As big-bank stocks fell in recent months, the shares of smaller banks held their ground.
Unlike other small-company stocks on the Nasdaq composite index - which have declined faster than their bigger peers traded on the New York Stock Exchange - the Nasdaq bank index group have held their own compared with bigger banks.
From June 28 to July 24, over-the-counter banks slipped 2.49%, slightly more than banks traded on the New York exchange, which fell 2.44%. But in the month before, the Nasdaq banks held steady, while the NYSE-traded banks slipped by 1%.
Elizabeth Summers, banking analyst at Ryan, Beck & Co., pointed out that while the Standard & Poor's bank index declined 6.6% in the second quarter, the Nasdaq bank index declined only 2%.
"The Nasdaq tends to be less volatile than the major regional and mid- cap indexes, and some of that is due to the fact that some of the companies are illiquid or do not trade," she said.
But she also said some small banks have performed better than their larger brethren because of their robust earnings growth.
"In 1995, the market was driven by declining interest rates, but this market is driven by earnings growth," she said. "A company that has a visible source of earnings growth should outperform."
She points to Commerce Banks in Harrisburg, Pa., as having had "predictable earnings growth." From the beginning of the year through July 24, she said, Commerce has outperformed the Nasdaq and the S&P 500 bank index.
Commerce appreciated 5%, while the Nasdaq rose 4.3% and the S&P bank index rose only 1.7%, she noted.
Kevin Pilot, principal of Phoenix Capital Management, Carlsbad Calif., said he was not surprised by the performance of Nasdaq banks, because many are takeover targets, particularly in California.
He said he is "buying heavily" in Glendale Federal Bank, a thrift that trades on the Nasdaq.
Analyst David Berry of Keefe Bruyette & Woods, however, said he still believes "big banks have outperformed smaller banks."
He pointed out that part of the strength driving the small banks last year was "takeover speculation." However, as the mergers and acquisitions frenzy has ebbed, the prices of smaller banks have ebbed as well.
"The typical bank has been sluggish this year," he said. "But a lot of smaller banks got bid up on takeover speculation from last year, so they have drifted lower."