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(Regional bank preview updated with latest earnings results.)

NEW YORK (

TheStreet

) -- The big regional banks have largely beat analyst expectations in the third quarter, profiting from higher net interest margins and continuing improvement in credit quality.

Some banks also reported encouraging loan growth in pockets such as auto and commercial lending and higher mortgage banking fees from the pickup in refinancing, though commercial real estate still seemed to be the bane for most regional banks.

Weaker banks such as

SunTrust

(STI) - Get SunTrust Banks, Inc. Report

,

Fifth Third

(FITB) - Get Fifth Third Bancorp Report

and

Keycorp

(KEY) - Get KeyCorp Report

surprised analyst expectations, while the stronger banks like

BB&T

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(BBT) - Get BB&T Corporation Report

and

Comerica

(CMA) - Get Comerica Incorporated Report

disappointed.

The

key to regional banks future performance still lies in loan growth and an ability to command good loan pricing.

Read on for an update on the latest earnings.

1. BB&T

Expected EPS:

26 cents

Actual EPS:

30 cents

Stock Reaction on Results:

Unchanged

BB&T

(BBT) - Get BB&T Corporation Report

has been among the more healthy regional banks in the recession and was among the few that reported a pickup in lending in the second quarter, led by strength in prime automobile, mortgage and commercial and industrial loans (C&I). At the Barclays Capital annual financial services conference in September, the bank remained optimistic about loan growth in the third quarter.

However, the bank's significant exposure to construction loans and commercial real estate in the southeast has been a source of concern, with asset quality starting to show signs of deterioration.

On Thursday, the bank

said its third-quarter net income rose 38% to $210 million, or 30 cents per share, from $152 million, or 23 cents, a year ago, on the back of higher mortgage banking income and a large securities gain.

As expected, it took a hit in credit costs, as it continues to accelerate the sale of non-performing assets. The bank transferred $1.3 billion of nonperforming assets held for sale during the quarter. That led to a sharper increase in net charge-offs, at a time when most of its rivals were profiting from lower credit costs.

Net charge offs as a percent of average loans rose to 3.3% from 1.7% a year earlier and from 2.5% in the previous quarter. However, the bank did manage to release some reserves helping profits.

The bank also reported encouraging growth in non real-estate loans. "The whole story for regional banks and BB&T is that we're not quite out of the woods yet with regards to real estate, particularly residential real estate," CEO Kelly King told

CNBC

.

Investors will also be looking forward to M&A activity from this bank. In its conference call, BB&T said that it expects to see M&A activity heat up in the middle of 2011. "We think we are well positioned in terms of future merger opportunities, we're, we think, one of the best positioned if not the best positioned in the mid Atlantic or southeast in terms of being a consolidated. Just because of the cost save opportunities, as well as the fact that we think our story plays well in terms of revenue generation, with this cycle, which has been best in our peer group," the bank said in its conference call.

2. Comerica

Expected EPS:

41 cents

Actual EPS:

33 cents

Stock Reaction on Results:

Down 6%

Earnings Announcement Date:

October 20

Comerica

(CMA) - Get Comerica Incorporated Report

disappointed investors, missing expectations by a wide margin.

The bank reported a profit of $59 million, or 33 cents per share, down from $69 million, or 39 cents, in the year-ago quarter. Consensus expected earnings of 41 cents per share.

Comerica has had fewer concerns on the capital and regulatory front, compared to some of its peers. The bank fully repaid its bailout money of $2.5 billion earlier this year and recently announced the redemption of $500 million worth of trust preferred securities, abiding by new financial regulations that disallow such securities from being counted as Tier 1 capital.

With its commercial lending focus, the bank is also less impacted by financial regulations related to overdraft and debit interchange fees, compared to its regional peers.

Analysts expected the bank to report flat to modestly higher loan growth, with the commercial and industrial segment showing signs of stabilizing in recent months.

