By TERESA CARSON

LOS ANGELES -- Record spreads and special accounting gains helped drive up first-quarter earnings at the nation's biggest thrifts. But many, particularly in California, continue to suffer from deteriorating credit quality.

"Going forward, we expect to see a trade-off between improving asset quality and shrinking margins," said Thomas O'Donnell, a thrift analyst at Prudential Securities Inc., New York.

Although lending activity was strong because of refinancings, asset growth remained sluggish. Most of the refinancing volume was in fixed-rate mortgages, which thrifts generally sell into the secondary market.

Variable Loans Seen Picking Up

But despite the still low interest rates, analysts expect to see a pickup in variable-rate lending and better asset growth for the thrifts that have the capital to support it.

"We expect earnings quality to strengthen over the year as we see a lessening of provisions and the beginnings of better asset growth," said Robert Hottenson, of Goldman, Sachs & Co., New York. But he cautions: "We won't see sizzling growth or results."

Joseph Jolson, an analyst at Montgomery Securities, San Francisco, said the 27 thrifts he covers should earn 15% to 20% more this year than last.

A Boost to Capital

The improved profits are helping to shore up capital. Virtually all of the biggest thrifts meet core capital requirements. Some also have improved capital ratios through asset shrinkage.

Coast Savings Financial Inc., Los Angeles, which is recovering from crippling problems, improved its core capital ratio to 3.20% from 3.06% at yearend. The company earned $13.8 million, which went straight to the capital account.

"Coast is in the midst of what we believe to be one of the most remarkable turnarounds currently under way among financial companies," said lawrence R. Vitale, an analyst at Kemper Securities Group in Chicago, in a recent report on the company.

Rate Advantage

Much of the thrift industry's earnings strength was the result of widening spreads. Rates on deposits dropped much faster in the first three months of the year than adjustable-rate mortgages, the biggest component of mostthrifts' balance sheets.

By March, the spreads - the difference between interestearning assets and interest-bearing liabilities - had reached a record 3.15 percentage points at 13 big California thrifts followed by Montgomery. For the quarter, the spreads averaged 3.06 points, compared with 2.58 points during last year's first quarter.

Some of the thrifts got a big boost in the first quarter from an accounting change on taxes.

Great Western Financial Corp., Chatsworth, for example, got a $61 million kick and would have earned $50.5 million without this and another accounting change.

Critical Difference

Without the $48 million benefit from the accounting change, H.F. Ahmanson & Co., Irwindale, would have reported a 59% drop in earnings, rather than a 27% gain.

For California thrifts, rising bad loans are still a major problem.

At CalFed Inc., Los Angeles, nonperformers were up 7% from yearend to $1.1 billion. Ahmanson had a 16% jump from yearend to $2.1 billion. Mr. O'Donnell said, however, that statistics the thrifts are releasing for April show a sharp drop in the rate of acceleration for problem assets.

"We probably won't see real improvement in nonperformers until the third quarter," said Allan Bortel, president of Dakin Securities, San Francisco.

Trust Business Spun Off

CalFed, struggling to right itself, earned $13.1 million, but would have lost $2.9 million if not for a gain of $16 million on the sale of most of its trust management business.

As problem loans rose, the company set aside a bigger loss provision, but remains in capital compliance.

"They will have a difficult time continuing as an independent entity," said one analyst. "They have not turned the corner."

Crosstown rival Glenfed reported a $106.7 million loss and rising nonperforming loans. It fell out of compliance with its risk-based capital requirement by $43 million.

External Factors

Despite a nearly 30% drop in expenses from its restructuring, Glenfed's return to health depends on an improving economy. And things in its home base of California are not improving much.

HomeFed Corp., San Diego, which is in the process of being sold by the regulators, earned $30.7 million, partly because it did not take any loan-loss provisions.

Provisions amounted to $200 million in the first period of 1991. Despite the company's continued deterioration, tone bidders are said to be interested in the big San Diego thrift.

Still, some thrifts, especially outside the Golden State, managed to show declines in problem assets in the first quarter. Dime Savings Bank of New York shaved nonperformers by $5.2 million to a still high $1.096 billion, or 10.9% of assets, from yearend.

Chairman Richard D. Parsons said, "We continue to expect the level of nonperforming loans by yearend will be below the level at the beginning of the year."

Asset Quality on the Rise

At the other end of the spectrum, FirstFed Michigan Corp. pushed nonperformers down 2% to $71.3 million, or a tiny 0.7% 0 f a s sets.

"The economy in the Midwest is relatively strong and that meant thrifts in the Midwest have been able to show better asset quality than thrifts in some other places," said Mr. Vitale.

In the Southeast, where the economy is relatively buoyant, eight thrifts followed by J.C. Bradford & Co. reported an average earnings increase of 18% over last year. Five of the eight companies had lower nonperforming loans, which analyst Lucy W. Zemp thinks will continue and boost earnings.

This is the last of a series of articles on first-quarter earnings.

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