The nation's top banks continued to make impressive gains in profitability last year, according to a survey by American Banker. Analysts and bankers credited increased efficiency, better technology, and the ongoing merger boom for the results.

American Banker's annual survey shows that average return on assets for the top 50 banks rose to 1.29%, from 1.2% in 1995. Average return on equity also climbed to 16.6%, from 16.03%, a year earlier.

"There is continued discipline on capital and expenses," said Robert B. Albertson, an analyst at Goldman Sachs & Co.

Observers said 1997 should bring continued improvements in profits, despite concerns about consumer credit quality and the potential for further interest rate hikes.

"Earnings are not as sensitive as the market believes," said Anthony R. Davis, an analyst at Dean Witter. "We are on the threshold of a seventh consecutive year of increases."

Share buybacks by the top banks also contributed to profitability in 1996, according to analysts. "Banks are beginning to manage their institutions for their shareholders," said Ben B. Crabtree, an analyst at Dain Bosworth Inc.

First Bank System in Minneapolis bested Wells Fargo & Co. in profitability, taking over the top spot with a return on equity of 25.39%, according to the survey.

First Bank, which lost a battle for First Interstate Bancorp to Wells Fargo in 1995, just announced its intention to acquire U.S. Bancorp in Portland, Ore.

San Francisco-based Wells saw its return on equity plummet last year to 8.83%, from 29.69% in 1995. Analysts attribute the sharp decline to one- time merger charges.

Fleet Financial Group, PNC Bank Corp., and Bankers Trust New York Co. all showed substantial improvements in profitability.

Fleet's return on equity nearly doubled to 18.33% in 1996, from 9.33% a year earlier, according to the survey. Its return on assets also took a dramatic leap, from 0.74% to 1.34%.

"Their expenses did not grow as fast as their fee income," said Mr. Davis.

Executives at the bank attributed the improvement to a balance sheet restructuring last year, the completion of the bank's acquisition of Shawmut National Corp., and the near completion of its merger with National Westminster Bank of Jersey City.

"We are realizing the benefits of our combination with Shawmut and Nat West," said Eugene M. McQuade, Fleet's chief financial officer. "We are continuing to focus on performance and profitability."

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