Bank of America Corp (BAC), SunTrust Banks, Inc. (STI): Wall Street’s Favorite Will Surprise You

Mortgage interest rates at SunTrust declined faster than savings account and CD rates, causing the net interest margin to compress 0.03% from Q4 2012 and 0.16% from Q1 2012. NIM is equal to the difference between interest earned on loans by the bank and interest paid to depositors.

Due to NIM pressure across the industry, I suggest that readers only consider banks which have growth in the mortgage banking business. The Charlotte, NC based Bank of America Corp (NYSE:BAC) reported Q1 2013 earnings on April 17, and first-lien mortgage production rose a massive 57% year-over-year to $24 billion during the January – March period. Wall Street seems to have taken notice of the impressive quarter, as Morgan Stanley raised its price target on BAC to $16 from a previous $13.

The topic of mortgage banking would be incomplete without discussing Wells Fargo & Co (NYSE:WFC), the undisputed mortgage king with more loan production than any other bank. Wells also reported first quarter earnings in April, and net charge offs declined to 0.72% of average loans. This compares with a 1.05% NCO rate during Q4 2012 and a 1.25% rate during the same period a year ago–a significant improvement in 12 months time.

Wall Street also continues to view Wells Fargo & Co (NYSE:WFC) favorably. Analysts at RW Baird reaffirmed their “outperform” rating and $40 price target on the stock following earnings, and stated they would use any market weakness as a buying opportunity.

Foolish Bottom Line

In conclusion, SunTrust offers a rare combination of variables working in its favor. A strong market share position, favorable geographic footprint, and improving fundamentals warrant a closer look at this regional bank.

Furthermore, the U.S. Census Bureau predicts strong population growth in the Southeast and West as Americans move away from the Northeast and Midwest. Better year-round weather, lower energy costs and favorable tax rates (Florida has no income tax) all support Americans being on the move in this 21st century version of the Oregon Trail.

I can’t imagine a better way to play these long-term migration trends than with a uniquely situated bank such as SunTrust Banks, Inc. (NYSE:STI). Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC) are also well-positioned for long-term mortgage growth and will benefit from the emerging population trends.

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John Macris has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America Corp (NYSE:BAC) and Wells Fargo.

The article Wall Street Loves This Regional Bank With Southern Flavor originally appeared on Fool.com.

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