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6 Bank Revenue Winners and Losers From Jefferies

NEW YORK ( TheStreet) -- Over the next year, continued commercial loan growth and expense reduction will be key for large regional banks to growth their revenues.

Boiling down first-quarter financial results for banks in his firm's coverage universe, Jefferies analyst Ken Usdin named three large banks in his firm's coverage universe that are "best-positioned" to grow pre-provision net revenue over the next year, with three others facing a "tougher fight."

Bank earnings are, of course, continually distorted by a seemingly ever-growing list of one-time items, and at this point in the credit cycle, most large banks are releasing loan loss reserves, by making quarterly provisions for loan loss reserves that total less than their loan charge-offs. This is why it pays to focus on pre-provision net revenue, which nets the one-time items and provisions for loan losses from gross revenue, less expenses.

Usdin said that Jefferies "wanted to re-check our pre-provision net revenue (PPNR) starting points, assumptions for net interest income (NII), fees, and expenses, and overall PPNR trajectories across our large/mid-cap regional universe."

Many banks will have a tough time growing their mortgage revenue from first-quarter levels, which saw many large players, including Wells Fargo (WFC), Citigroup (C), BB&T (BBT - Get Report), Fifth Third Bancorp (FITB - Get Report), M&T Bank (MTB), U.S. Bancorp (USB), New York Community Bancorp (NYB), PNC Financial Services Group (PNC) and Huntington Bancshares (HBAN - Get Report), post very strong mortgage volume, amid a wave of residential refinancing activity.

Usdin said that "with refi volume expected to fade and gain-on-sale margins near all-time highs, banks could see 30%-40% downward resets in mortgage banking fees in coming quarters. This amounts to a couple percentage points of fee growth, which raises the bar for consumer and corporate banking fees to fill the void."

The analyst also said that net interest margins -- the difference between banks' average yields on loans and investments and their average costs for deposits and wholesale borrowings -- continued "to impress" with their resilience, but "funding costs will likely bottom in late '12/early '13 (average deposit costs are already 50bp)."

Usdin looks for most regionals to continue to "grow loans in the mid single-digit range, helping keep overall net interest income flat-to-up-slightly," with non-real estate commercial and industrial loans being "the primary driver, as we believe current growth rates (low double-digits Y-Y) are sustainable."

The analyst added that "expense management is becoming more of a necessity given ongoing revenue pressure throughout the industry," and that although "specifically quantified cost save programs should be less common, 'continuous improvement' initiatives should keep expenses relatively stable."

The following are the three large regional banks that Usdin sees as best-positioned to grow their pre-provision revenues over first-quarter levels over the next year, followed by the three facing a "tougher fight." Please note that Jefferies' stock recommendations are not all "Buys" for the first group, and there are two "Buy" recommendations among the second group:
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