After scuttling a $2-million deal to buy Pioneer Savings & Loan Assn. in Newport Beach, Hammond Co. said Tuesday it instead will buy an S&L in Riverside for about $3.7 million.
Hammond, a publicly traded mortgage banking company in Newport Beach, said that uncertainty over the legal ownership of nearby Pioneer Savings forced an end to two months of talks to buy the S&L. Instead, the company agreed to buy Mission Savings & Loan Assn. in Riverside for about $12.30 a share.
All 30 Mission S&L shareholders have signed the agreement, said Hammond Co.'s founder and president, Thomas T. Hammond. The deal is subject to certain performance expectations and the approvals of regulators and Hammond shareholders, he said.
The Mission deal is Hammond's third attempt in two years to become owner of an S&L.
Hammond said his company wants to own a savings and loan so that it can finance its interim loans more cheaply than is now possible and so that it can begin trading in a new form of mortgage securities called real estate mortgage investment conduits, which were created under the 1986 tax law.
In announcing the purchase, Hammond also released its financial results for its fiscal 1988 first quarter, ended June 30. The company posted net income of $113,998, compared with a $571,602 loss in last year's fiscal first quarter. Quarterly revenues rose 28% to $6.7 million, from $5.2 million last year.
Hammond said he plans to merge his company's major subsidiary--the mortgage banking business--and up to 75% of the holding company's $118 million in assets into Mission Savings. He also plans to boost the S&L's $2.6-million capital base to $9 million.
Such moves would push the S&L's $11.4 million in assets to as much as $100 million and would turn an $8.5-million loan portfolio into a $500-million mortgage banking operation.
In mortgage banking, a company makes loans on residential and commercial real estate, then packages groups of loans and sells them in the secondary market, usually to quasi-governmental agencies that then sell securities backed by the pool of mortgages.
Mortgage bankers use the proceeds from loan sales to finance new loans. They make their money in loan fees or points--a percentage of the loan--and in servicing fees for collecting monthly payments on the loans they have sold in the secondary market.
Hammond Co.'s business plan for the S&L is to sell all loans and avoid maintaining a loan portfolio, he said. Servicing of about $670 million in loans the Hammond Co. now manages would be transferred to the S&L, and regulatory approval would be sought for opening a branch in Newport Beach.
Hammond said his company will retain all the S&L's employees, including top management, and will keep the one-office operation in Riverside as its headquarters.
Hammond Co. foresees an expanding market in the Riverside area and maintains two of its 22 offices there, he said.
Andrew C. Herrity, Mission S&L's president and chief executive officer, said Tuesday that the S&L's shareholders believed Hammond's offer was a "good deal" and would allow them to get out of a business that had taken up more of their time than they had expected.
"Making an S&L go in these times takes quite a lot of time and effort," said Herrity, who will remain in his position.
In 1983, Hammond Co. filed for and obtained a state S&L charter but withdrew the application in 1985 after spending more than $100,000 on legal and filing fees and getting caught in the moratorium federal regulators put on granting deposit insurance to new S&Ls.
In February, the Hammond firm signed a letter of intent to buy Pioneer Savings, but further talks were abandoned in March--mainly because of a dispute inside Pioneer about whether James F. Deane, the chairman, owned all 200,000 shares or whether seven other men who gave him money to open the S&L two years ago are also owners.
A lawsuit over the issue is pending.