Beleaguered thrift stocks could get a lift as more investors begin buying the shares at comparative bargain prices.

Market experts say thrifts have been unfairly punished this year, because of investor fears of earnings fallout from the flattened Treasury yield curve.

The yield curve is the imaginary line traced by yields across various maturities of Treasury securities.

Conventional wisdom holds that mortgage-laden thrifts are likely to suffer substantial refinancings, which hurt earnings.

That notion has recently sparked perhaps the worst thrashing of thrifts stocks since 1994, when steadily rising interest rates caused widespread dumping.

The Nasdaq bank index, which is mostly made up of thrifts, is down 14.5% from its high of 2,263.600 on May 21, down 7% since Jan. 2, and down 9.4% in the last two weeks.

By comparison, the Standard & Poor's bank stock index, more weighted with commercial banks, is down 11.7% from its high of 788.95 on July 14; up 8.4% since Jan. 2; and down 6.4% in the last two weeks after one of the largest downturns of the year.

"The yield curve is definitely a problem," said Terry Maltese, president of Sandler O'Neil Asset Management LLC, "but the seriousness of it is not the same for every thrift.

"The market is indiscriminately punishing them all."

Though some stocks have been unfairly hit, analyst Gary Gordon of PaineWebber Inc. said, the flattening yield curve is difficult for most thrifts to navigate.

"If the long bond rallies by about 25 basis points, you are going to see a meltdown in thrift balance sheets," Mr. Gordon said.

In the last two weeks, thrift analysts have begun urging investors to buy shares of some smaller thrifts as prices become more attractive.

"It is a good time to do some bargain hunting," said Heather Rosenkoetter of Friedman Billings Ramsey & Co., which covers more than 300 thrift stocks. "People have been getting emotional and selling. They are not being patient."

They also continue to be cautious. Investors have been leery of thrifts since the real estate debacle of the late 1980s and early 1990s devastated the thrift industry.

Moreover, many small-thrift shares are hard to trade in a volatile market because of the modest trading volume and low number of outstanding shares.

The bottom line is that adjustable-rate mortgages remain the heart of lending for most thrifts, Mr. Gordon of PaineWebber said. And in this low- inflation environment, originating adjustable-rate loans is "nearly impossible."

Mr. Maltese of Sandler O'Neil said some thrifts are offsetting the effects of the flattening yield curve by diversifying their loans and increasing their fee income.

Fee income at Blue Bell, Pa.-based Progress Financial Corp., he said, is 30% of total revenues - much more in line with a bank than a thrift.

Mr. Maltese credits its performance to good management and "their residential mortgage loans are 15% of their total loan portfolio."

A typical thrift's residential mortgage loans are 60% to 80% of the total loan portfolio, he said.

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