A bevy of Midwest banking companies on Thursday reported improved third quarter results, drawing on loan growth that more than offset margin declines.

Although reports on fee revenues varied, with many banking companies reporting flat or declining results, expenses stayed under control and credit quality continued to improve.

In the end, reporting banks were able to boost net interest income and bring most of the incremental gains to the bottom line, boosting profits.

Cleveland-based National City Corp. lifted earnings 6% to 4108.4 million. Cincinnati-based Star Banc Corp. said earning rose a hearty 26.6% to $29.8 million, and home town rival Provident Bancorp boosted earnings 12.5% to $14.7 million. Detroit-based NBD Bancorp said earnings rose 18%, to $147.7 million. And Boatmen's Bancshares Inc., St. Louis, reported a 10% earnings increase to $89.7 million.

National City attributed improved results to an expansion of net interest income that was fueled by loan growth, and to a declining loan loss provision. The $31.1 billion-asset banking company said average loans rose 11.9% from a year ago, while the net interest margin fell by 22 basis points. The result was a2.9% rise in net interest income.

Acquisitions lifted noninterest expense by 4.2%, National City said, but the loan loss provision fell by 19.7%. Noninterest income rose by 5.1%, fueled by a healthy expansion of data processing revenues.

Verne G. Istock, chairman and chief executive of NBD, said a balance sheet expansion more than offset a declining margin, permitting a 5% increase in net interest income.

Average loans rose by 8.1%, Mr. Istock said, while average securities investments ballooned by 29.9%.

A number of banks have adopted the strategy of bulking up on securities investments, seeking to leverage capital in the short term while leaving themselves positioned to support loan growth in the longer term.

The exercise can be ticklish, given the hazards of fixed-rate investing in an environment of rising rates, but it provides another avenue for handling the massive equity concentrations that have built up in the banking industry.

NBD benefited from a 69% drop in its loan loss provision, but it saw a mild 3% drop in noninterest income as gains from residential mortgage sales drooped. Noninterest expenses fell 2.2% from a year ago.

Boatmen's said. annualized returns equalled 1.30% on average assets, up 3 basis points from a year ago; and 16.35% on average equity, up 20 basis points.

Andrew B. Craig 3d, chairman and chief executive, cited "healthy" loan growth and cost controls in Boatmen's results. Additionally, the company's loan loss provision fell by 47% as credit quality improved.

The St. Louis-based banking company, which has $28.3 billion of assets, said loans grew to $28.3 billion, up 3% from midyear and 10% from a year ago. Noninterest income fell mildly as trust, investment banking and mortgage banking revenues slid.

Star Banc said annualized returns equaled 1.44% on average assets, an increase of 21 basis points from a year ago; and 16.8% on average common equity, up 244 basis .points.

The $9.2 billion-asset banking company cited loan growth, cost controls, and continued firm credit quality in its results.

Average loans rose 12.3% from a year ago, Star Banc said. Noninterest expenses fell by 0.5% and the loss provision fell 21%. Fee income rose by 1.1%, principally on account of increased service charge revenue.

Star Banc bought $1.1 billion of deposits from the Resolution Trust Corp. in the third quarter, and it cautioned that near-term profitability would slip a bit as the company worked to redeploy new funds to loans from securities investments.

Provident said annualized returns equalled 1.26% on average assets, down 4 basis points from a year ago; and 16.89% on average equity, up 40 basis points.

The $5.1 billion-asset holding company, which owns a mix of banks and thrifts, said average loans rose 20.5% from a year ago, permitting an 11.7% increase in net interest income.


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