Is There a Fly in the Regional Bank Ointment?

Jim Cramer has been convinced that regional banks were due for sharp gains this year. But then First Horizon reported.

If you watch Mad Money regularly, you might remember that back on Monday January 7th, Jim Cramer said early signs had started to emerge that suggested the banking sector was gaining momentum.

And he said the best way to play the theme was with well-run regional banks such as First Horizon – that banks such as these had not benefited yet from a renaissance in construction and small businesses activity.

However, on Friday morning Cramer's regional banking thesis was called into question after Tennessee-based First Horizon National slipped almost 4% after the bank's quarterly release.

Although the company reported earnings of $40.7 million, or 17 cents per share, up from $34.9 million, or 13 cents per share, in the same quarter last year - total revenue fell 12 percent to $317 million from $360.1 million.

"Specifically, the company had lower fee income, something that I thought would actually be higher this quarter," admitted Cramer.

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"And First Horizon's net interest margin, the money they make on the difference between what they pay you for your deposits and what they make from their loans, disappointed the Street, coming in at 3.09%," he added

Are there cracks in Cramer's regional banks thesis? Should you re-think the sector?

Not yet. Cramer remains relatively confident.

"I'm wondering how much this should really bother us," he said. "I've been repeatedly saying that the net interest margins stink for all the banks." However, and perhaps more important, Cramer said other things are getting better.

At First Horizon, the company had 12% growth in deposits, its credit quality has improved dramatically, and it bought back a substantial amount of stock last year, equal to more than 5% of its market cap.

And after talking with Bryan Jordan, the chairman and CEO of First Horizon National in a live interview – Cramer concluded that it's confidence that's the ultimate problem.

On Wednesday January 16th Cramer first talked about the issue – "the most important spur for investment is confidence," he said at the time.

Cramer believes that 3 major factors have thwarted confidence and by proxy related stocks for quite some time: the uncertainty of the presidential election, the uncertainty of the fiscal cliff, and the uncertainty of the debt ceiling .

"We've gotten past two of those," said Cramer. "There's only one more to go. And when confidence is finally restored to the market, I think a stock like this will rocket."

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