HF Bancorp in Southern California said last week it had recovered all of a potential $2.9 million loss from a check kiting scheme.
The $1 billion-asset thrift disclosed its problem in November, three days after announcing it had agreed to be acquired by Temple-Inland Inc., a Texas paper and building products company.
HF Bancorp, based in Hemet, Calif., would be folded into Temple-Inland's Guaranty Federal Bank of Austin, Tex.
Though the kite could have scuttled the deal, a Temple-Inland official said this week that the speed with which HF chief executive officer Richard S. Cupp dealt with the problem allayed any concern.
"He jumped on this so fast and with the right kind of urgency, so we are very comfortable with the way it was handled," said Kenneth Dubuque, president and CEO of $11 billion-asset Guaranty Federal.
"All of us at the company are focusing significant efforts on the job of completing our responsibilities under the definitive agreement to merge with Temple-Inland," Mr. Cupp said in a prepared statement. (He was unavailable for an interview.)
Though the potential check-kiting loss was averted, as reported in HF's latest earnings release, other factors dampened the thrift company's net income. In its fiscal second quarter, which ended Dec. 31, the thrift earned $118,000, down 84% from a year earlier.
HF cited the tough interest rate environment, which prompted accelerated prepayments in its adjustable-rate mortgage portfolio. That contributed to a decline in net interest income of about 1%, to $12 million.
HF also doubled its loan-loss provision, to $600,000, compared to the year-earlier period.
Noninterest income grew dramatically, to $832,000 from $13,000, driven by strong results in real estate operations, mortgage banking, fee income, and sales of securities.
Mr. Dubuque said HF's less-than-stellar quarterly performance had no effect on Temple-Inland's intention to go through with the deal, which is to close in the second quarter.
"We were pleased with the deal when we announced it," he said, "and we are now."
