NEW YORK ( TheStreet) -- Wells Fargo ( WFC - Get Report) investors will look for cost cuts and higher mortgage banking revenues when the San Francisco-based financial giant reports third-quarter earnings before the market opens on Monday.

Analysts surveyed by Thomson Reutersare expecting Wells to earn 72 cents per share versus 60 cents in the third quarter of 2010 and 70 cents last quarter.
Wells Fargo will report third quarter earnings on Monday.

"I'm expecting a big mortgage quarter from them," says Derek Pilecki, managing member at Gator Capital Management. Pilecki believes low interest rates has led to a surge in refinancing activity for Wells.

Eric Stoddard, a senior Wells Fargo mortgage executive, told TheStreet in a recent interview that Wells Fargo's mortgage business has been "growing along with the market." He would not be more specific, however, citing a "quiet period," ahead of the official earnings report.

While it won't show up in third quarter numbers, Wells will also likely get a lift in future quarters from Bank of America ( BAC - Get Report)'s decision to exit the correspondent mortgage business, which involves acquiring mortgages from other lenders.

Wells Fargo earned over $2 billion in its mortgage business in the last quarter, a 19% drop from the first quarter. In the third quarter of 2010 it earned more than $3 billion in mortgage banking.

Pilecki also believes Wells Fargo's commercial lending business will show strength relative to peers.

"Wells is using the environment to try to grow commercial loans. With the securitization markets relatively shut down, Wells is trying to fill the void," he says.

Many analysts have expressed concerns about pressure on banks' net interest margins (NIMs), which reflect the difference between what banks' earn on loans they make and their cost of funds. When the difference between yields on two-year Treasuries and 30 year Treasuries is great, banks benefit because they can borrow at two and lend and thirty while pocketing the difference. Currently, however, there is very little difference between those yields, suggesting NIM should be razor thin.

Wells, however, has the widest net interest margin in banking, Pilecki says, as it is able to acquire deposits relatively cheaply while "they are competitive, but they never lead with price," when it comes to making loans.

Wells Fargo is the third most-popular bank stock among analysts out of the 18 banks in the S&P 500, behind only JPMorgan Chase ( JPM - Get Report) and PNC Financial ( PNC - Get Report), according to Bloomberg data. Out of the 33 analysts surveyed by Bloomberg who follow Wells Fargo, only one--David Ritter of Argus Research--has a "sell" rating on the name. A call to Ritter, who has not published any research on Wells Fargo since July, was not returned.

Despite the high praise Wells Fargo has garnered from analysts, Oppenheimer & Co.'s Chris Kotowski noted in an Oct. 9 report that Wells trades at a slightly lower price to earnings multiple than U.S. Bancorp ( USB - Get Report), leading Kotowski to prefer Wells.

He contends that Wells is cheaper than U.S. Bancorp because it has larger exposure to commercial real estate and home equity loans, "but as we feel that these portfolios are on the mend and unlikely to be affected by the stress in Europe, we think the discount will diminish over time," he wrote.

-- Written by Dan Freed in New York.

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