Rising interest rates may be shifting the tide in favor of thrifts as they compete for market share with mortgage banks.

In contrast to last year, when falling rates drained thrift portfolios of adjustable-rate mortgages as homeowners refinanced to lock in lower rates, thrifts now stand to gain.

"Adjustable-rate mortgages are becoming much longer-lasting on the balance sheet, and the prospects for this to continue going forward are a lot better as well," said Thomas O'Donnell, an analyst at Salomon Smith Barney. "The rise in rates has helped keep their portfolios in good shape."

With few exceptions, thrifts switched to adjustable-rate lending in the 1980s to reduce rate risk. But that gave fixed-rate lenders, mostly mortgage banks who depend more heavily on selling loans on the secondary market, an advantage in falling-rate environments.

Adjustable-rate mortgages are not the most profitable thrift assets, because they have to be priced relatively low to make them attractive to homebuyers.

Still, the ebb in refinancing could spell a strong year for the industry, Mr. O'Donnell said. To help compensate for their shrinking adjustable-rate portfolios, thrifts last year focused on making more consumer loans and building fee-based revenue.

Their newly honed skills combined with the improved stability of their adjustable rate portfolios should provide the industry with increasingly strong results, Mr. O'Donnell said.

"Overall they did a very good job managing through a very tough time, and now it's significantly easier," he said, predicting double-digit earnings growth for many thrifts.

The reduction in adjustable-rate mortgage runoff is unlikely to become apparent until mid-July, when the thrifts issue their second-quarter earnings, said Charlotte A. Chamberlain, an analyst at Jefferies & Co. of Los Angeles.

But she emphasized that the slowdown in refinancings is not a panacea for thrifts. It is possible that the retention of adjustable-rate mortgages will not counteract an overall slowdown in originations that also is associated with rising rates, she said.

"The bucket may not be leaking as fast as it was before, but it isn't filling as fast as it was either," Ms. Chamberlain said.

In addition, as interest rates rise and the number of mortgage applications declines, thrifts probably will try to attract more applicants by pricing more aggressively, she said.

"The bucket may keep filling, but the margins will be smaller," Ms. Chamberlain said.

It may take a while longer for the slowdown in adjustable-rate runoff to surface in California. William A. Longbrake, chief financial officer of Seattle-based Washington Mutual Inc., said that because the Golden State is still in the final stages of recovering from the economic downturn of the early '90s, prepayment rates there have remained "fairly high."

"There is still a lot of pent-up demand among households for refinancing," Mr. Longbrake said. "Families have been sitting on mortgages that have essentially been underwater."

But Washington Mutual, the largest thrift in the country with $165.5 billion of assets, is beginning to see a change in California, he added.

"With the steepening yield curve," Mr. Longbrake said, "there is a very gradual move to adjustable-rate loans."

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