10 Big Bank Stocks Gearing Up for Third-Quarter Earnings (Update 3)

TheStreet.com

Updated with comments on Bank of America from KBW analyst David Konrad, along with comments on Fifth Third Bancorp from Wells Fargo analyst Matthew Burnell, who downgraded the shares on Tuesday, and comments from Deutsche Bank analyst Matt O'Connor, who downgraded Wells Fargo and BB&T, while upgrading PNC.

NEW YORK (TheStreet) -- U.S. bank stocks remain volatile and, as usual, there is a mixed bag of opportunity and risk, heading into earnings season.

Bank stocks reversed course during the third quarter after the sector's "annual" second-quarter decline.

The KBW Bank Index I:BKX rose 8% during the third quarter, closing at 49.58 Friday, following an 8% decline during the second quarter and a 26% return during the first quarter. Year-to-date through Friday, the index was up 26%, with all but two of the 24 index components seeing gains, with some of the most maligned industry names seeing stellar performance.

While major industry players are still trading for low multiples to book value and forward earnings estimates when compared to stock valuations before the 2008 credit crisis, several concerns appear to be pushing "normalized earnings" further out than previously expected.

After several years of seeing forward earnings estimates outpacing the current year's estimates, the story is beginning to change for some regional players.

Among the 24 KBW Bank Index components, analysts polled by Thomson Reuters estimate that four will earn less during 2013 than in 2012, while two have consensus 2013 EPS estimates matching those for 2012. Out of 18 index components expected to improve their earnings next year, four are expected to see 2013 earnings 15% or higher than 2012 estimates, while 10 more are expected to see earnings improve by at least 10%.

Here are some of the big themes for the nation's largest banks, heading into third-quarter earnings announcements:

Mortgage Refi Wave and Housing Recovery

It is no surprise that President Obama's expansion early this year of the Home Affordable Refinance Plan or HARP -- allowing qualified borrowers with mortgage loans held by Fannie Mae FNMA or Freddie Mac FMCC to refinance their entire loan balances at historically low rates no matter how much the home values have declined -- has been a resounding success. Banks continue to benefit from the high volume of refinancing, not only from origination fees, but from "record gain-on-sale margins" when selling newly originated loans to Fannie and Freddie, according to Sterne Agee analyst Todd Hagerman, who published his firm's third-quarter industry earnings preview last week.

The analyst expects a particularly strong earnings benefit from the mortgage volume for Wells Fargo WFC and Fifth Third Bancorp FITB .

Banks will also see a benefit in lower delinquency rates going forward, as HARP 2.0 removes the temptation "just to walk away" for thousands of "underwater" borrowers.

With the Federal Reserve last month increasing its volume of long-term mortgage-backed securities purchases by $40 billion per month to a total pace of roughly $85 billion a month, Rochdale Securities analyst Richard Bove said on Saturday that "the banking industry is likely to earn substantial gain-on-sale profits as the prices of mortgage backed securities rise in the secondary market."

Bove also said that "housing prices are likely to rise as the Federal Reserve pours money into an industry that will be stretching to meet the demand for its product. As the prices rise homes that were valued below their mortgages will rise above the mortgage in value," stimulating even more refinancing, as well as the home equity loan market.

Mortgage Putbacks

While the housing recovery is one of the most exciting banking themes, some major players still have to work through their legacy mortgage mess left over from the aggressive and creative mortgage lending and securitization they engaged in during the real estate bubble that ended in 2007.

While Bank of America BAC appears to have put the controversy over its acquisition of Merrill Lynch behind it, with last week's agreement to pay $2.43 billion to settle a class action lawsuit by investors, alleging that the company and "certain of its officers and directors" made misleading statements heading into the Merrill deal's completion in January 2009, the company still needs to turn the corner on mortgage repurchase demands.

Total mortgage putback demands against the company -- mainly springing from former CEO Ken Lewis's decision to purchase Countrywide Financial in 2008 -- increased by 41% during the second quarter alone, to $22.7 billion, as of June 30.

