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3 Best Bank Stock Earnings Bets: Jefferies

Updated with market close information and revised year-to-date returns.

NEW YORK ( TheStreet) -- Jefferies analyst Ken Usdin on Thursday highlighted four regional bank holding companies "better positioned to show growth" in core earnings, with industry consolidation playing a role.

Usdin expects "large/mid-cap regionals to post decent pre-provision income (PPNR) growth, aided by declining credit-related costs."

Pre-provision revenue is a very useful tool to help analysts and investors understand what's really going on with a bank since at this point in the economic recovery, most of the large industry players are appropriately releasing loan loss reserves which has the effect of distorting bottom-line results.

With banks continuing to face pressure on their net interest margins in the prolonged low-rate environment, Usdin expects, on average, "low single-digit net interest income growth" this year, and says that major regional players "capable of growing [net interest income] at faster rates" include KeyCorp (because of CD repricing and loan growth), PNC Financial Services Group (PNC - Get Report) (from its coming acquisition of RBC Bank (USA), and M&T Bank (MTB), on the "deployment of excess liquidity."

The analyst expects fee income for the regionals as a group to be flat during 2012, from the effect on debit card interchange fees from the Durbin Amendment and "tough comps for mortgage banking." Usdin expects BB&T (BBT - Get Report), Comerica (CMA - Get Report) and PNC to show "better growth due to recent acquisitions," while Fifth Third Bancorp (FITB - Get Report) and U.S. Bancorp (USB) "could have a tougher time if mortgage origination volumes decline in line with our expectations.

For the group's cost management, Usdin sees SunTrust (STI), Fifth Third and M&T "doing a better job of managing the core," while Huntington Bancshares (HBAN - Get Report) "could continue to lag a bit."

On "environmental costs," including mortgage putbacks, the analyst says credit expenses "continue to be a significant challenge," notably for SunTrust and BB&T.

Here's a quick look at the three buy-rated regionals best-positioned for 2012 pre-provision earnings growth, according to Usdin, followed by five more with neutral ratings that face "a tougher time:"
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