Suburban L.A. Thrift Signs Deal To Expand into San Diego Area

Suburban Los Angeles' Hemet Federal Savings and Loan has cut a $5.6 million deal to move into the San Diego market.

Riverside County-based Hemet Federal has signed a definitive agreement with Hawthorne Savings, El Segundo, to buy its three San Diego County branches.

The deal is Hemet's first foray into the county to its south, and it would also be the first entry by a Riverside County financial institution into the San Diego market.

"I think it's an excellent, excellent move for Hemet because it provides another area for them to diversify into," said Jerry A. Jones, managing director of Duff & Phelps Capital Market Co., Los Angeles. "There's growth potential in Riverside County, but it's limited. San Diego has a more diversified business base, so this expands their market potential."

The branches, in Oceanside, Vista, and Rancho Bernardo, have about $165 million of deposits. Hemet agreed to pay a premium of 3.67% of core deposits purchased. The deal is slated to close by July.

"This area represents a logical extension of our existing branch base in western Riverside County and clearly should enhance our overall retail franchise value," said Hemet Federal president and chief executive J. Robert Eichinger in a statement.

The deal will also enable $760 million-asset Hawthorne to withdraw from San Diego County and concentrate on its core market in Los Angeles County, according to Scott Braly, Hawthorne's president and chief executive.

"Given the amount of deposits we had down there, ... we had two directions to go," to expand or get out, Mr. Braly said. "And we decided to ... sell the branches in order to redeploy the capital in our core market."

Hawthorne, which entered the San Diego area in the late 1970s, has nine offices in Southern California. Mr. Jones of Duff & Phelps said he thought Hawthorne's move to divest itself of one-third of its offices was wise.

"It may be good for them to further consolidate their operations," he said. "They've been struggling now for several years."

Stung by Southern California's 1990s real estate collapse, Hawthorne lost nearly $13 million in 1995, about $3 million in '94, and $22 million in '93. Mr. Braly said Hawthorne was recapitalized in 1995 and most of its problems are behind it.

Hemet, with more than $600 million of assets, has also had difficulties this decade. The bank lost money in both 1995 and 1994, although it posted a profit of nearly $800,000 in the quarter ended March 31.

Hemet Federal's earnings for the first three quarters of its current fiscal year were $1.6 million, compared to a $450,000 loss in the same period of its previous fiscal year. It converted last summer from a mutual savings bank to a federally chartered bank.

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