Investors will also be looking for indications on whether Bank of America is close to settling its long-term dispute with Fannie Mae, since the company and the government-sponsored mortgage giant disagree on "what constitutes a valid repurchase request," according to Bank of America CFO Bruce Thomson. The dispute has not only caused the putback request to increase, as BAC has refused to buy back Fannie Mae loans, it has caused the company to stop selling most newly originated mortgages to Fannie.

Bank of America will announce its third-quarter results on Oct. 17, with analysts expecting the company to report third-quarter earnings of 14 cents a share, declining from 19 cents the during the second quarter, and 56 during a messy third quarter of 2011, when pretax earnings were boosted by $4.5 billion fair value adjustments on structured liabilities, a $3.6 billion gain from the sale of shares in China Construction Bank, and $1.7 billion in trading debit valuation adjustments (DVA), partially offset by $2.2 billion in losses "to private equity and strategic investments."

Bank of America's shares closed at $8.97 Friday, returning 59% year-to-date, following a 58% decline during 2011. The shares trade for 0.7 times tangible book value, and for just 10 times the consensus 3013 EPS estimate of 91 cents. JPMorgan analyst Vivek Juneja on Friday reiterated his "Overweight" rating of Bank of America, with a said "we are establishing a December 2013 target of $11.50, which is based on 0.8x price to our YE 2013 tangible book value multiple, a 50% discount to expected peer median tangible book value multiple of 1.5x."

A continuing theme that Bank of America CEO Brian Moynihan would love to have investors focus is cost savings. KBW analyst David Konrad, who rates the company "Market Perform," said on Tuesday that Moynihan's "Project New BAC" cost reduction initiatives "are just ramping up and we are only expecting $200 million to come in this quarter--but we are hopeful management can help investors walk through how the $17 billion to $18 billion per quarter current expense run rate should be $15 billion to $16 billion in the future."

Konrad expects "a roughly in-line quarter" for Bank of America, but believes "investors could exit the call feeling better about the expense line. Lastly, we believe the capital ratios should improve slightly bolstering the view that BAC could get modest dividend increases and buyback authorization in the 2013 Federal Reserve stress test."

QE3 and Margin Contraction

With the target federal funds short-term rate in a range of zero to 0.25% since late 2008, most banks have already seen all of the benefit they are likely to see from a reduction in funding costs, while long-term rates have continued to be pressured, as the Federal Reserve has continued and increased its purchase of long-term mortgage-backed securities.

The Federal Deposit Insurance Corp. reported that for the nation's nearly 7,000 banks and savings and loan associations, the aggregate net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 3.46% during the second quarter, from 3.52% the previous quarter, and 3.61% a year earlier.

Guggenheim Securities analyst Marty Mosby said last month following the Fed's latest stimulus announcement that among the largest U.S. banks, Wells Fargo WFC "has the most margin compression today expected over the next year," as the company has a large percentage of assets with original maturities of greater than three years, that are "repricing down now, lower than they were three years ago."

Wells Fargo CFO Tim Sloan said at a conference on Sept. 11 that the company's third-quarter net interest margin decline "could be similar to what we experienced in the third quarter of last year when our net interest margin was down 17 basis points."

During the second quarter, Wells Fargo's net interest margin, or NIM, was a relatively high 3.91%, unchanged from the first quarter, but declining from 4.01% in the second quarter of 2011. Mosby expects the company's margin to contract by a further 21 basis points from the second quarter, through the fourth quarter of 2013.

Wells Fargo posted good second-quarter results, as strong mortgage loan demand fed earnings applicable to common stock of $4.4 billion, or 82 cents a share, increasing from $4.0 billion, or 75 cents a share, the previous quarter, and $3.7 billion, or 70 cents a share, a year earlier. The company trades at a premium to the remaining three members of the "big four" banking club, reflecting stronger earnings track record over the past few years, as well as the company' increasingly strong mortgage lending position. For the 12-month period ended June 30, Wells Fargo's operating return on average assets (ROA) was 1.30%, according to Thomson Reuters Bank Insight, while its return on average equity (ROE) was 11.57%.

