryan questions the ability of state regulators to monitor S&Ls as closely as his agency, which gives annual examinations and has nearly one examiner for every S&L in the country.

"We were told by Congress in 1989 to examine annually. That's not going to happen" under the states, Mr. Ryan said.

"It is an absurd argument," said John Seymour, Illinois' commissioner of savings and residential finance. The federal official "doesn't know what my budge size is. He doesn't know what my capacity is."

Mr. Seymour has 18 employees who oversee 54 $&Ls, three foreign-owned S&Ls, and 12 savings banks. His department also monitors 600 mortgage banking firms.

How It Is Done

To convert, a state or federally chartered S&L petitions both the OTS and the state regulator. The state typically accepts applications only from institutions that have Macro rating of one or two out of five.

Macro is an acronym used by S&L regulators for a system to grade an institution's management, asset quality, capital adequacy, risk management, and operating results. One is the highest grade.

The state makes its decision in a matter of weeks, while the OTS can take up to three months, according to S&L executives and state regulators.

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