With most of the nation's banks now reveling in record profits and abundant capital, notions like "survival of the fittest" sound oddly out of place.

But J. Richard Fredericks of Montgomery Securities in San Francisco still thinks that con| cept applies to the banking industry as much as Charles Darwin felt it described the evolution of the natural world.

"In a lot of ways, we are in an intense Darwinian phase right now," he said last week. Notwithstanding the industry's robust health, there were over 400 mergers and acquisitions last year, he noted.

A decade ago the analyst selected a group of banks he labeled "Darwinian banks" that he believed would effectively lead the evolution of the industry.

He theorized that as the industry advances toward nationwide banking in a less regulated environment, the strongest banks will slowly gain predominance.

In other words, natural selection.

"I still believe we are evolving toward a higher form" of banking, Mr. Fredericks said Friday, with the best-capitalized, best-disciplined, and best-managed institutions in the forefront.

His list of Darwinian banks has remains little changed since 1983. It includes:

J.P. Morgan & Co., Banc One Corp., Bank of Hawaii Corp., Bankers Trust New York Corp., Barnett Banks Inc.. Wachovia Corp., CoreStates Financial Corp., Fleet Financial Group, PNC Bank Corp., NBD Bancorp., Republic New York Corp., SunTrust Banks Inc., and Wells Fargo & Co.

For bank stock investors, the Darwinian banks have been a good long-term bet.

Their 10-year total return from 1983 through 1993 was 357.8%, in contrast to a median 319.6% return for the 50 largest banks and 245% return for the Standard & Poor's 500 stock index.

In general, they have fared better in fallow periods than others. In the lean year of 1991, with banks enduring heavy credit problems, they posted a negative return of 12.1%, while the 50 largest slipped 19.1%.

Not every year is a winner. In the recovery year of 1991, the 50 largest expanded their return by 77.6% versus 67.9% for the Darwinians, who benefited less than other from the market bounce-back effect.

Besides the other factors, a Darwinian bank, he said, generally must have as fortress balance sheet, a significant market share in high profit lines of business, and important products to sustain revenues in noninflationary economic periods.

As for capital, that should be seen in perspective, he said. Its abundance today is the result of events unlikely to be repeated soon: "probably the most massive interest rate decline in history and the steepest yield curve in history."

Capital in leaner periods has been vitally important, he pointed out.

"It enabled Banc One to buy MCorp by writing a check," he said, referring to the failed Texas bank. "That investment has repaid itself more than handsomely."

But even the relatively fat years do not alter his basic idea, Mr, Fredericks said.

"It's still dog-eat-dog out there, with everybody fighting to be the biggest and best," he said.

"For the first time I have seen in my career, the bigger banks are now outperforming the smaller banks," he said, in what is likely another Darwinian phase. "Size now has a real importance."

The analyst said earnings will continue to be primary factor in judging banks, but from here on "pure size itself is going to be a contributing factor in success going forward.

Among other reasons, sizable banks will have the ability to invest more efficiently and innovatively in technology for product delivery systems, he said.

Smaller banks will find the going more difficult. "Banks are going to have to be at a certain size just in order to price [their products] right," Mr. Fredericks. said.

"Delivery systems are beginning to change dramatically, both in the wholesale and retail areas" of banking, he said, which may amount m another Danvinian phase in the evolution of banking.

Successful banks are going to have invest in technology and its applications "steadily over a long period of time," he said.

Those who can likely will fit his Darwinian definition, he said. "Those who don't will face the risk of losing out in a very bigtime way."

In over 10 years, the only dropout from Mr. Fredericks' list of Darwinian banks was Bank of New England Corp., which failed in that region's sharp recession three years ago and was absorbed by Fleet.

If there is another departure, it could be Barnett, based in Jacksonville, Fla. As the state's largest bank and last remaining major independent institution, it is regarded by many analysts as the most tempting takeover target in the industry.

Then there are the banks not on Mr. Fredericks' list, and there are some very prominent ones.

The missing include BankAmerica Corp., California's largest bank: NationsBank Corp. holder of the largest market share in Texas, and First Union Corp., which ranks second in Florida behind Barnett.

Also omitted are such highly regarded institutions as Bank of New York Co. and Norwest Corp., as well as State Street Boston Corp., regarded as a leader in non-lending areas of the banking business.

Absent as well is Citicorp, the nation's largest bank. It is viewed as a powerhouse global institution by a number of analysts.

But Mr. Fredericks is confident that the banks on the list are "the core" of the industry's leadership for the future.

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