Magazine article American Banker

Kansas Thrift Investors Building Up Capital War Chest

Magazine article American Banker

Kansas Thrift Investors Building Up Capital War Chest

Article excerpt

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. …

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