From California to New York, thrifts reaped the fruits of a strong economy in the third quarter.

More jobs and higher housing prices put consumers on a stronger footing and enabled thrifts to shrink their holdings of bad loans. That freed them to reduce drastically their provisions against future loan losses. Some of the bad loans date from the late 1980s.

"Thrifts are enjoying the benefits of this strong economy," said Thomas F. Theurkauf, an analyst at Keefe, Bruyette & Woods Inc. "It has translated into improved asset quality, and in some cases, they are benefiting from the rebound in the realty markets. We are seeing much higher levels of loan production." The credit-induced rise in earnings was pronounced in regions where economic recovery has lagged behind the rest of the nation, as in California at H.F. Ahmanson & Co. and Golden West Financial and in New York at Dime Bancorp.

At H.F. Ahmanson, loan-loss provisions were $14.9 million-140% lower than a year earlier. At Golden West, provisions fell 134%, to $10 million. At Dime, they fell 22%, to $8 million.

Thrifts that still like the mortgage business took advantage of benign interest rates and housing markets to increase mortgage production.

Dime more than doubled last year's third-quarter mortgage production, making $1.9 billion of home loans. It was also among the few thrifts that increased its net interest income-about 5% from a year earlier-to $120.2 million.

Net interest income was higher because Dime held more loans-$12.1 billion at Sept. 30, versus $10.5 billion a year earlier-and some of those loans carry higher rates than Dime's holdings a year ago.

The New York thrift has made a big bet on the mortgage business. It hired industry veteran Fred B. Koons last year as chief executive of its mortgage bank. Last week, Dime closed on its purchase of North American Mortgage Co., Santa Rosa, Calif.

Golden West also had higher net interest income, $718 million, up 11% from the year before. Though loan production was marginally lower than a year earlier-$2 billion at Sept. 30, compared to $2.1 billion a year earlier - Golden West is holding more loans now than a year ago.

In a release announcing its earnings, Golden West chairman Herbert M. Sandler was bullish on the housing market. He said, "California is recording the best real estate market of the 1990s."

Despite the mild economy, most large thrifts-like banks-did not report higher interest income last week. At Ahmanson, net interest income fell about 2% from the year before, to $302.8 million. At Charter One in Cleveland, interest income was $270 million, 6% lower than a year earlier. At GreenPoint Financial Corp., net interest income of $117.6 million was 2% lower than the year before.

Because lower credit costs have been a primary engine of income growth at thrifts, analysts are following the trend closely.

Once the cycle turns and credit costs start going up, thrift stocks will become less desirable, said Bruce Harting of Lehman Brothers.

He and other analysts say thrifts will report lower credit costs for two more years in California, and another year in New York.

Mr. Theurkauf of Keefe Bruyette acknowledged that thrifts and other mortgage lenders may be sowing the seeds of the next round of credit problems.

"Loans are being made today, and we won't know for months and months, if not years, (whether) they are being properly underwritten. I suspect some corners are being cut," Mr. Theurkauf said. "An economy like this masks many sins."

As at banks, thrifts also boosted per-share earnings by buying back millions of their own shares. Thus, Dime reduced its average outstanding shares from 108.5 million in the third quarter of 1996 to 104 million in this year's third quarter. Ahmanson's average shares outstanding fell from 106.3 million to 97.5 million.

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