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For superregionals, the loan loss provision struggle is real

Banking Essentials Newsletter December Edition Part 2

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

Estimating Credit Losses Under COVID-19 and the Post-Crisis Recovery

For superregionals, the loan loss provision struggle is real

A few months after the threat of $20-per-barrel oil and the lossesbank stocks suffered amid broader market volatility, U.S. superregional banks stillmanaged to report year-over-year revenue growth. In fact, their medianoperating revenue growth was higher than in any quarter in the past three years.

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Not that all trends were positive; the median provision to netcharge-off ratio was at its highest level in at least the last five years.

It was a particular pain point for ,where provisions in the first three months of 2016 swelled to $141 million from$63 million in 2015's fourth quarter and from $16 million in the first quarter ayear earlier. Provisions were also 171% higher than net charge-offs at the Dallas-based company.Criticized energy and energy-related loans were sequentially up by $587 million,and $291 million of those were nonaccruing.But there's a light at the end of the tunnel, Sterne Agee CRT's Peter Winter wrote:no more reserve builds are expected if oil stays steady.

Comerica could eventually succumb to the pressure . But thatis not likely to come soon, Piper Jaffray's Brett Rabatin and Keefe Bruyette & Wood'sBrian Klock both pointed out. Rabatin remarked in an interview thatmanagement sees the franchise as a long-term winner and that there is a very shortlist of possible buyers; Klock noted it will take time for Comerica's hired consultant,Boston Consulting Group, to do its work.

SunTrust BanksInc.,too, has notable energy exposure, and a first-quarter provision increase that showedit. Its provision more than doubled quarter over quarter, but still "was notenough to chew through" its pre-provision earnings, which surpassed expectations,Oppenheimer's Ben Chittenden pointed out in a note.

In contrast,HuntingtonBancshares Inc.,despite little energy exposure, saw significant credit downgrades and was one oftwo superregionals to see net interest margin decrease year over year. And whileprovisions were notably 285% of net charge-offs, those net charge-offs are the lowestHuntington has seen in two decades.

First RepublicBankin San Francisco was a different story. It actually lowered its provision for loanlosses and began the year with a recovery instead of charge-offs, and it did thatthat alongside a steady increase in assets every quarter. S&P CapitalIQ calculates its normalized EPS growth at 29% year over year. The closest any ofthe others came to that achievement was Huntington's 14%, while the group medianwas 2.70%.

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In the meantime, the Fed has left the door open for a Junehike, and credit deterioration may be contained to oil. But with banks jugglingstill-low interest rates, duration risk in securities portfolios and the market'srecession worries, Rabatin added that 2016 "is a pretty interesting time."

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Click here for a template that shows financial metrics for a selected banking institution.