Wells Fargo's shares closed at $34.76 Friday, returning 28% year-to-date, following a 10% decline last year. The shares trade for twice their tangible book value, and for 9.5 times the consensus 2013 EPS estimate of $366. Mosby rates Wells Fargo a "Buy," with a $43 price target, "due to our continued expectation that WFC can produce consistent double-digit earnings per share growth."

Deutsche Bank analyst Matt O'Connor on Tuesday downgraded Wells Fargo to "Hold" from a "Buy" rating, saying the bank "is best positioned for mortgage activity remaining stronger than expected given its market share of about one-third" and increasing gain spreads on mortgage sales, but "both of these are well known and we believe already reflected in the stock."

Some banks that have already felt the worst effects of the decline in long-term rates on the asset side are set to buck the net interest margin trend, or at least see minimal contraction over coming quarters, including KeyCorp KEY and Regions Financial RF .

Earnings Previews

Leaving aside our beloved big four and the trust banks, here are earnings previews for the ten KBW Bank Index components trading lowest to consensus 2013 earnings estimates. The group is sorted by descending forward P/E ratio:

10. U.S. Bancorp
Shares of U.S. Bancorp USB of Minneapolis closed at $34.16 Friday, returning 29% year-to-date, following a 2% return during 2011.

The shares trade for 3.1 times their June 30 tangible book value, according to Thomson Reuters Bank Insight, and for 11.2 times the consensus 2013 earnings estimate of $3.04 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.84.

Based on a quarterly payout of 19.5 cents, the shares have a dividend yield of 2.28%.

U.S. Bancorp trades for the highest multiple to tangible book value among the 24 components of the KBW Bank Index, and this is explained in part by the company's earnings success. According to Thomson Reuters Bank Insight, the company's operating return on average assets (ROA) for the 12 months ended June 30 was 1.59%, while its operating return on equity (ROA) was 14.79%.

The consensus among analysts is for USB to report a third-quarter profit of 73 cents a share, increasing from 71 cents during the second quarter, and 64 cents, during the third quarter of 2011.

Oppenheimer analyst Chris Kotowski has a neutral rating on U.S. Bancorp, and said on Thursday that "USB is a steady business with stable, high quality predictable earnings, and usually the line items all fall within more or less predictable ranges," and noted that "this company hasn't reported a downtick in earnings since 2Q09."

USB Chart
USB data by YCharts

Interested in more on U.S. Bancorp? See TheStreet Ratings' report card for this stock.

9. BB&T Corp.
Shares of BB&T Corp. BBT of Winston-Salem, N.C., closed at $33.10 Friday, returning 34% year-to-date, following a 2% decline during 2011.

The shares trade for 2.2 times tangible book value, and for 10.9 times the consensus 2013 EPS estimate of $3.04. The consensus 2012 EPS estimate is $2.76.

Based on a quarterly payout of 20 cents, the shares have a dividend yield of 2.42%.

For the 12-month period ended June 30, BB&T's ROA was 0.97%, while the company's ROE was 9.33%.

The analyst consensus is for BB&T to report a third-quarter profit of 70 cents a share down from 72 cents the previous quarter, but increasing from 52 cents a year earlier.

BB&T on July 31 completed its acquisition of BankAtlantic, bringing on roughly $1.8 billion in loans and $3.5 billion in deposits, and over 70 Florida branches.

JPMorgan Chase analyst Vivek Juneja has a neutral rating on BB&T, with a price target of $36.50, saying on Friday that the company "is growing revenues solidly led by faster loan and deposit growth and an increase in some fee based businesses such as insurance brokerage.

"BBT is doing a good job at growing higher yielding specialized loans and has also benefited recently from sharp reduction in credit costs," Juneja said, adding that "we expect BBT to continue to be an active acquirer as the industry consolidates."

The stock's "is trading at a premium to peers," he said, "which reflects its appropriate valuation, in our view. Therefore, we rate BBT Neutral relative to its peer group."

