Hammond Co. Makes Bid to Acquire Pioneer S

The Hammond Co., flush from almost 18 months of steadily increasing profits, said Wednesday that it signed a letter of intent to acquire Pioneer Savings & Loan Assn., a one-office S&L; in Newport Beach with an estimated $20 million in assets and a steady string of quarterly losses since it opened its doors in January, 1985.

Thomas Hammond, chairman of the Newport Beach mortgage banking firm, said the agreement--which still is subject to regulatory and shareholder approvals--calls for Hammond to acquire all 200,000 shares of Pioneer stock for cash.

He would not disclose the purchase price, but it is estimated at $2 million.

The deal marks Hammond’s second attempt to own and operate an S&L.; An earlier bid to form a savings and loan was squashed by a federal freeze on deposit insurance for California institutions.

Pioneer opened with $2 million in capital, but by Sept. 30, 1986, losses had eroded that to $1.3 million, according to reports on file with the Federal Home Loan Bank of San Francisco.

Officers and major shareholders at Pioneer could not be reached Wednesday for comment.

Hammond said he chose Pioneer as an acquisition target because “it is small, clean and not beset with problems.” Although the S&L; has never posted a profit, its capital base is large enough that the $1.3 million remaining enables Pioneer to maintain a net worth-to-assets ratio of 6.5%--a level that state and federal regulators generally consider to be healthy.

Michael Meyer, managing partner of the Newport Beach office of Kenneth Leventhal & Co., a major accounting firm specializing in real estate consulting, said the deal is a “smart thing to do” because it would give Hammond a cheaper source of funds.

Instead of borrowing from a bank at high interest rates for the short-term loans it needs to finance mortgage loans until it packages them into large bundles that are sold to investors--a process called warehousing--Hammond will be able to borrow from the S&L; at lower rates. That should improve the yield on Hammond’s mortgage banking business while generating loan revenue for Pioneer, Meyer said.

“Our strategy is to use Pioneer to complement what we do, which is to originate, sell and service mortgages,” Hammond said Wednesday in a telephone interview from San Francisco, where he was discussing the proposed Pioneer acquisition with state regulators.

Hammond said that although his company intends to boost Pioneer’s capital if the acquisition is approved, “it won’t be dramatic. For the foreseeable future, it will remain a one-branch S&L.;”

Complementary Businesses

He said he could not say how much new money Hammond would pump into the S&L; “because I don’t know what the regulators will let us do.”

Hammond, who founded the Hammond Co. in 1976 with a group of 20 investors who put up a total of $125,000, long has wanted to link the company with an S&L; because the businesses are complementary and are integral parts of the single-family-housing industry.

He filed for and obtained a state S&L; charter in 1983 but withdrew the application in 1985 after spending more than $100,000 and waiting nearly two years for the required federal deposit insurance coverage.

The coverage was not approved because federal S&L; regulators had imposed a virtual moratorium on granting coverage to new state-chartered S&Ls; in California, Texas, Florida and several other states with liberal rules as to the kinds of investments S&Ls; could be involved with.

Hammond, which had reported a net profit of $1.4 million in its fiscal 1984, posted a net loss of $755,749 in fiscal 1985--the only annual loss in the company’s history.

The next year, which ended March 31, 1986, Hammond reported a profit of $571,781. For the first nine months of fiscal 1987, the company reported an additional $1.3-million net profit.

Firm Has 20 Offices

The company has grown from 11 offices in 1985 to 20 offices and 350 employees this year. Hammond has 14 offices in California plus branches in Arizona, New Mexico and Hawaii. It went public in 1983.

Hammond, who is the company’s largest shareholder with 31% of shares outstanding, said Wednesday that it could take much of the current year to close the deal with Pioneer, largely because of the complex regulatory approval process.

He said the final purchase price will be based on Pioneer’s operating results for the 1987 fiscal year ending March 31 and on the quality of the S&L;’s loan portfolio.

Pioneer reported total loans of $18.1 million as of Sept. 30, 1986. Hammond said he expects his company to originate $476 million worth of loans in its fiscal 1987. As of December 31, he said, the company serviced $692 million worth of loans for institutional investors.