Hawthorne Financial Corp., one of West Los Angeles' biggest community thrifts, last week finished a grueling restructuring that cut its branch network from 21 to 10.

In its bid to survive massive real estate problems, the $831 million thrift has all but abandoned southern Orange County and consolidated most of its branches in San Diego.

"Given our financial condition we didn't have the time or the luxury to make those branches profitable," said Scott Braly, chief executive officer.

Hawthorne's strategy of retrenchment illustrates perhaps the worst of what several community thrifts in Southern California are going through.

Backed Big Projects

Like Hawthorne, these thrift's placed large bets on multifamily properties and planned unit developments. RedFed Bancorp Inc. and Quaker City Bancorp Inc., two thrift holding companies that recently Went public, to a lesser extent are struggling with the same problem.

The southern California savings and loan industry is increasingly splitting into haves and have-nots -- the have-nots being mid-sized thrifts. CenFed Financial in Pasadena, which has been on an earnings roll for the last year, was only too happy to pick up the slumping United California Savings Bank for less than book. Home Savings of America bought six Hawthorne branches along with 15 others last Friday.

Half the 28 community savings and loans, defined as those with less than $2 billion, in Los Angeles County are losing money, according to She shunoff Information Services.

Hawthorne on Tuesday reported for the second consecutive year that it had lost $1 million in the second quarter. For the first six months of the year, Hawthorne lost $1.6 million, compared to a $600,000 profit a year earlier.

Hawthorne's once-huge capital cushion has been whittled away by the losses, with risk-based capital now at 8.81% of total assets. That puts it in the "adequately capitalized" category for regulatory purposes.

No New Mortgages

Hawthorne officials described the reasons for the company's problems since mid-1992 in blunt terms: "Continued significant asset quality problems, the continued narrowing of the company's net interest margin, a sharp increase in operating expenses, the total lack of new loan originations."

One analyst who follows Hawthorne said that most of the thrift's problems are associated with its asset quality problems - a full 16.2% of its assets were not performing, one of the worst such ratios in California - but that the absence of new lending is puzzling.

"Other lenders in southern California are reporting increased demand for mortgage loans," the analyst said. "Why aren't these guys?"

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