Deutsche Bank analyst Matt O'Connor on Tuesday downgraded BB&T to a "Hold" from a "Buy" rating, saying that although the company "continues to execute well, with solid loan growth, good expense mgmt, continuing improvement in credit (and related costs), and recent deals that should provide longer-term growth," the stocks is now trading "at 11x our 2013E vs. 10.4x for the group and NIM pressure seems to be building--driven by the low rate environment, some one-time swap gains that run out this year and lower accretion from covered loans."

O'Connor maintained his 2013 EPS estimate of $2.78 for BB&T, while lowering his 2013 estimate to $3.06 from $3.19.

BBT Chart
BBT data by YCharts

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.

8. Huntington Bancshares
Huntington Bancshares HBAN of Columbus, Ohio, has seen its stock return 28% year-to-date, through Friday's close at $6.90. The shares declined 19% during 2011.

The shares trade for 1.3 times tangible book value, and for 10.4 times the consensus 2013 EPS estimate of 66 cents. The consensus 2012 EPS estimate is also 66 cents.

Based on a quarterly payout of four cents, the shares have a dividend yield of 2.32%.

For the 12-month period ended June 30, Huntington's ROA was 1.04%, while the company's ROE was 10.37%.

Analysts polled by Thomson Reuters expect Huntington to report third-quarter EPS of 17 cents, matching the second-quarter results, and increasing a penny from the third quarter of 2011.

Investors will be expecting the company to show continued strong loan growth, as well as continuing defense of its net interest margin, through additional growth of noninterest-bearing checking account deposits.

Jefferies analyst Ken Usdin rates Huntington a "Buy," with a $7.50 price target, saying on Tuesday that "it is unclear whether consensus still has an auto securitization gain baked into 3Q results (the $1B transaction is to close in October, with the gain to be recognized in 4Q."

Usdin added that Huntington's "third quarter should reflect continued progress on strategic initiatives, and we forecast better operating leverage on a Y-Y basis. We expect solid revenue growth driven by strong loan growth (we model EOP +2%, ex. HFS), relative NIM stability, and broad-based strength in fee income (service charges, mortgage, trust, capital markets)."

HBAN Chart
HBAN data by YCharts

Interested in more on Huntington Bancshares? See TheStreet Ratings' report card for this stock.

7. KeyCorp
Shares of KeyCorp of Cleveland closed at $8.81 Friday, returning 16% year-to-date, following a 12% decline last year.

The shares trade just below tangible book value, and for 10.2 times the consensus 2013 EPS estimate of 86 cents. The consensus 2012 EPS estimate is 85 cents.

Based on a quarterly payout of five cents, the shares have a dividend yield of 2.27%.

For the 12-month period ended June 30, the company's ROA was 1.06%, while its ROE was 8.46%.

The consensus among analysts is for KeyCorp to report third-quarter earnings of 21 cents a share, down from 24 cents the previous quarter, and 22 cents a year earlier.

KeyCorp is well-positioned in the wake of the Federal Reserve's latest move to push long-term rates even lower, as the company has already felt the bulk of its pain from asset repricing. The company's second-quarter net interest margin narrowed to 3.06%, from 3.16% the previous quarter, and 3.19% a year earlier.

Credit Suisse analyst Craig Siegenthaler has a neutral rating on KeyCorp, with a $9 price target, saying last month that "We look for 3Q12 and 4Q12 EPS to beat market expectations, and believe investors will increase EPS estimates for 2013/2014" before the end of the year.

Siegenthaler expects KeyCorp's core net interest margin (NIM) "to experience the largest improvement in the industry given (1) significant debt retirement and refi activity since June, (2) significant CD repricing in 3Q12," and the acquisition of $725 million in Key-branded credit card assets from Elan Financial Services, taking on about 400,000 consumer and business accounts.

KEY Chart
KEY data by YCharts

Interested in more on KeyCorp? See TheStreet Ratings' report card for this stock.

6. First Niagara Financial Group
Shares of First Niagara Financial Group FNFG of Buffalo, N.Y., closed at $8.07 Friday, down 4% year-to-date, following a 35% decline during 2011.

