Analyst at Wedbush increased their price target on most of banking sector stocks in their coverage as they believe tremendous earnings leverage exists with so much excess liquidity sitting on the bank balance sheets and line utilization rates at near-record-low levels.

Following the FOMC meeting on 9/22, it appears the Fed could raise rates sooner than its original projections. Rising rates should drive stronger net interest income growth as banks will be more aggressive in shifting excess cash earning into higher-yielding securities, leading to plenty of earnings leverage.

The brokerage expects Q3 to be another quarter of improving credit trends, however, the focus will be on pre-provision net revenue, where the brokerage is projecting a lackluster quarter owing to mixed trends on loan growth (pressure for regional banks, while the mid-cap banks are seeing better growth driven by niche areas), net interest margins should continue to be under pressure, fee income should be solid and expenses should be well contained.