Regulators are taking a close look at the structure of charitable foundations set up in connection with initial public offerings by thrifts.

The foundations are ostensibly a way to assure that local communities receive some of the benefits as the depositor-owned companies are taken public. But some critics are saying the foundations could be a sly way for management to retain control.

"Charitable foundations have become extremely controversial and divisive issues," said a former thrift regulator.

A case in point is Hemlock Federal Bank for Savings. The Office of Thrift Supervision is due to rule Wednesday on the Oak Forest, Ill.-based holding company's conversion plan, which includes a $1 million cash contribution to the Hemlock Federal Financial Foundation.

If approved, subscription would open to local depositors by Feb. 24, and the transaction would come to market at the end of March.

The offering, underwritten by Charles Webb & Co., a division of Keefe, Bruyette & Woods Inc., is estimated to be anywhere from 16 to 22 million shares at $10 per share. It must be approved by Wednesday or the financial information in the application will have to be updated.

The foundation, which will be funded in the second quarter of this year, differs from those of Ocean Federal Savings Bank, Roslyn Bancorp, and First Fed America Bancorp, which authorized the issuance of shares to their charitable foundations.

Michael Stevens, president and chief executive officer of the bank, said that he decided to fund the foundation in cash so that it would be immediately available for contribution without the delay and complexity entailed a stock transaction. The foundation raised a red flag with the OTS, however. The agency investigated the foundation to ensure that it was not being used as "an instrument for maintaining control of a portion of the stock," said Dwight C. Smith, deputy chief counsel of OTS.

The foundation's board would consist of two bank directors and two outside directors. Mr. Stevens would be chairman of the board; directors would receive no compensation for participation on the charitable foundation.

Mr. Smith that the approval process was proceeding despite the concerns raised about the foundation. Still, the OTS has not yet formalized regulations for such foundations.

The foundations funded with stock raised similar issues with regulators because they were also ways of deploying excess capital.

Concerns emerged that the foundations were purely an attempt to lock away a portion of the stock in friendly hands, to give protection in the event of a takeover attempt.

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