Gains in fee-based businesses, including trust and data processing, along with tight cost controls, fueled improved fourth-quarter earnings at several midwestern banking companies.

Analysts were generally pleased with the results, but cautioned that slowing revenue could separate the chaff from the wheat over the next year.

Loan demand generally trailed 1995 levels, and that means banks are going to have to seek other means of income, observers said.

"We've returned to a more normative environment," said analyst Michael Moran of Roney & Co. in Detroit. Mr. Moran said banks have benefited for the past couple of years from a robust economy, low interest rates that fed loan demand, and lower payments to the Federal Deposit Insurance Corp.

Now, Mr. Moran said, banks that have not established a clear-cut strategy for building revenue in a slowing economy are going to be in trouble. "It's what fuels the next leg of merger mania," Mr. Moran said. He said banks that stagnate will be acquired.

Among nine midwestern institutions reporting over the past two weeks, all but Firstar Corp. and TCF Financial Corp. met or beat analysts' consensus estimates, according to First Call Corp. TCF was a penny shy, while Firstar was off 5 cents.

Fifth Third Bancorp of Cincinnati defied slow loan growth trends and reported a 20% gain in quarterly income to $93.6 million through growth in both interest and fee income. Earnings per share of 87 cents met analysts' expectations. Net interest income rose 18.5% to $179 million due to good commercial loan growth. The $20.5 billion-asset Fifth Third had good gains in trust and data services and in service charges on deposits to boost fee income 18% to $98 million.

Chicago-based Northern Trust Corp. reported quarterly income of $67.4 million, a 13% increase from a year ago. Earnings per share were 58 cents, meeting analysts' expectations.

Northern, with $21.6 billion of assets, was once again boosted by its trust fees, which were $152 million in the quarter, a 14% improvement from a year ago. Net interest income also improved 10% to $101 million as a result of better expense control.

Huntington Bancshares of Columbus, Ohio, said quarterly income rose 3.4% to $68 million, or 47 cents per share. Huntington, with $20 billion of assets, benefited from a 6% increase in net interest income as a result of lower interest expenses. Noninterest income and expenses were flat compared with a year ago.

St. Louis-based Mercantile Bancorp. said net income rose 18% to $67 million. Per share earnings of $1.09 exceeded analysts' estimates by 7 cents, largely because of one-time gains, including $6.75 million from the sale of an indenture trustee business. Backing out extraordinary items, Mercantile was in line with analysts' estimates. One-time gains and better credit card revenues helped $19 billion-asset Mercantile post a 13.5% increase in noninterest income, while net interest income rose 6%.

Firstar Corp. said quarterly income rose 2.5% over a year ago to $73.6 million, or 98 cents per share. Milwaukee-based Firstar, which announced last month that it would not make analysts' projections, missed per share estimates by 5 cents.

Firstar, with $19.8 billion of assets, reported flat net interest income as a result of lower commercial loan volume and a higher provision for loan losses. Firstar did manage to boost fee income by 9%, but gains were generally offset by higher expenses due to a restructuring. Firstar launched a major cost-reduction effort a year ago, which entailed cutting more than 25% of its work force.

Another Milwaukee company, Marshall & Ilsley Corp., beat analysts' estimates by 6 cents.

Marshall & Ilsley said quarterly income rose 18% from a year ago to $62 million, or 62 cents per share. The $14.3 billion-asset company said revenue from its data processing business increased 27% to account for slightly more than half of its $146.5 million noninterest income, which was also up 27% from the year-ago quarter. Net interest income was up 8% to $138 million.

Charter One Financial Inc., a $14 billion-asset Cleveland thrift, reported quarterly income of $43 million, or 90 cents per share, compared with a loss of $58 million a year ago. The loss in 1995 was related to expenses incurred from Charter One's merger with FirstFed Michigan Corp., which doubled its size, and from termination of interest rate exchange agreements. Net interest income rose 11% to $95 million as a result of expense control.

Commerce Bancshares of Kansas City, Mo., reported quarterly income of $32.5 million, a 15% gain over a year ago. Earnings per share were 85 cents, beating estimates by 2 cents. Commerce said fee income increased 19% from gains on deposit account fees, credit cards and securities. The $9.7 billion-asset Commerce also had lower expenses.

TCF Financial Corp. said income rose 8% from a year ago to $27.4 million. Earnings per share of 79 cents were a penny shy of analysts' projections. The Minneapolis thrift said fee income rose 17% to $42 million largely due to growth in fees on deposit accounts and automated teller machines.

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