Shawmut National Corp. got a jump on the rest of the industry Thursday by announcing the third-quarter earnings it expects to report.

The recovering bank predicted that it would post $70 million in net income for the quarter, or 70 cents per share, 25% more than in the previous quarter.

Behind the improvement in earnings are declining credit costs and other expenses as well as one-time, tax-related gains.

"We are pleased that Shawmut's earnings strength is becoming increasingly visible as expense savings and declining credit costs are allowing revenues to hit the bottom line," chairman Joel Alvord said in a written statement.

Ready to Tell Its Story

The New England regional unveiled its expected third-quarter earnings because it will be discussing the results at a meeting with securities analysts next week, said Thomas Rice, senior vice president for investor relations. Shawmut, based in Hartford, Conn., hasn't held an analyst meeting in years. But with improving profits, it is apparently ready to tell its story to Wall Street, which sees earnings continuing to rise as the turn-around proceeds.

"This is a continuation of their repair story," said Morgan Stanley & Co. analyst Dennis Shea. "You've got strong earnings, good capital, and lots of reserves."

Credit Quality |a Nonissue'

Shawmut's nonperforming assets are expected to drop by about $50 million in the third quarter, from $513 million at June 30. By contrast, the bank had $1.3 billion of nonperforming assets and foreclosed property at the end of June 1992, equal to a hefty 9.50% of loans and foreclosed property. A bulk sale of $309 million of nonperforming loans in the second quarter was the bank's biggest step to improve its credit quality.

"Credit quality is a nonissue," said Thomas Brown, an analyst with Donaldson, Lufkin & Jenrette Securities Co.

Besides the fall in problem assets, the bank "is so overreserved that a disappointment in asset quality or chargeoffs will not affect earnings anymore," he said.

The company's loan loss reserves equaled 171% of its nonaccruing loans at June 30.

Shawmut said its provision for loan losses in the third quarter will decline by a total of about $4 million from $18.5 million in the second quarter.

Sign of Sustained Growth

The bank said it will realize a $13 million gain from tax benefits in the third quarter. Shawmut will likely realize about $60 million in tax benefits in the fourth quarter from tax rules that allow a company. to immediately realize the estimated value of future tax deductions, said Mr. Shea of Morgan Stanley.

Falling expenses in the third quarter were another sign that the bank will be able to sustain earnings growth, said Mr. Brown. He noted that noninterest expenses are expected to have fallen by between $3 million and $4 million and that management has said it expects to register another $5 million in savings in the fourth quarter.

He expects this improvement in expense costs - combined with a modest improvement in revenues - to give the company a 61% ratio of noninterest expense (not including foreclosed property) to revenues next year compared with an expected 67% in the third quarter.

"What makes us most excited about this stock is I think you are going to see an acceleration of the widening of that gap between expenses and revenues," said Mr. Brown.

He estimates that Shawmut will earn $2.90 per share next year, with no tax benefits compared to the expected $1.61 for the first three quarters of this year. The earnings release had a positive effect on Shawmut's stock. In afternoon trading Thursday, the shares gained $1 to $25.25.

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