Temple-Inland Inc., a Texas-based industrial company with significant thrift and mortgage holdings, announced an agreement Monday to acquire a $1 billion-asset institution in Southern California.

The paper and building-products giant, which owns $11 billion-asset Guaranty Federal Bank of Austin, said it signed a definitive pact to purchase HF Bancorp for $120 million in cash and stock.

HF Bancorp is the parent of Hemet Federal Savings and Loan Association. Its 18 branches in Riverside and San Diego counties would extend Guaranty Federal's existing 25-branch network in northern and central California and 135 total offices in California and Texas.

The transaction, which analysts described as inexpensive because of recent earnings problems at HF Bancorp, is scheduled to close in next year's second quarter.

The price, $18.50 a share, equals 1.6 times Hemet Federal's book value, or a 4% deposit premium. Comparable deals have been closer to 1.8 times book value and 10% deposit premiums, analysts said.

"It's a really fine franchise to purchase, located in a good market where there aren't many independents left to buy,"said Martin Friedman, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va.

Hemet Federal earned 3 cents a share in the third quarter, but it was the first time in several quarters that the thrift posted an increase. It lost 10 cents a share in the second quarter and 7 cents in the first, according to Charlotte A. Chamberlain of Jefferies & Co., Los Angeles.

She said the thrift was required by regulators to boost reserves to protect against losses in its mortgage portfolio. In addition, Hemet Federal suffered from a runoff of earning assets due to a surge in prepayments.

"They were doing pretty dismally," Ms. Chamberlain said.

At the behest of shareholders, Hemet Federal hired Keefe, Bruyette & Woods Inc. in June to explore a sale.

"My guess is that the usual suspects-Washington Mutual, Golden State Bancorp, Golden West Financial Corp.-were likely contacted first and decided to pass on this," said Campbell K. Chaney, an analyst with Sandler O'Neill & Partners, Walnut Creek, Calif.

Hemet Federal president and chief executive officer Richard S. Cupp stressed that the deal was "not something we were forced to do by any means." Rather, he said, Hemet Federal sought a partner that would help the thrift offer more convenience and a broader array of products.

"It makes awfully good sense from both a shareholder and a market perspective," Mr. Cupp said in an interview.

Hemet Federal and Guaranty Federal have similar operating philosophies, Mr. Cupp said. Both have branches on the fringes of urban areas, where "it is a bit easier to be competitive," he said.

Temple-Inland entered the Golden State last year, with the purchase of California Financial Holding Co., the parent of $1.3 billion-asset Stockton Savings Bank. Temple-Inland officials said at the time that they viewed it a foothold for further expansion.

Hemet Federal provides a good opportunity to grow, said Doyle R. Simons, director of investor relations for Temple-Inland.

"We are interested in expanding our financial services operations if we can continue to improve returns," Mr. Simons said. "Hemet was attractive because it included our target customer group, which generally consists of savers."

Temple-Inland became a unitary thrift holding company in 1986 and two years later bought the insolvent Guaranty Federal from the U.S. government.

"We were looking for a steady earnings stream to offset the volatility of our paper and building products operations," Mr. Simons said.

As is common in such deals, HF Bancorp granted Temple-Inland an option to purchase 1,273,000 million of its common shares, or 19.9% of those outstanding, at $16 each.

Temple-Inland's stock price closed Monday at $49.5625, down 37.5 cents. HF Bancorp was up 12.5 cents, to $17.125.

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