A California thrift scaling back efforts to become more like a commercial bank is returning to what it does best: gather deposits and make home loans.

Downey Financial Corp., a $6 billion-asset company based in Newport Beach, this week opened three branches in Albertson's Food & Drug stores in Southern California. It plans to open seven more supermarket branches in the region this year.

"We have found grocery store branching to be an inexpensive way to expand our branch network," said Paul G. Woollatt, chief operating officer at Downey. "We've been quite successful and profitable."

The thrift entered the supermarket branching business in 1996 and has generated $400 million in deposits at 34 sites. Its best-selling products are consumer auto loans and checking accounts.

Downey is scheduled to roll out five more branches in Ralphs stores this spring and is negotiating deals for space at three or more Lucky Stores.

In November the company announced it was cutting back on commercial lending and sticking to more traditional thrift lending activities. That decision by the company's board led to the resignation of its former chief executive officer, James W. Lokey.

Analysts said they favor Downey's grocery store strategy, though it has not panned out for everybody.

"It helps the company gather deposits and grow checking and money market accounts," said Caren Mayer, an analyst at NationsBanc Montgomery Securities.

According to International Banking Technologies, an Atlanta consulting firm that has long advocated supermarket branches, their number increased only 10.4% in 1998, after jumping 34.5% in 1997. The slowdown was largely attributed to lingering questions about profitablity.

Mr. Woollatt said it takes about 18 months, or $8 million in deposits, for each Downey supermarket branch to break even. Downey typically staffs the branches with people from retail backgrounds who can generate more sales than bankers.

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