As California's employment and home prices continue to recover and mortgage delinquencies decline, credit worries at the state's thrifts are finally easing. A new report estimates that lower credit costs could boost thrift earnings, on average, by 26% this year.

The biggest winners are those that were hardest hit by credit problems earlier this decade, according to the report by Montgomery Securities analyst Caren E. Mayer.

Thus, $4.3 billion-asset FirstFed Financial Corp., Santa Monica, is expected to earn $2.15 per share this year but could boost that by as much as 60% if it sets aside nothing this year against future loan losses, Ms. Mayer estimated.

The thrift's earnings have been depressed for several years by credit costs associated with plummeting home prices in Los Angeles County, the city's riots, and the Northridge earthquake.

Another potential winner is Coast Savings Financial Inc., Los Angeles, whose 1997 earnings could be 39% higher if the company sets aside zero loan-loss provisions. Assuming the $8.8 billion-asset thrift continues to reserve at the first-quarter level of $8 million, Ms. Mayer estimated, Coast Savings would earn $2.65 per share in 1997.

Other mortgage investors also are experiencing lower losses on their California loans. At Freddie Mac, single-family delinquencies and foreclosures in the western region (which includes California) fell to 0.86% of all loans in the first quarter, down 7.5% from a year ago. At Fannie Mae, 0.75% of all loans in its western region had been delinquent for three months or more, as of March 31-a decline of almost 12% from a year ago.

To be sure, most California thrifts aren't expected to shrink their loan-loss provisions to zero. But if the first-quarter's results are any indication, the companies will shrink their provisions in future quarters.

On average, loan-loss provisions at California's large and midsize thrifts fell by 46% in the first quarter from the fourth quarter.

The biggest drop-80%-was at Coast Savings, reflecting the thrift's unusually large reserve in the December quarter to offset a large tax benefit.

Reserves fell by 29% at FirstFed Financial, 22% at Glendale Federal Bank, and 17% at Golden West Financial Corp., Oakland.

Nonperforming assets also dropped at many of these thrifts in the March quarter. On average, nonperformers fell 6.3%.

Improving asset quality means that thrifts have ample opportunity to prepare for the next credit downturn, says analyst Bruce W. Harting of Lehman Brothers. Loan-loss reserves stood at 1.09% of loans on March 31, compared to 1.03% the year before, Mr. Harting wrote in a recent report.

"The timing of the credit downturn is virtually impossible to predict given that positive economic trends continue," Mr. Harting wrote. "However, it is reasonable to assume that the downturn is at least 12-24 months away, thus giving the thrifts great flexibility in reserve planning."

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