Hawthorne Financial Corp. in El Segundo, Calif., has promised investors to stop making risky construction loans and said it plans to focus on retail banking.

Simone Lagomarsino, Hawthorne's new president and chief executive, told investors this week during a national road show that the $1.6 billion-asset thrift would cross-sell new products through its seven branches in South Bay, an affluent string of beach neighborhoods in west Los Angeles. Hawthorne, parent of Hawthorne Savings, may also open branches in South Bay, where it ranks fifth in deposit share. This is a major shift for Hawthorne, which had focused on high-risk, high-yielding real estate loans under former CEO Scott A. Braly. Its specialties were single-family tract loans and real estate jumbo loans; underwriting for these types of loans is based on the equity in the property rather than a borrower's repayment ability.

Though Hawthorne earned more than $21 million in 1998 and 1999, its board had grown uncomfortable with real estate lending and urged management to boost its 1999 loan-loss reserves by nearly $5 million. Disagreement over the direction the company was heading led to Mr. Braly's abrupt resignation in November.

Ms. Lagomarsino, who had been Hawthorne's chief financial officer, plans to push consumer loans, debit cards, equity lines of credit, and financial planning services.

"Our goal is to be the primary bank for each of our customers rather than a financial institution which they come to for only one product or service," Ms. Lagomarsino said.

Mike McMahon, an analyst at Sandler O'Neill & Partners in Walnut Creek, Calif., applauded the change in strategy. The company "is clearly focusing its management attention in the area that will build the most franchise value," he said.

Hawthorne will not abandon real estate lending. Ms. Lagomarsino said; it will continue to originate loans for single-family homes and income-producing properties.

It is too early to tell how the plan affect Hawthorne's stock price. Since Dec. 31 its shares have fallen nearly 33%, compared with about an 11% drop for thrifts with assets of $1 billion to $5 billion, according to SNL Securities Inc.

Mr. McMahon estimated that Hawthorne will earn $2 per share in 2000, or one-sixth his 12-month target price of $12 a share.

Portfolio manager Tom Gillen of RCG Kingston Fund, which owns about 3% of Hawthorne's stock, called the plan a positive but said he would prefer that the thrift pursue a sale.

"If the company is going to trade at six times earnings, why stay independent?" Mr. Gillen asked. "That question should be part of the business plan."

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