The shares trade for 1.6 times tangible book value, and for 10.2 times the consensus 2013 EPS estimate of 79 cents. The consensus 2012 EPS estimate is 72 cents.

Based on a quarterly payout of eight cents, the shares have a dividend yield of 3.97%.

For 12 months through June 30, First Niagara's ROA was 0.47%, while the company's ROE was 3.38%.

The analyst consensus is for First Niagara to report third-quarter earnings of 18 cents, increasing from a five-cent loss during the second quarter, but down slightly from 19 cents during the third quarter of 2011.

During the second quarter, First Niagara completed its deal to acquire roughly 200 branches from HSBC HBC , while divesting about 100 branches, leading to an $18.5 million net loss, including about $135 million in extraordinary expenses and restructuring charges.

Moving ahead, investors will be looking for significant efficiency improvements and organic growth initiatives, now that the complicated branch deal has been completed.

Deutsche Bank analyst Dave Rochester rates First Niagara a "Buy," with a $9.50 price target, saying last month that "we continue to expect the valuation differential between FNFG shares and the mid cap banks to shrink over time as earnings visibility and investor sentiment improve, driving solid upside over the next year, but we note much of this upside could take time to develop, and is largely predicated on management's ability to consistently hit guidance and deliver on its organic growth strategy."

The analyst added that "FNFG recently indicated it could begin to increase the dividend as early as next year. Although we would expect any potential hike in FY13 (if it were to occur) would likely be small and occur later in the year, it would still signal management's longer-term commitment to rebuilding this level."

FNFG Chart
FNFG data by YCharts

Interested in more on First Niagara Financial Group? See TheStreet Ratings' report card for this stock.

5. SunTrust
Shares of SunTrust STI of Atlanta closed at $28.26 Friday, returning 61% year-to-date, following a 40% decline during 2011.

The shares trade for 1.2 times tangible book value, and for 10.1 times the consensus 2013 EPS estimate of $2.81. The consensus 2012 EPS estimate is $3.31.

Based on a quarterly payout of five cents, the shares have a dividend yield of 0.71%.

For the 12-month period ended June 30, the company's ROA was 0.46%, and its ROE was 4.00%.

The consensus among analysts is for SunTrust to report a third-quarter profit of $1.83 cents (including several extraordinary items), increasing from 50 cents the previous quarter, and 39 cents a year earlier.

SunTrust on Sept. 6 announced a number of steps to optimize its balance sheet, in light of new regulatory and take advantage of its long-term investment in Coca Cola KO shares.

The company accelerated two forward purchase agreements to sell its Coke shares, while also transferring $3 billion in portfolio loans to held-for-sale, and said that the moves, along with other actions, would lead to a pretax third-quarter gain of $1.9 billion, or $1.2 billion after taxes.

Juneja rates SunTrust "Overweight," and on Friday raised his price target for the shares to $33.50 from $31.50, and called the company "one of the biggest beneficiaries from housing market recovery," as it "has had an unusually large drag from mortgage related issues on several fronts versus peers."

"As the housing market recovers, SunTrust's earnings should show strong benefit," Juneja said. "In addition, we expect management to remain focused on lowering expenses and improving its efficiency ratio."

The analyst added that the company's "valuation is also attractive as STI trades below regional peers based on tangible book multiple."

STI Chart
STI data by YCharts

Interested in more on SunTrust? See TheStreet Ratings' report card for this stock.

4. Fifth Third Bancorp
Shares of Fifth Third Bancorp FITB of Cincinnati closed at $15.51 Friday, returning 24% year-to-date, following an 11% decline during 2011.

The shares trade for 1.4 times tangible book value, and for 9.8 times the consensus 2013 EPS estimate of $1.58. The consensus 2012 EPS estimate is $1.59.

Based on a quarterly payout of 10 cents, the shares have a dividend yield of 2.58%.

Fifth Third's ROA for the 12-month period ended June 30 was 1.29%, while the company's ROE was 11.15%.