However, loan demand was weaker than expected, with net interest income declining by $18 million on the back of poor performance of commercial real estate portfolio.

Nonperforming assets rose 6% due to commercial real estate. The bank expects provisions for loan losses would be less than net charge-offs in the fourth quarter, but said it would be cautious in releasing reserves in light of continued uncertainty.

Comerica is another bank expected to lead in the consolidation of regional banks. In the conference call, the bank said it was looking for opportunities in Texas and California.

3. Fifth Third Bancorp

Expected EPS:

17 cents

Actual EPS:

22 cents

Stock Reaction on Results:

Up 3.2%

Earnings Announcement Date:

October 21

Fifth Third Bancorp

(FITB) - Get Fifth Third Bancorp Report

swung to profit in the third quarter, beating expectations. The Cincinnati-Ohio based bank reported net income rose to $175 million, or 22 cents per share, compared to a loss of $159 million, or 20 cents, a year ago.

The bank benefited from higher net interest margins and a pickup in auto and commercial lending.

With third-quarter net charge-offs of more than twice the provision for reserves, Fifth Third "released" $499 million in loan loss reserves, which directly affected the bottom line. Net charge-offs rose to $956 million in the third quarter. The figure included $510 million from the transfer of $899 million in nonperforming assets to held-for-sale.

With a return to profitability, investors were looking forward to news on a likely schedule for TARP repayment during the earnings conference call. Fifth Third owes $3.4 billion in government bailout money.

However, the bank remained cautious about drawing up a repayment time frame. "We said that we thought a TARP resolution in the second half of 2010 seemed reasonable for us. While that's still the case, we've also expressed that we've been willing to be patient," CEO Kevin Kabat said in the bank's conference call. "It has always been about the right result rather than a particular timeframe," he added.

4. Keycorp

Expected EPS:

3 cents

Actual EPS:

19 cents

Stock Reaction on Results:

Down 0.2%

Earnings Announcement Date:

October 22

Keycorp

(KEY) - Get KeyCorp Report

blew past analyst estimates in the third quarter.

Profit rose to $163 million, or 19 cents per share, from a loss of 50 cents in the year-ago quarter. A higher than expected reserve release, greater net interest margin expansion and lower operating expenses drove performance.

However, loan growth was still an issue for the bank, with commercial and home equity loans dropping off.

Loan balances have been under pressure for Keycorp which has a significant exit portfolio -- legacy segments where lending has been discontinued such as marine products, home builder loans and commercial vehicle and office equipment leasing -- at $6.3 billion. That is expected to deplete loan balances by $500 million a quarter.

Keycorp is yet to repay $2.5 billion in TARP money.

5. SunTrust

Expected EPS:

Loss of 2 cents

Actual EPS:

17 cents

Stock Reaction on Results:

Up 5%

Earnings Announcement Date:

October 21

SunTrust

(STI) - Get SunTrust Banks, Inc. Report

reported its first profit in two years. That surprised the analyst community who were still calling for a loss even though SunTrust management said it expected to return to profitability in the third quarter. Most analysts were expecting the beat to be of low quality.

Earnings came in at $153 million, or 17 cents per share. The company attributed its results to stronger mortgage and capital markets businesses and higher net interest margins.

Net- nterest income and net interest margin increased compared to last quarter, up 5% and 8 basis points, respectively. Net interest margin increased largely due to the improved funding mix and lower rate paid on deposits.

SunTrust still owes close to $5 billion in bailout money but remained vague about when it plans to repay it in its conference call."With strong capital, more clarity on capital standards, lower risk, high liquidity and improved earnings, we believe that we are well positioned to repay TARP.... We will repay at the appropriate time and in a fashion that makes the most sense from both our shareholder and regulatory perspectives," the management said in the conference call.

Deutsche Bank analyst Matt O Connor

downgraded the stock on Friday to a hold citing the stock as less attractive following the 5% rise on results and risks related to stock repurchases.

-- Written by Shanthi Venkataraman in New York

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