The nation's biggest banks seem poised for another round of strong earnings reports.

Aggregate profits for the 18 big regionals followed by Smith Barney, Harris Upham & Co. are expected to rise 30% to 35% in the second quarter from a year ago.

The biggest projected gains: 61% at Fleet Financial Group Inc. and 41% at First Union Corp. Among the 18 companies, only NationsBank Corp. is expected to post a decline - and a modest 9% at that.

Smith Barney also projected gains at three of New York's five money-center banks - Chemical Banking Corp., Citicorp, and J.P. Morgan & Co.

The primary reasons for the upbeat outlook are strong net interest margins and a continuing decline in provisions for bad loans. Most banks also will look good in comparison with last year's second quarter, when many took big provisions against loans losses.

Can Profits Be Sustained?

But while banks seem headed for their second straight quarter of strong earnings, analysts are divided about whether the profits can be sustained.

Banks will continue to enjoy a boost from unusually low interest rates, Kristina E. Andersson of Smith Barney wrote in a recent report. But one-third of the regional banks followed by the firm won't match their first-quarter results, she warned.

Some investors also wonder to what degree banks will prop up lukewarm revenue with gains on the sale of securities, as occurred widely in the first quarter.

Many analysts point out that the basics of a strong recovery are still not evident in bank earnings. Banks are still making few loans, and revenues from core businesses remain essentially flat, they said.

Solid Improvement Seen

Some optimists, however, think that the turnaround is near - and not because of one-time securities gains, fickle interest rate plays, or volatile trading income.

"It's hard to generalize across the board, but there's a tendency toward positive core earnings improvement," said Judah S. Kraushaar, an analyst at Merrill Lynch & Co.

Net interest margins, meanwhile, are continuing to do their magic. Banks are benefiting from a dramatic repricing in rates they pay on core deposits and other funding mechanisms, and many have been cashing in high-rate mortgage securities.

"After the first quarter, many people assumed that across-the-board margins were not sustainable," said Mr. Kraushaar. "But a lot of banks have cut deposit pricing, so there's going to be a lot of banks with more follow-through on net interest income."

Richard Fredericks, a bank analyst at Montgomery Securities, estimated that banks lowered the bulk of their core deposit rates by nearly 40% at the end of last year. As a result of that and first-quarter cuts in the federal funds rate, "the level of margins is artificially high but . . . will remain high," he wrote in a recent report.

Banks also are expected to continue showing improvements in credit quality.

Card Delinquencies Down

Mr. Kraushaar said a decline in nonperforming assets and lower loan-loss provisions will result in improved second-quarter reports at most money-center banks.

"The newest tidbit is that delinquency rates on credit cards are starting to come down," Mr. Kraushaar said. "It create a backdrop that the money-centers will have slightly better earnings compared with last quarter."

He also said that the whole-sale banking giants will show hefty profits from trading securities and derivatives, after a slight decline in the first quarter.

"Trading revenue should be better at Bankers Trust and Morgan," Mr. Kraushaar said. "They are also seeing some real momentum in corporate finance and fiduciary income."

Most analysts believe that profits will be up substantially at large regional banks, and up moderately at the money-centers.

Ms. Andersson expects big net interest margin boosts at such flourishing regional companies as KeyCorp, NBD Bancorp., PNC Financial Corp., and Core-States Financial Corp.

"Reported earnings comparisons for the money-center and West Coast banks should be more mixed, although core earnings power is showing improvement," she wrote.

Despite the good news, many analysts point out that the basics of a strong recovery are still not evident in bank earnings. Banks are still making few loans and revenue from core businesses remains essentially flat, they said.

There is little dispute about the credit turnaround, however, with most analysts believing that even the West Coast banks are beginning to see troublesome credits leveling off.

Nonperforming assets will be down an average of 3% to 5% at most institutions, estimated Moshe A. Orenbuch, an analyst at Sanford C. Bernstein & Co. The trend will be modest at money-center banks, he added, and strong at banks in the Southeast and Midwest.

Cost cutting also will continue to inspire earnings in the second quarter, analysts said.

"They all have redoubled their efforts to get expenses under control," Mr. Kraushaar said.

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