The people who helped pioneer the investment strategies involved in the rise and fall of Kansas' Franklin Savings Association, a well-known thrift of the 1980s, are beefing up their own thrift business.

Principals of Smith Breeden Associates Inc. Tuesday marshaled a $12 million public offering of stock for Harrington Financial Group, an Indiana thrift holding company it owns.

The move follows the purchase, through another holding company controlled by Smith Breeden principals, of a California thrift last month.

Smith Breeden gained prominence in the 1980s when its client Franklin Savings Association, Ottawa, Kan., became a profitable, fast-growing thrift largely from hedged investments in mortgage securities. But in 1990 - two years after Smith Breeden dropped it as a client - regulators seized Franklin, deeming it "unsafe and unsound," although the thrift was not insolvent.

Craig J. Cerny, managing principal at Smith Breeden, said the investment strategies of the thrifts he and his partners own won't turn them into Franklins. "Ours is mark-to-market capital, so those issues are not apparent," Mr. Cerny said. Franklin's problems with regulators arose from the valuation of its mortgage securities portfolio.

The principals of Smith Breeden, an Overland Park, Kan., bank consulting and investment management firm, own 70% of Harrington Financial, the holding company for $322 million-asset Harrington Bank of Richmond, Ind.

They also own 30% of Harrington West Financial Group, which last month acquired its first thrift, $160 million-asset Los Padres Savings Bank in Solvang, Calif., for about $12.6 million. Mr. Cerny said they hope to expand in the West through Los Padres.

Mr. Cerny is chief executive of both holding companies.

Franklin's investment and valuation strategies were unusual, but Harrington Bank marks roughly 80% of balance sheet to market, Mr. Cerny said. "We believe that's the right way to manage the balance sheet," he said. "It gives us maximum flexibility to take advantage of opportunities. We feel that it's right to reflect the current value of the company."

Mr. Cerny said he would compare the company's two-pronged retail and investment management strategy with the much larger Roosevelt Financial, of St. Louis, which Smith Breeden has advised. "Their strategy is very similar to ours," he said.

Harrington Bank has grown since Mr. Cerny and his partners bought it in September 1988. It was renamed Harrington Bank in 1994.

After the offering, Smith Breeden principals and Harrington Bank officers will own 70% of the company. They previously owned nearly all of it, Mr. Cerny said.

The new capital will help expand Harrington Bank's retail presence through acquisitions, he said.

Mr. Cerny said the thrift can "deploy the capital quickly" in hedged mortgage securities portfolios, said Mr. Cerny who worked for Pizza Hut Inc. and Hallmark Cards of Kansas City before joining Smith Breeden in 1985.

He doesn't rule out creating other holding companies and acquiring institutions in other areas. But "Right now, we feel we have two good markets: a very good midwestern market and an improving California market."

Joseph A. Stieven, an analyst at Stifel, Nicolaus & Co., in St. Louis, which co-managed Harrington Financial's offering with Natcity Investments Inc., Indianapolis, said that the owners' investment strategies have worked well at their consulting clients and show promise as they build their own thrift business.

"What they're starting to prove out is that their skills can be transported to anywhere in the country," he said, as they work with local management. "It's sort of like where Main Street meets Wall Street."

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