Loan-loss provisions continued to drag down regional players from Buffalo to Dallas in the first quarter.
KeyCorp, Comerica Inc., M&T Bank Corp. and Huntington Bancshares Inc. reported big jumps in the quarterly set-aside for potential loan losses. Regions Financial Corp. sliced its provision.
Among the five companies reporting Tuesday, only Comerica kept its coverage ratio — reserves to nonperformers — steady. Regions reported the most erosion in this area. (See chart and additional coverage.)
KeyCorp's provision rose 68% from a year earlier, to $2.19 billion, as its nonperformer ratio rose 98 basis points, to 2.36% of total loans. Huntington's provision rose 228%, to $291.8 million.
Comerica's provision climbed 27.7%, to $203 million. Dale E. Greene, its chief credit policy officer, said credit deterioration is spreading from real estate lending and into other sectors.
"The recession is a little worse than we might have originally thought," Greene said. "We've said middle market and small business would get softer, and we're seeing that in all of our geographies."
The company expects to post full-year net credit-related chargeoffs in the range of $650 million to $700 million, compared with the $472 million it recorded last year.
On a call with analysts, Greene said Comerica's provision should remain elevated in the next several quarters, at around the first-quarter level.
Brett Rabatin, an analyst at Sterne, Agee & Leach Inc., said commercial loans are likely to be Comerica's next credit issue.
"It's like two trains passing in the night," Rabatin said. "Comerica's construction book" of nonperfomers "should be winding down as we go through the year, but commercial and industrial will likely take its place and provide continuing pressure on profitability."
M&T hiked its provision by 163%, to $160 million, largely to cover a commercial loan it moved to nonaccrual status. Nonperfomers rose 32% from the fourth quarter, to $1 billion.
Rene Jones, M&T's chief financial officer, tagged commercial real estate loans as its biggest concern and said much of its $18.8 billion portfolio will be up for refinancing next year.
Anthony Davis, an analyst with Stifel, Nicolaus & Co., said the recession is making it harder for businesses to refinance loans.
"It is going to be a problem for everybody," Davis said.
The Cleveland company swung to a first-quarter loss and cut its quarterly dividend 84%, to a penny a share.
It expects to save about $100 million a year from the payout reduction. Henry L. Meyer 3rd, KeyCorp's chief executive, said its priorities were managing through the credit cycle and maintaining a strong capital position.
The company was not a big player in subprime mortgage lending, but it expanded aggressively into hot markets that are now deeply troubled, and it has grappled with surging loan losses.
KeyCorp posted a first-quarter loss of $488 million, or $1.09 a share, compared with a profit of $218 million, or 54 cents a share, a year earlier. In addition to the loan-loss provisions, the latest results included writedowns of 38 cents a share. Revenue fell 9.9% from a year earlier, to $1.11 billion.
The average estimate of analysts polled by Thomson Reuters had called for a loss of 21 cents a share on revenue of $1.13 billion.
The tangible common equity ratio, which measures how much of the hard assets a company's common shareholders actually own, grew 11 basis points from the fourth quarter but shrank 79 basis points from a year earlier, to 6.06%.
KeyCorp's shares fell 4.73% Tuesday, to $7.05.
The $67.4 billion-asset Dallas company's first-quarter net income fell 92% from a year earlier, to $9 million. After paying preferred dividends, it posted a net loss of $24 million, or 16 cents a share.
The average estimate of analysts had called for Comerica to lose 9 cents a share.
Core deposits rose 8% from the fourth quarter, to $13.97 billion, with most of the growth in demand deposits. Total deposits fell 6% from the fourth quarter, to $41.9 billion, in large part because of a 12.6% decline in brokered deposits. Assets were flat.
Comerica shares rose 15.91%, to $21.64.
The $72.4 billion-asset Buffalo company said Tuesday that net income fell 68% from a year earlier, to $64.2 million.
Jones said M&T's core markets of northern New York and Pennsylvania have fared better than other regions in the country in terms of employment.
"If you look at the environment, we're one of the few people that have not had a loss," the CFO said. "The economy as a whole is weaker. I think that you're simply seeing the effects of that."
Jones said his company is drawing new customers as other banking companies in its region falter. Core deposits rose 20%, or $1.7 billion, from a year earlier.
M&T is in no hurry to pay back the $600 million it received last year from the Treasury Department's Troubled Asset Relief Program, he said.
"We tend not to be a first mover. We watch what happens," Jones said. "We'll definitely pay back Tarp," but there is no reason "at this point to jump the gun."
M&T also has no intention of selling or buying assets under the Public-Private Investment Partnership, a still-in-the-works effort to get bad assets off bank balance sheets.
"We don't see any reason why we'd need to participate," Jones said.
M&T shares fell 1.45%, to $51.75.
The $54 billion-asset Columbus, Ohio, company reported a $2.4 billion loss but showed signs of finally moving past an unprofitable lending relationship that has been a drag on its performance for the last two years.
Huntington bolstered its capital ratios and reported some favorable growth in deposits and loans.
Stephen Steinour, who took over as its CEO in January, said in an interview that the loss was largely driven by a $2.6 billion noncash impairment charge tied to its plummeting share price. "It doesn't impact core operations — it doesn't impact liquidity. I don't think it's a big event to the market."
The company may have finally quarantined losses tied to Franklin Credit Management Corp., a Jersey City subprime lender Huntington inherited from its 2007 purchase of Sky Financial Group. Huntington began losing money last year as it was forced to set aside capital to cover Franklin's increasingly bad loans. It lost $417.3 million in the fourth quarter.
Steinour said an effort to find new customers in the quarter helped core deposits increase 2.4% from the fourth quarter and 3.9% from a year earlier, to $32.8 billion. "I think the American consumer is starting to save more. The reality of this economic cycle has been a bit of a shock."
He also said lending also increased, particularly home mortgages and automotive loans. Huntington refinanced and originated $4.4 billion of commercial and consumer loans in the quarter. Average loans and leases decreased 1.4% from a quarter earlier, to $40.9 billion, but Steinour said that reflected the sale of $800 million of mortgages and municipal securities and $1 billion of automobile loan securitizations.
He expects chargeoffs and provisions to stay "elevated" throughout the year, since the economy is not due for a turnaround.
Huntington shares rose 11%, to $3.45.