Household International's banking division has reached agreements to sell off $2.9 billion of deposits and 90 branches in three states to focus on its core midwestern markets.

Household Bank, a subsidiary of the Prospect Heights, Ill.-based holding company, said it has sold $1.35 billion of deposits and 52 branches in California to Home Savings of America, Irwindale, for $53 million. Home Savings is the principal subsidiary of H.F. Ahmanson & Co.

The second-largest piece, in Maryland, went to a subsidiary of Newark, N.J.-based First Fidelity Bancorp., which picked up $1.1 billion of deposits and 24 branches for $76.1 million.

The smallest sale was to Richmond-based Central Fidelity Banks Inc., which paid $37 million for $465 million of deposits and 14 offices in northern Virginia.

Following the sales, Household Bank, which is also based in Prospect Heights, will be left with $3 billion of deposits and 100 branches in Illinois, Ohio and Indiana.

Household Bank, which has $8.6 billion of assets, will retain the loans in each state.

"In the states where we sold branches, we just don't have enough scale and market share to be a real contender," said Household International spokesman Howard Adamski. "So we're refocusing in the Midwest."

PaineWebber analyst Gary Gordon said he "wouldn't be surprised" to see Household International sell the rest of its banking network, since Household Bank's crown jewel - its $11 billion credit card portfolio - can be funded from nondeposit sources.

"The company realizes they can fund themselves in the wholesale market, so it's not necessary to maintain the expense of the banking network," said Katrina Blecher, an analyst with Gruntal & Co., in New York.

Mr. Adamski agreed. "We have ample liquidity in the wholesale funding market," he said. "So we'll use our bank facilities and secured and unsecured borrowing facilities to make up the shortfall."

The premiums paid by the three banking companies for the Household deposits ranged from 8% at the high end, in the Virginia sale, to 4% in California. First Fidelity paid a 7% premium in Maryland.

The higher premiums paid on the East Coast reflect California's weaker real estate market.

The purchasing banks said the deals strengthened their existing franchises in key areas - southern California for Home Savings, Baltimore and its environs for First Fidelity, and northern Virginia for Central Fidelity.

Central Fidelity, which was hurt badly by securities losses last year and still has much of its bond portfolio under water, also gained an important source of new funding.

"This helps alleviate their immediate need for deposits," said Merrill Ross, a banking analyst with Wheat First Butcher Singer Inc. in Richmond.

Mr. Adamski said the branch sales were part of a larger strategy at Household International to focus on its higher-margin consumer businesses, principally Household Bank's credit card portfolio and Household Finance Corp., a consumer lending subsidiary.

The company, which has total managed receivables of $33 billion, sold its Australian subsidiary and discontinued its first-mortgage origination business in the fourth quarter.

It had previously abandoned commercial finance and commercial real estate.

Household International got into the banking business in 1976 through the purchase of an Illinois thrift, Keystone Savings Bank. The unit didn't expand beyond that base until the mid-1980s, when it began picking up pieces of failed thrifts around the country.

Household Bank is best known for its credit card division, the fifth- largest card issuer in the country with $11 billion of receivables at year end. Much of its growth came during the last two years through its GM MasterCard, a joint venture with General Motors Corp.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.