Bank stocks rose with the market Monday, but small-cap banks all around the country outperformed the group and the broader market. Shares of community banking companies had been doing well in recent weeks, but some posted gains that surprised analysts.
Among them was Lakeland Financial Corp. of Warsaw, Ind., which rose 6.3%. "It looks a little cheaper" on a price-to-earnings basis, said Kenneth James of First Horizon National Corp.'s FTN Midwest Research Securities Corp.
But he said he was hard-pressed to find a reason for Monday's jump in Lakeland's stock. "I don't look at it as a seller," so it is doubtful that a takeover rumor drove the price up, he said.
Other top gainers included Omega Financial Corp. of State College, Pa., Frontier Financial Corp. of Everett, Wash., and Mercantile Bank Corp. of Wyoming, Mich. Omega rose 6.1%, Frontier 5.5%, and Mercantile 4.8%.
The American Banker index of 225 banks rose 1.4% and its index of the top 50 banks rose only 0.3%, underperforming the broader market. The Standard & Poor's 500 rose 0.6%.
Richard X. Bove of Punk, Ziegel & Co. upgraded First Horizon and SunTrust Banks Inc. to "buy" from "market perform," saying the two are among the mortgage lenders likely to benefit from another refinancing boomlet. The rising Federal funds rates has pushed up interest rates for home equity loans and lines of credit, while fixed-rate mortgages have remained cheap, and some consumers will probably switch, he said.
Mr. Bove also said that SunTrust, which is based in Atlanta, could benefit from the recent hurricanes and market share gains in several states.
Shares of SunTrust rose 0.6%. First Horizon rose 0.5%.
Shares of Citigroup Inc. slipped 0.9% after Merrill Lynch & Co. cut Citi's second-quarter and full-year estimates.
According to Dow Jones, Merrill said higher funding rates and loan-loss provisions in credit cards, along with lower debt/equity underwriting and lower commissions in capital markets and banking, were factors in the estimate cut.
Dow reported that Merrill lowered its estimates to $1.04 for the quarter, from $1.09, and to $4.07 for the year, from $4.26. Merrill's second-quarter forecast remains a penny above the average analyst estimate of $1.03, according to Thomson First Call, but its full-year forecast is 15 cents below the analyst average.
