Updated with comments on Bank of America from KBW analyst David Konrad, along with comments on Fifth Third Bancorp from Wells Fargo analyst Matthew Burnell, who downgraded the shares on Tuesday, and comments from Deutsche Bank analyst Matt O'Connor, who downgraded Wells Fargo and BB&T, while upgrading PNC. NEW YORK ( TheStreet) -- U.S. bank stocks remain volatile and, as usual, there is a mixed bag of opportunity and risk, heading into earnings season. Bank stocks reversed course during the third quarter after the sector's "annual" second-quarter decline. The KBW Bank Index ( I:BKX) rose 8% during the third quarter, closing at 49.58 Friday, following an 8% decline during the second quarter and a 26% return during the first quarter. Year-to-date through Friday, the index was up 26%, with all but two of the 24 index components seeing gains, with some of the most maligned industry names seeing stellar performance. While major industry players are still trading for low multiples to book value and forward earnings estimates when compared to stock valuations before the 2008 credit crisis, several concerns appear to be pushing "normalized earnings" further out than previously expected. After several years of seeing forward earnings estimates outpacing the current year's estimates, the story is beginning to change for some regional players. Among the 24 KBW Bank Index components, analysts polled by Thomson Reuters estimate that four will earn less during 2013 than in 2012, while two have consensus 2013 EPS estimates matching those for 2012. Out of 18 index components expected to improve their earnings next year, four are expected to see 2013 earnings 15% or higher than 2012 estimates, while 10 more are expected to see earnings improve by at least 10%. Here are some of the big themes for the nation's largest banks, heading into third-quarter earnings announcements:
gain-on-sale margins" when selling newly originated loans to Fannie and Freddie, according to Sterne Agee analyst Todd Hagerman, who published his firm's third-quarter industry earnings preview last week. The analyst expects a particularly strong earnings benefit from the mortgage volume for Wells Fargo ( WFC) and Fifth Third Bancorp ( FITB). Banks will also see a benefit in lower delinquency rates going forward, as HARP 2.0 removes the temptation "just to walk away" for thousands of "underwater" borrowers. With the Federal Reserve last month increasing its volume of long-term mortgage-backed securities purchases by $40 billion per month to a total pace of roughly $85 billion a month, Rochdale Securities analyst Richard Bove said on Saturday that "the banking industry is likely to earn substantial gain-on-sale profits as the prices of mortgage backed securities rise in the secondary market." Bove also said that "housing prices are likely to rise as the Federal Reserve pours money into an industry that will be stretching to meet the demand for its product. As the prices rise homes that were valued below their mortgages will rise above the mortgage in value," stimulating even more refinancing, as well as the home equity loan market. Federal Reserve stress test."