Analysts polled by Thomson Reuters expect Fifth Third to report third-quarter EPS of 38 cents, declining from 40 cents the previous quarter and also a year earlier.

The company in August announced that the Federal Reserve had approved its revised 2012 capital plan, including an increase in the quarterly dividend to 10 cents a share from eight cents, and "new share repurchase authorization of up to 100 million shares," including up to $600 million in buybacks through the first quarter of 2013.

KBW analyst David Konrad on Monday downgraded Fifth Third to a "Market Perform" rating, from "Market Perform," while maintaining his price target of $17, saying "we have limited upside to our price target," and that "although the stock is trading at a modest discount to its peers on 2013 earnings (9.7x versus 11.0x), FITB is trading at a modest premium to its peers on earnings after excluding the benefits of reserve releases in our estimates (11.3x versus 11.1x)."

During the third quarter, "FITB's stock is up 19% compared to 12% for large regional bank peers," Konrad said, adding that "as a result, FITB's 2013 multiple, excluding reserve release, has improved this quarter from 9.8x to 11.3x, or to a modest premium to peers."

The analyst also said that "we believe FITB has minimal credit leverage going forward," meaning minimal reserve releases, and that "given the challenging rate environment and meaningful benefits from liabilities repricing occurring through this quarter, we anticipate NIM pressure may hold back earnings growth in 2013."

Wells Fargo analyst Matthew Burnell followed suit, downgrading Fifth Third on Tuesday to a "Market Perform" rating from "Outperform," to reflect "a more evenly matched risk/reward relationship."

Burnell also said that "commercial loan growth trends, which have been robust through most of this year, are beginning to flag which could have a bigger effect on FITB than peers," and that the Fed's approval of the revised capital plan and the associated dividend hike and buyback plan announcement "have now been completed and announced, and appear to be largely incorporated into FITB's current share price."

Burnell raised his 2012 EPS estimate by four cents to $1.59, to reflect the share repurchases, while lowering his 2013 EPS estimate by a penny, to $1.64. The analyst also introduced a 2014 EPS estimate of $1.70.

FITB Chart
FITB data by YCharts

Interested in more on Fifth Third Bancorp? See TheStreet Ratings' report card for this stock.

3. PNC Financial Services Group
Shares of PNC Financial Services Group PNC of Pittsburgh closed at $63.83, returning 11.5% year-to-date, following a 3% decline during 2011.

The shares trade for 1.3 times tangible book value, and for 9.3 times the consensus 2013 EPS estimate of $6.83. The consensus 2012 EPS estimate is $5.68.

Based on a quarterly payout of 40 cents, the shares have a dividend yield of 2.51%.

For the 12 month period ended June 30, PNC's ROA was 0.92%, while the company's ROE was 6.87%.

The consensus among analysts is for PNC to report a third-quarter profit of $1.59, increasing from 98 cents during the second quarter (when the company booked extraordinary charges of 54 cents a share for mortgage putback reserves 16 cents for trust preferred share redemptions an six cents for restructuring), and $1.55, during the third quarter of 2011.

Juneja rates PNC "Overweight," with an $80 price target, saying on Friday that his rating reflects the company's "attractive valuation and multiple drivers of revenue growth."

"PNC is expanding its business through recent acquisitions of National City, at the end of 2008 and RBC's US bank franchise during the first quarter and actively growing fee based businesses including capital markets and treasury management as well as consumer businesses such as credit cards," he said, adding that the stock "is trading at 1.4x tangible book, a tad above overall regional banks but should be trading closer to high quality banks given its track record of good revenue growth and conservative risk profile."

Deutsche Bank analyst Matt O'Connor on Tuesday upgraded PNC to a "Buy" rating from a "Hold" rating, saying that the shares "have underperformed the S&P Commercial Bank Index (by 300bps over the past 3-months and 1700bps YTD)," reflecting "1) uncertainty related to purchase accounting accretion; 2) lack of clarity on Basel 3 capital; and 3) noisy earnings given a number of one-time hits."

