had flat or lower third-quarter earnings if they hadn't reaped one-time gains from deposit-insurance refunds, an analyst here has concluded. This means that "earnings for the group would have been disappointing without the premium reduction," the analyst, James Marks of Hancock Institutional Equity Services, wrote in a recent report. According to Mr. Marks, the median increase in reported profits for 77 of the country's 100 biggest publicly held banks in the third quarter over the second quarter was a healthy 6.9%. But he figures that without a refund of deposit-insurance premiums from the Federal Deposit Insurance Corp., the median increase would have been zero. Mr. Marks said that 37 of these companies would have had declining earnings without the FDIC refund. "The actual numbers were worse than I had thought," he said in an interview. In August, the FDIC announced plans to refund $1.5 billion of deposit insurance premiums and to slash premiums 83% to an average of 4.4 cents for every $100 of deposits. Many banks noted a one-time gain from deposit insurance refunds in their third-quarter earnings reports. In January, the FDIC plans to reduce the premiums again to zero for most banks. Mr. Marks noted in his report that many banks probably balanced the one- time FDIC refund gains "with the recognition of expenses over which they had some discretionary control." He also reported that many fundamentals for the big banks were strong in the third quarter. "Banks did not have any marked deterioration in net interest margins," which allowed for a median increase in net interest income for the group of 1.6%., and a median gain in revenues of 2.4%, he reported. Additionally, asset quality remained strong, with the median ratio of nonperforming assets to total assets dipping from 0.52% to 0.51%. But even with these positives, Mr. Marks said he interprets the weak earnings growth - excluding premium refunds - as a sign of trouble. "There are significant impediments to further earnings growth," Mr. Marks said. Another analyst, Lawrence R. Vitale, with Bear Stearns & Co. Inc., agreed. He warned that investors might punish bank stocks next year, after the premium refunds end. "A lot of people have painted it (the deposit refunds) as a positive," Mr. Vitale said. "But I'm not sure that as an investor I'd want to pay a full multiple for an earnings multiple generated because your insurance premium went away."

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