Lead by money-center banks, the nation's 50 largest publicly traded banking companies boosted aggregate profitability to record levels in the third quarter.

A study by the American Banker and SNL Securities of Charlottesville, Va., of third-quarter earnings found that top banks capitalized on trading gains and credit quality improvements to deliver a weighted average return on assets of 1.2% on combined assets of $2.29 trillion. That is an increase of 8 basis points from the second quarter and 37 basis points from a year ago. (See table on page 5.)

Though far from recovered from their troubles, New York's money-center banks relied heavily on strong trading and investment revenues to boost their aggregate ROA by a hefty 20 basis points from the second quarter, to 1.22%.

Heartened by accompanying credit quality gains, investors responded by boosting the weighted average trading values of the stocks by 11.2% in the quarter ended Sept. 30.

Though strong, returns at super-regionals with assets of more than $30 billion were unchanged from the second quarter, at an ROA of 1.18%. Investors were unkind to many high-performing banls in this group, mostly because of merger concerns, capping aggregate stock price gains at 1.37%.

Trading Profits

Large regionals with assets of less than $30 billion fared slightly better, posting a weighted average ROA of 1.24%, up 7 basis points from the second quarter. But here again, merger-related issues depressed the stocks of several banks in this groups, holding aggregate stock price gains to 2.8%.

For money-center banks, improving credit quality was over-shadowed by massive trading profits.

While Bankers Trust New York and J.P. Morgan & Co. of more than $900 million in the quarter, some analysts question whether that is sustainable. At Sanford C. Bernstein & Co., analysts expect 1994 trading gains to fall as much as 15% from current levels.

For Citicorp, better-than-expected improvements in credit quality marked the first time in almost four years since the nation's largest bank restored bad commercial loans to health fater than new ones soured.

Others reported similar news. Chase Manhattan Corp. shed 30% of a $1 billion portfolio of assets marked for rapid sale since March. Analysts expect more of the same by yearend.

Pressure in West

Regionally, banks reflected trends ranging from firm to robust loan growth in the Northeast and South and continuing pressures in the West on banks closely tied to the weakened California economy.

In New England, analysts say banks saw loans swell at an annualized rate of 6%. For example increased lending helped Bank of Boston Corp. post operating income of $98 million in the quarter, up $78 compared to last year.

Meanwhile, the four major bansk headquartered in California -- BankAmerica Corp., stateBancorp and Union Bank -- felt the recession most directly on the bottom line. But other Western banks felt ripples.

In the South, most major banks coasted to record earnings in the third quarter, boosted by lower credit costs, strong non-interest income, and a stirring of demand volume, particularly from consumers. A slight decline in net interest margins was virtually the only negative trend, but it was masked by the continuing decline of loan-loss provisions.

Third-quarter trends were underlined at NationsBank Corp., Charlotte, the Southeast's largest bank. NationsBank's net interest margin fell 34 basis points from the second quarter to 3.83% but loans grew at a 13% annualized rate and the loan-loss provision was down 33% from the year-ago quarter.

On the whole, the 33 southern regionals tracked by Keefe, Bruyette & Woods Inc., recorded an average 1.23% return on assets in the third quarter, compared

with the 1.25% posted by 30 midwestern regionals.

Midwest banks sustained their powerful momentum in the third quarter, honing credit quality and efficiency, and posting industry-leading profitability.

Bucking the trend of uneven loan growth, Banc One Corp., Columbus, Ohio, expanded its loan portfolio at a 10% annualized rate in the period. Highlights were growth in home mortgages, consumer installment loans, and credit cards which boosted profits 16% from a year ago to $284.9 million.

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