O'Connor believes all of these issues "have been/will be addressed soon," as the company's management "recently gave clarity on the path for purchase accounting accretion from here," and because "we expect to get more clarity on the path to achieving 8-8.5% by the end of 2013."

O'Connor raised his 2012 EPS estimate for PNC by 20 cents to $6.10, and his 2013 estimate 24 cents to $6.69.

PNC Chart
PNC data by YCharts

Interested in more on PNC Financial Services Group? See TheStreet Ratings' report card for this stock.

2. Regions Financial
Shares of Regions Financial of Birmingham, Ala., closed at $7.27 Friday, returning 68% year-to-date, following last year's 38% decline

The shares trade for 1.1 times tangible book value, and for 9.1 times the consensus 2013 EPS estimate of 80 cents. The consensus 2012 EPS estimate is 71 cents.

For the 12-month period ended June 30, the company's ROA was 0.13%, while its ROE was 1.07%.

Analysts polled by Thomson Reuters expect the company to report third-quarter EPS of 21 cents, increasing from 20 cents the previous quarter, and eight cents a year earlier.

Regions went through a major transition during the first half of 2012. During the second quarter, the company redeemed all $3.5 billion in preferred stock held by the government for bailout assistance received in 2008 through the Troubled Assets Relief Program (TARP), after selling its Morgan Keegan subsidiary and raising $900 million in common equity during the first quarter.

The company's second-quarter net interest margin expanded to 3.16%, from 3.09% the previous quarter, and 3.07% a year earlier. Mosby estimates that the margin will expand by another nine basis points through the end of 2013.

Mosby rates Regions a "Buy," with a $9.25 price target, and said last month that he expected the company to improve its "quarterly earnings run rate to above $0.20 before year-end, pushing potential upside substantially higher."

RF Chart
RF data by YCharts

Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.

1. Capital One
Shares of Capital One Financial COF of McLean, Va., closed at $56.96, returning 35% year-to-date, following a flat return during 2011.

The shares trade for 1.6 times tangible book value, and for 8.2 times the consensus 2013 EPS estimate of $6.94. The consensus 2012 EPS estimate is $6.16.

For the 12-month-period ended June 30, Capital One's ROA was 1.00%, while the company's ROE was 7.70%.

The consensus among analysts is for Capital One to report a third-quarter profit of $1.65, increasing from 16 cents during the second quarter, when the company set aside reserves for the $27 billion U.S. credit card portfolio it acquired from HSBC HBC , and also agreed to pay $210 million in refunds and fines, after entering into a settlement with regulators over the marketing of credit protection products. During the third quarter of 2011, the company earned $1.77 a share.

While Capital One's acquisitions over the years have pushed the company in different directions, the company's shoring up of its liquidity with the purchase of ING Direct early this year, followed by the HSBC card purchases, pushes the company further back toward its core competency.

Guggenheim analyst David Darst rates the company a "Buy," with a $67 price target, and said last month that "COF is in a prime competitive position to benefit from a consumer shift to direct banking, given its product set, early adopter customer base, and national brand," and that his "$7.00 earnings estimate for 2013 assumes COF generates a 15% return on tangible equity with a 6.71% net interest margin.

"Given an opportunity to remix the balance sheet and a limited asset growth outlook, we believe COF should have increasing opportunities to return capital to shareholders," he said.

Oppenheimer Securities analyst Chris Kotowski rates Capital One "Outperform," with a 12-18 month price target of $16, and said on Friday that "we made no changes to our COF model this quarter; the last two reported quarters have had lots of moving pieces with both the ING and HSBC card portfolio acquisitions closing," and that "we expect this quarter to give us a much clearer insight into the new COF since this is the first clean quarter we'll have."

COF Chart
COF data by YCharts

Interested in more on Capital One? See TheStreet Ratings' report card for this stock.

RELATED STORIES:






-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

For less than $3 per week, you can get full access to Jim Cramer's intraday market commentary and stock trading strategies - sometimes before he says them on TV! Join now.

View Comments