Glendale Federal to Sell Washington Thrifts : Banking: First Interstate Bancorp will pay $190 million for the 25-office University Savings Bank, the S&L;’s last out-of-state operation.

Glendale Federal Bank took its final step toward becoming a California-only savings and loan Wednesday, announcing that it has agreed to sell the last of its out-of-state banking operations to Los Angeles-based First Interstate Bancorp for $190 million in cash.

First Interstate’s purchase of Glendale Federal’s 25-office University Savings Bank unit in Washington state should be completed by the first quarter of next year, the companies said.

Glendale Federal, which has slowly been narrowing its losses, is betting that its best chance of returning to profitability lies in California’s fledgling recovery. If the sale is completed, it would leave Glendale Federal with 132 branch offices in California.

By focusing solely on California, “we believe we have developed a solid foundation for future growth,” said Stephen J. Trafton, GlenFed chairman and chief executive.

Federal regulators nearly seized Glendale Federal a year ago because it was seriously undercapitalized. But the Glendale-based thrift completed a massive recapitalization plan in September and has since been selling off its out-of-state operations and portfolios of bad loans to raise cash.

The company agreed to sell $226 million in sour real estate and commercial loans to a consortium of investors last month, slicing its non-performing assets by 22% in one fell swoop. In April, GlenFed sold its 60 Florida branches to Barnett Banks Inc. of Florida for more than $243 million.

First Interstate, meanwhile, has been moving in the opposite direction, seeking to expand its market outside California. Earlier this year, the bank bought 15 Great American Savings Assn. branches scattered across Washington state, which First Interstate has targeted for an aggressive expansion program.