Bank dividends are powered by soaring earnings, strong capital, and restrained asset growth. "It's been a 180-degree turn from last year, when everybody was shepherding capital very closely and dividend increases generally were more nominal," said Nancy Bush, a banking analyst with Brown Brothers Harriman & Co.

Impressive Roster

Increasing quarterly dividends to common stockholders in the last month were Fleet Financial Group, Bankers Trust New York Corp., Fifth Third Bancorp, J.P. Morgan & Co., SunTrust Banks Inc., and Northern Trust Corp.

Last year, bad loans forced a record 30 of the 147 banks tracked by Keefe, Bruyette & Woods Inc. to reduce dividends. Dividend growth for the entire Keefe group was flat.

Many regional banks this year have raised dividends at the more typical rate of around 10%, said John Leonard, banking analyst at Salomon Brothers Inc.

In addition, the number of dividend reductions by large banks has fallen sharply, he said.

Among the 50 largest banks, only First Chicago Corp. reduced its dividend this year. Market observers have also speculated that Wells Fargo & Co. may cut its dividend because of problem loans.

Back in the Fold

Several banks that had reduced or omitted dividends entirely in recent years increased the payouts this year. This group includes Bank of Boston Corp., Signet Banking Corp., First Fidelity Bancorp., and Fleet.

Record earnings are the engine driving dividend growth, analysts said.

"When an industry reports $32 billion in annual earnings with no growth in assets and raises large amounts of capital, it begins to look pretty hefty in the capital account," said Tony Davis, a banking analyst with Wheat First Securities.

Bank capital ratios have risen to levels not seen in more than a decade.

Banks backed by the Federal Deposit Insurance Corp. had an average equity capital ratio of 7.39% at Sept. 30, the highest since 1966.

"Increasingly, banks are not only adequately capitalized but well capitalized and bordering on overcapitalized, particularly if you don't think that strong loan growth is going to appear suddenly," Mr. Leonard said.

In a moderately growing economy, banks will be hard put to invest their equity in high-yielding loans, he added.

In addition, meeting return-on-equity targets will be difficult if capital continues to expand without loan growth, said Ms. Bush of Brown Brothers. As a result, she expects to see typical annual dividend increases rise to the 11-to-12% range, from 10% currently.

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