NEW YORK ( TheStreet) -- There's a reason we said back in March that the Midwest regional story could be a compelling one for long term investors in bank stocks. Out of the 10 Midwest Bank Stocks we highlighted at the end of the first quarter -- based on the upside implied by analysts' consensus price targets -- all but one have pulled back, and several have pulled back significantly.
Then again, since our last Midwest bank stocks roundup was published on March 30, the The KBW Bank Index ( I:BKX) was down 13% through Friday's close at 46.01. With the banking sector appearing to hit its 2011 bottom on July 18, and all the second-quarter numbers reported, this is a good time to revisit our previous Midwest bank stocks picks. This group was selected in March by looking at banks headquartered in 12 Midwest states, and narrowing down the group to actively traded names with at least two "buy" recommendations from analysts, with the lowest forward price-to-earnings ratios based on consensus 2012 earnings estimates among analysts polled by Thomson Reuters. This time out, we're looking at the same group, and analysts have had plenty of time to update their earnings estimates to reflect the Federal Reserve's final ruling on the Durbin Amendment, which will curb interchange fees that large banks charge merchants to process debit card purchases. Last December, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act -- signed into law by President Obama in July of last year -- The Fed proposed a 12-cent cap on the interchange fees for banks with total assets of more than $10 billion, which was a drastic reduction from the average fee of 44 cents per transaction, charged by banks in 2009. Following a bitter reaction from the banking industry, the Fed followed up in late June with a more reasonable 21-cent cap on interchange fees, plus an additional 5 basis points multiplied by the value of the transaction and "an upward adjustment of no more than 1 cent to an issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed" to enhance fraud prevention. You can be reasonably sure that all of the banks subject to Durbin will implement the enhanced fraud prevention measures. As before, the selected Midwest Bank Stocks are generally trading at higher multiples to forward earnings than the largest U.S. banks: Bank of America's ( BAC) forward price-to-earnings ratio was 6.4, based on Friday's closing price of $9.71 and the consensus 2012 earnings estimate of $1.52 a share, among analysts polled by FactSet. While the company's $8.8 billion second-quarter loss and continued mortgage woes have led to more than 15 earnings estimate cuts, the stock is still considered a value play by many analysts. As of Friday, half of the 26 analysts covering the company rated the shares a buy, while the other half had neutral ratings. The consensus 12-month price target among the analyst believers is $14.13, implying 46% upside for the shares. For JPMorgan Chase ( JPM), the forward P/E was 7.1, based on Friday's close at $40.45 and the consensus 2012 EPS estimate of $5.68. The shares are trading for just 1.3 times tangible book value, according to SNL Financial, and analyst sentiment was very strong, with 23 out of 27 analysts rating the shares a buy, while the remaining four analysts all had neutral ratings. The consensus price target among analysts polled by FactSet is $54.76, implying 35% upside. Citigroup ( C) had a forward P/E of 7.5, based on a closing price of $38.34 Friday and a 2012 consensus earnings estimate of $5.13 cents a share. Out of 22 analysts covering Citi, 16 rate the shares a buy, four have neutral ratings and two analysts recommend selling the shares. The consensus price target is $53.96, implying 41% upside. Shares of Wells Fargo ( WFC) were trading for eight times forward earnings, based on Friday's closing price of $27.94 and a consensus 2012 earnings estimate of $3.51. Out of 24 analysts covering Wells Fargo, 17 recommend buying the shares, six have neutral ratings and one lonely analyst recommends bailing. The consensus price target is $36.43, implying 30% upside. Moving back to the 10 Midwest regional plays, the regional economic recovery story is more compelling than the national one, as evidenced by the higher market multiples for most of the group. That being said, the second-quarter action should serve to emphasize that even though analysts consider their 12-month price targets to be "long-term" outlooks for the shares, the slow pace of economic recovery and the continuing regulatory evolution post Dodd-Frank mean that a long-term investor's horizon needs to be several years. Here are updated looks at the 10 Midwest picks, again in descending order by forward price-to-earnings ratio: