5 Regional Bank Earnings to Watch

NEW YORK ( TheStreet) -- While the best-performing bank stocks year-to-date began the year trading at very significant discounts to book value, this type of rally can't last and investors had better turn their sites on the banks most likely to continue growing their businesses.

Loan growth can spell earnings growth. More importantly, significant loan growth at a moment when the yield curve is steepening can lead analysts to increase their earnings estimates, which propels shares forward in a less-stressed market.

While the Federal Reserve has indicated repeatedly that it plans to keep its target federal funds rate close to zero through 2014, long-term rates have moved up recently, with 10-year treasury yields at 2.22% Tuesday morning, after trading as low as 1.95% on March 5.

One veteran Wall Street bond portfolio manager says "the sentiment is that the economy is showing signs of strengthening and there's a feeling that the Fed may not have to go out two years with the low rates."

For two of the best-performing bank stocks year-to-date, the rally has been based on very low multiples to book:

Shares of Bank of America ( BAC) closed at $9.60 Tuesday, returning 73% year-to-date, following a 58% plunge during 2011. The shares are still heavily discounted, trading for just 0.7 times the company's reported Dec. 30 tangible book value of $12.95.

Factoring-in the company's mortgage putback exposure, the consensus among analysts polled by Thomson Reuters is for Bank of America to report first-quarter earnings of just 11 cents a share. The full 2012 consensus EPS estimate is 68 cents. Going out another year, the shares appear attractively priced, at just eight times the consensus 2013 EPS estimate of $1.07.

Shares of Citigroup ( C) closed at $36.78 Tuesday, returning 40% year-to-date, following last year's 44% decline. The shares trade for 0.7 times the company's reported Dec. 30 tangible book value of $49.81.

Analysts estimate Citigroup will post first-quarter EPS of 99 cents, with a full-year 2012 EPS estimate of $4.07. Citi's shares are also attractive priced for investors looking ahead, at eight times the consensus 2013 EPS estimate of $4.69.

KBW analyst Fred Cannon said on Monday that "a book value based rally is unlikely to be sustained for firms where earnings come in at or below expectations," and also pointed out that "financial stocks have nearly regained all of the declines from last year."

Cannon also said that "a further steepening of the yield curve, which would improve the earnings for most financials, or significant first quarter earnings beats, will be required to sustain the rally from current levels."

When looking at first-quarter earnings, keep in mind that year-over-year comparisons will be skewed for the first three quarters of 2012, since the Federal Reserve on October 1 implemented the caps on interchange fees charged to merchants to process debit card purchases, as required by the Durbin Amendment to the Dodd-Frank financial reform legislation.

Banks are also expected to see a declining boost to earnings from the release of loan loss reserves.

For our first-quarter earnings preview for large regional bank holding companies, we're focusing on five that showed strong loan growth during the fourth quarter.

Here they are, by descending price-to-forward-earnings ratio:

5. Comerica

Shares of Comerica ( CMA) of Dallas closed at $32.33 Tuesday, returning 25% year-to-date, following a 38% decline during 2011.

The shares trade for 12 times the consensus 2013 EPS estimate of $2.63.

Following the completion of the Federal Reserve's 2012 bank holding company stress tests, Comerica on March 14 announced that the regulator had not objected to its capital plan, which provided up to $375 million in common share buybacks through the first quarter of 2013. The capital plan also included an increase of the company's quarterly dividend to 15 cents a share from 10 cents, which "will be considered by the Board at its April 24, 2012, meeting."

Based on the current 10-cent quarterly payout, Comerica's shares have a dividend yield of 1.24%.

The company is scheduled to announce its first-quarter results on April 17. The consensus first-quarter earnings estimate is 55 cents a share, improving from EPS of 48 cents the previous quarter, but declining from 57 cents during the first quarter of 2011.

Comerica's fourth-quarter earnings of $96 million included $37 million in restructuring charges associated with the acquisition of Sterling Bancshares. The charges were $23 million after tax, or 12 cents a share.

The company's fourth-quarter bottom line was boosted by a $59 million release of loan loss reserves.

A silver lining for the fourth quarter, according to CEO Ralph Babb, was "total loan growth of $1.5 billion, or 4%," which was "driven by a $1.9 billion, or 8%, increase in commercial loans, particularly in National Dealer Services, Mortgage Banker Finance, Energy Lending, Technology and Life Sciences, and Global Corporate Banking."

Guggenheim Securities analyst Jeff Davis rates Comerica a "Buy," although he is slightly behind the consensus, with a first-quarter EPS estimate of 53 cents. Davis said on March 7 that "CMA is in a loan-driven growth phase given national commercial and industrial loan growth, strength of the Texas economy (Dallas headquarters), and improving economies in Michigan and California."

Interested in more on Comerica? See TheStreet Ratings' report card for this stock.

4. U.S. Bancorp

Shares of U.S. Bancorp ( USB) of Minneapolis closed at $31.70 Tuesday, returning 17% year-to-date, following a 2% return during 2011.

The shares trade for 11 times the consensus 2013 EPS estimate of $2.95.

The company on March 14 announced that it would increase its quarterly dividend to 19.5 cents from 12.5 cents, and that its board of directors had authorized the repurchase of up to 100 million common shares. Based on the new dividend payout, the shares have a dividend yield of 2.46%.

U.S. Bancorp will report its first-quarter results on April 17. The consensus first-quarter EPS estimate is 64 cents, declining from 69 cents in the fourth quarter, but increasing from 52 cents a share during the first quarter of 2011.

The company's fourth-quarter earnings of $1.35 billion were boosted by a $125 million release of loan loss reserves.

During the fourth quarter, the company saw a sequential 6% increase in total revenue, to $5.1 billion, which CEO Richard Davis said reflected an increase in average loans of "2.4 percent on a linked quarter basis including a strong 5.6 percent increase in average total commercial loans."

With a strong pipeline, first-quarter loan growth could accelerate, as Davis said "commercial and commercial real estate commitments grew by 7.2 percent in the fourth quarter over the third quarter."

Morgan Stanley analyst Betsy Graseck rates U.S. Bancorp "Overweight," and on Sunday raised her first-quarter 2012 EPS estimate to match the consensus at 64 cents, from 61 cents, "due to stronger mortgage banking revenue." The analyst estimates USB will earn $2.73 a share in 2012, followed by 2013 EPS of $2.87.

U.S. Bancorp has been one of the strongest large-cap bank holding companies through the credit crisis, and during 2011, the company's quarterly returns on average assets (ROA) steadily increased from 1.38% to 1.62%, which is, by far, the strongest earnings performance among the banks listed here.

Interested in more on U.S. Bancorp? See TheStreet Ratings' report card for this stock.

3. BB&T

Shares of BB&T ( BBT) of Winston-Salem, N.C. closed at $31.08 Tuesday, returning 24% year-to-date, following a 2% decline during 2011.

The shares trade for 11 times the consensus 2013 EPS estimate of $2.89.

BB&T on March 13 increased its quarterly dividend by four cents to 20 cents, and also said the Federal Reserve didn't object to the company's "plans to redeem $3.2 billion of trust preferred securities beginning in 2012 without issuing any replacement capital." The shares now have a dividend yield of 2.57%.

Also on March 13, BB&T modified its deal to acquire BankAtlantic Bancorp's ( BBX) thrift subsidiary, agreeing to pay a premium of up to $316 million to acquire 78 South Florida branches, and $3.3 billion in deposits, while also agreeing to "assume BankAtlantic Bancorp's obligations with respect to its outstanding trust preferred securities, with an aggregate principal balance of approximately $285 million."

The company is scheduled to announce its first-quarter results on April 19. The consensus first-quarter EPS estimate is 56 cents, increasing from 55 cents in the fourth quarter and 32 cents during the first quarter of 2011.

During the fourth quarter, BB&T's earnings available to common shareholders of $391 million were helped by a $135 million release of loan loss reserves.

Average loans held for investment -- excluding loans covered by FDIC loss-sharing agreements -- grew 2% during the fourth quarter, to $100.7 million. Average residential mortgage loans grew 7% to $20.1 billion, and commercial and industrial loans grew by 3% to 35.2 billion.

Morgan Stanley analyst Betsy Graseck on Sunday left her price target for BB&T unchanged at $33, but raised her first-quarter EPS estimate by a penny to 60 cents, "on higher mortgage banking income."

Morgan Stanley estimates that BB&T will earn $2.70 a share for all of 2012, followed by 2013 EPS of $3.08.

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.

2. Huntington Bancshares

Huntington Bancshares of Columbus, Ohio, has seen its stock return 16% year-to-date, through Tuesday's close at $6.35. During 2011, the shares declined 19%. Based on a quarterly payout of four cents, the shares have a dividend yield of 2.52%.

The shares trade for 10 times the consensus 2013 EPS estimate of 64 cents.

The company announced on March 14 that had authorized $182 million worth of common stock buybacks through the first quarter of 2013.

Huntington will report its first-quarter results on April 18. The consensus first-quarter EPS estimate is 14 cents, matching the company's results for the fourth quarter and also for the first quarter of 2011.

The company's fourth-quarter earnings applicable to common shareholders of $119.2 million were boosted by a $45 million reserve release.

During the fourth quarter, Huntington bucked the industry trend, with a net interest margin expanding to 3.38% from 3.34% in the third quarter and 3.37% in the fourth quarter of 2010, which CEO Stephen Stienour said reflected a "continued focus on fundamentally changing our deposit mix and driving down the overall cost of funds." The CEO added that Huntington's auto loan originations had expanded into Minnesota and Wisconsin.

Average commercial and industrial loan balances grew 4% during the fourth quarter, to $14.2 billion, while average residential mortgages grew 5% to $5.0 billion, and home equity loans grew by 2% to $8.1 billion.

Guggenheim Securities analyst Jeff Davis has a neutral rating on Huntington, with a $6.50 price target, and said on March 14 that the company's buyback was "modestly higher than the $150 million we had modeled over the next four quarters, approximates 37% of net income we are projecting for 2Q12-1Q13 and 39% net of preferred dividends."

Davis matches the 14-cent first-quarter earnings consensus for Huntington, and estimates the company will earn 57 cents a share for all of 2012, followed by 2013 EPS of 60 cents.

Interested in more on Huntington Bancshares? See TheStreet Ratings' report card for this stock.

1. SunTrust

Shares of SunTrust ( STI) of Atlanta closed at $23.91 Tuesday, returning 35% year-to-date, following a 40% decline during 2011.

The shares trade for nine times the consensus 2013 EPS estimate of $2.65.

After the Federal Reserve rejected the Atlanta lender's plan to return capital to investors this year through a dividend increase and share buybacks, SunTrust said in a statement on March 13 that it would "not be increasing its return of capital to shareholders at this time," and that it would maintain its current quarterly dividend of five cents a share, and "redeem certain trust preferred securities at such time as their governing documents permit, including when these securities are no longer expected to qualify as Tier 1 capital."

The company is scheduled to announce its first-quarter results on April 23. The consensus first-quarter EPS estimate is 31 cents, following earnings of 28 cents a share the previous quarter and eight cents a share during the first quarter of 2011, when the company repaid bailout funds owed to the government for assistance received through the Troubled Assets Relief Program, or TARP. Operating earnings during the first quarter of 2011 were 22 cents a share.

During the fourth quarter, SunTrust saw a 30% sequential decline in noninterest income to $723 million. The company reported mortgage production related losses of $62 million, compared to mortgage production income of $41 million in the third quarter. Mortgage servicing income also declined, to $22 million in the fourth quarter, from $68 million the previous quarter. These items reflected an increased "mortgage repurchase provision, as well as a mortgage servicing rights valuation adjustment arising from anticipated refinance activity from the HARP 2.0 program."

The company's fourth-quarter earnings to common shareholders of $152 million reflected a $143 million reserve release.

During the fourth quarter, SunTrust's loans held for investment increased 4% from the previous quarter and 6% from a year earlier, with strongest growth in commercial and student loans.

Morgan Stanley analyst Betsy Graseck rates SunTrust "Equal Weight," with a price target of $25, and estimates the company will earn 33 cents a share during the first quarter, with a full-year estimate of $1.82, and a 2013 EPS estimate of $2.50.

Interested in more on SunTrust? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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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.

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