the best returns on assets among the 65 largest U.S. banking companies in the third quarter, according to the American Banker's performance roundup. MBNA, categorized with the "large regional banks" in the tables on the following two pages, also topped the return-on-equity and nonperforming- assets charts. The Wilmington, Del.-based credit card specialist posted a 3.2% ROA, followed by Wells at 2.09% and CoreStates at 1.88%. MBNA's 38.78% ROA was followed by Wells' 27.52%, and MBNA's nonperforming assets ratio, a microscopic 0.01%, edged out State Street Boston Corp.'s 0.10%. Other leaders in return on assets were Bank of New York Co. at 1.80%, and three at 1.78% - Midlantic Corp., Fifth Third Bancorp, and First Bank System Inc. Among the "megabanks" above $75 billion of assets, Banc One Corp. led in ROA, at 1.53%, and NationsBank Corp. in ROE, at 18.46%. Analysts said a combination of loan growth, healthy margins, low levels of problem assets, and special items such as a Federal Deposit Insurance Corp. refund contributed to the biggest institutions' profitability improvement in the third quarter. Among other findings from the survey: *Average return on assets for all 65 banks rose to 1.32% from 1.23% a year ago. *Return on average equity averaged 16.90%, up from 16.05%. *Nonperforming assets as a share of total assets fell to 0.64% from 0.83%. *As of Sept. 30, MBNA's stock traded at 5.83 times book value, by far the highest among banks. San Francisco-based Wells Fargo traded 2.6 times book, the second highest multiple, followed by First Bank System at 2.36. The average market-to-book ratio for all the top banks rose to 1.81 from 1.50 a year earlier. *Returns on assets and equity and market-to-book ratios are at their highest levels in five years, while the nonperforming ratio is at its lowest. Not all banks improved their performance during the third quarter. Citicorp's ROA slipped three basis points, to 1.32%. First Union Corp. fell to 1.17 from 1.32%, and Chase Manhattan Corp. to 0.90% from 1.01%. Some analysts say the bank-to-bank unevenness and other factors such as margin pressures and deteriorating consumer credit quality could be pointing to more volatile earnings in future quarters. "Banks are heading into a difficult transition period where the risk- reward will be more difficult to pinpoint," said Charles W. Peabody, an analyst with UBS Securities Inc. He said that as of mid-November his company's money-center-bank share index had slipped to 1.5 times book value from 1.7 times at mid-October, while its regional-bank index had fallen to 1.89 from just under 2.0. Mr. Peabody cited consumer credit quality as a reason for pessimism, predicting that consumer delinquencies could reach 5% or 6% by midyear 1996, double their levels at midyear 1995. Volatility in capital markets could also put pressure on banks' trading income, he said. Another cause of downward earnings pressure, he said, is the spate of mergers that will become effective late this year or early in 1996. Many merger-related costs will be borne up front, Mr. Peabody noted, leaving earnings improvements to materialize later. Mr. Peabody said many banks also will likely reclassify securities in their portfolios and sell them off, which would move unrealized gains or losses onto the books. "About half the universe has unrealized losses," Mr. Peabody said. Analysts also noted third quarter earnings were artificially boosted by FDIC refunds. "Rising consumer delinquency rates took the wind out of banks in mid- to late October and the FDIC refund isn't going to be there in the fourth quarter," said Lawrence R. Vitale, a bank analyst with Bear Stearns & Co. "Margin weakness is also something we need to keep our eye on." However, some analysts predicted share prices and dividends will continue to improve even if net earnings deteriorate as banks buy back their shares. Citicorp, Bank of New York, Wells Fargo, and First Bank System have all announced such programs this year. "Even if net income growth is not robust, banks can generate pretty good returns," said David Berry, an analyst with Keefe, Bruyette & Woods Inc.

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