NEW YORK (
was the winner among major U.S. banks on Friday, with shares rising 0.5% to close at $10.23.
The broad indices ended slightly as investors looked ahead to next week for a slew of economic reports and the next meeting of the Federal Open Market Committee.
has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. The central bank has also been making monthly purchases of $85 billion in long-term securities since September, in an effort to spur economic growth by holding long-term interest rates down. Investors have pushed the yield on 10-year U.S. Treasury bonds up to 2.56% from 1.70%, and recent comments from Fed Chairman Ben Bernanke have led some investors to expect the central bank's bond-buying to be
There could be some additional market volatility next week, as investors jump on any change in the language of the FOMC statement on monetary policy, next Wednesday at 2:00 p.m. ET. "We expect the FOMC will incorporate more details about its asset purchase intentions into its official statement, describing plans to taper and eventually end its net new monthly purchases of MBS and Treasuries," Deutsche Bank economist Neal Soss wrote in a note to clients Friday.
Economic reports on tap for next week include Consumer Confidence on Tuesday, GDP growth on Wednesday, ISM Manufacturing on Thursday and the Labor Department's July Employment Situation Summary, which will include the national unemployment rate.
For most large-cap banks, the rise in long-term rates, with no similar move in short-term rates didn't lead to expanding net interest margins (NIM) during the second quarter. According to KBW analyst Christopher Mutascio, eight of 11 large-cap banks covered by his firm saw their net interest margins contract from the third quarter of last year, when the 10-Year yield bottomed at 1.40% to the end of the second quarter.
Exceptions to the NIM contraction trend included Huntington Bancshares of Columbus, Ohio, with a second-quarter margin of 3.38%, which was flat from the third quarter of 2012. The two other exceptions included
Bank of America
, with its NIM expanding by 11 basis points to 2.43% during the second quarter, and Regions Financial of Birmingham, Ala., with its margin expanding by eight basis points to 3.16%.
This "suggests that the benefit from raising long-term rates is not nearly as significant to the banks as an increase in the short end of the curve or a parallel shift in the curve would be," Mutascio wrote in a note to clients Thursday. "We will have to wait for an increase in the short-end of the curve to see broad NIM expansion."
The FOMC has repeatedly stressed that it was unlikely to raise the federal funds rate, at least until the U.S. unemployment fell below 6.5%, barring a significant increase in inflation. The June unemployment rate was 7.6%.
Mutascio added that the continued NIM compression for banks "also implies that the benefit of higher long-term rates on the banks' investment securities portfolio takes a long time to actually play out," and that "there are numerous moving parts to the NIM that aren't fully captured by a static asset-sensitivity analysis."
Mutascio rates Regions "market perform," and on Wednesday raised his price target for the shares to $11 from $8.50, after the lender announced its second-quarter results.
Regions reported earnings available to common shareholders of $259 million, or 18 cents a share, declining from $327 million, or 23 cents a share, during the first quarter, and $284 million, or 20 cents a share, during the second quarter of 2012.
The second-quarter results included "$56 million in costs associated with the early termination of certain debt and preferred securities," the company said.
Mutascio raised his 2014 EPS estimate for Regions to 91 cents from 88 cents, but wrote in a note on Wednesday that "The NIM expansion is coming at the expense of balance sheet growth as the company significantly lowered the level of its investment securities portfolio in 2Q13 (end of period securities declined 10%, or $2.7 billion). This contraction resets the company's average earning asset bar and significantly offsets the NIM expansion."
The analyst added that the higher price target for Regions "assumes the shares trade up to 12.0x our revised 2014 EPS estimate, which represents the high end of the historical range for our large cap bank coverage."
Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.
-- Written by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.