Performance measures for the nation's largest banking companies continued to improve in the second quarter, according to a survey by American Banker.

The analysis of bank earnings showed that the biggest banks amassed still more size, reduced their nonperforming assets, and pumped up their returns on equity.

Bank earnings per share matched the expectations of Wall Street analysts, with a few exceptions. Wells Fargo & Co. reported dismal results related to its problems integrating First Interstate Bancorp, while Bankers Trust New York Corp. wowed the market with unexpectedly high double-digit growth.

Wall Street seemed pleased with the quarter. "Revenues continue to grow more than expenses, even if the gap is getting narrower," said David S. Berry, an analyst at Keefe Bruyette & Woods.

Many stock analysts pointed to an uptick in return on equity as a positive development. American Banker's analysis shows that the average return on equity for 55 banks in the survey was 17.58%, up from 17.06% a year earlier.

Monoline credit card company MBNA Corp. of Newark, Del., had the highest ROE, at 33.02%, versus 32.13% in the same period last year. Philadelphia- based CoreStates Financial Corp. was second, with 23.6%, up dramatically from 8.4%.

"The death" of the bank ROE in the early 1990s, when returns on equity near 20% seemed unattainable, "was clearly exaggerated," said Michael Mayo, an analyst at Credit Suisse First Boston.

Mr. Mayo and other analysts said bank returns on equity are nearing a historical high. And banks in the superregional category-those with $25 billion to $75 billion of assets-did better than others.

The average ROE for the 19 superregional banks in the American Banker survey was 19.64%, up 1.35 percentage points from a year earlier. But the 12 banks in the megabank category-those with more than $75 billion of assets-had an average ROE of 15.1%.

The megabanks' ROE average, which dipped from last year's 16.57%, reflects the poor results of Wells Fargo (with 6.9% ROE) and Banc One Corp. (0.63%). Excluding Wells and Banc One, which suffered because of its acquisition of First USA Inc., the megabanks had an average ROE of 17.4%.

Companies in the large regional bank category-defined as those with $10 billion to $25 billion of assets-averaged 16.86% in ROE, up from 16.64%. Analysts said banks were achieving the higher returns on equity by improving operating efficiency, shedding their least profitable businesses, and making better use of capital through share repurchase programs.

Few Wall Street observers expect those efforts to slow. "The unique motivating factor is the threat of takeover," said Mr. Mayo. "Banks need to maintain ROEs that are competitive with the industry or they risk not surviving."

Some analysts said that for the biggest banks the best defense may well be an offense. They predict a sharp increase in merger and acquisition activity in the rest of the year-with small banks and finance companies as the main targets.

"Bank earnings cannot continue to perform in the same fashion," said Richard X. Bove, an analyst at Raymond James & Associates. "Banks are going to have to go out and make acquisitions like mad to continue to grow their earnings."

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