As investors return to the market after a down week to take advantage of cheap prices, bank stocks are reaping the benefits.
Bank shares posted solid gains Tuesday for the second day in a row, lifted by a broader market rally.
Banks have stood out in recent days because "as a group, they have been enjoying double digit earnings, but selling at half the market multiple," said Donald Kauth, a banking analyst at Deutsche Banc Alex. Brown, New York.
But Mr. Kauth said it may take a correction in technology stocks-which remain strong-for investors to begin buying into banks more forcefully. The rise in bank stocks continued to lag gains in the overall market, but "at least it's better than what has been happening," he said.
For the day, the Standard & Poor's bank index added 0.77% and the Dow Jones industrial average 1.07%. The Nasdaq bank index was up 0.33% and the S&P 500 1.12%.
Citigroup rose 0.40%, to $47.3125, Chase Manhattan Corp. 1.21%, to $83.875, and J.P. Morgan 0.84%, to $135.50.
Shares of Bank of America Corp. rose 0.63%, to $70.25, on positive words from Carla D'Arista of Friedman Billings Ramsey & Co.
Ms. D'Arista said that in reviewing operations, "overall credit quality was a standout for its stability." Net loan losses measured 57 basis points, down from 58 basis points the prior quarter.
Bank of America is making headway on cost savings, Ms. D'Arista said. "The goal of cutting costs at the old Bank of America by $1 billion is positioning the company to meet its 50% efficiency ratio by the end of next year, compared with 54% at present."
Bank of America is also demonstrating "the ability to focus on customers, especially on the loan side," Ms. D'Arista said.
The company's consumer loans are growing at an annualized rate of 16%, with mortgages leading the way at 26%, she said.
She said the banking company's recently introduced 15-year mortgage helped fuel a 54% rise in mortgage business in Florida and a 27% increase in California, compared with volume a year earlier.
Community First Bankshares of Fargo, N.D. rose 2.42%, to $22.50, after being named to the "Best Ideas" list at Stephens Inc. of Little Rock, which culls top stock picks from its various analysts.
Stephens analyst James Schutz said he made the assessment after a recent visit with management of Community First. During the meeting, the company's fee income strategy was discussed, including plans for expansion.
"Community First aims to capitalize on a segment of the trust business that is overlooked by large trust suppliers-people with $250,000 to $1 million in investable assets," Mr. Schutz said.
The company now has $1 billion in trust assets under management, and Mr. Schutz estimates 10% to 15% growth annually over the next several years.
The meeting also included a discussion of the company's strategy for acquisitions.
Community First, with $5 billion of assets, has "very little appetite" for thrift purchases, preferring banking companies with $250 million to $1 billion of assets, Mr. Schutz said.
The company would like to add about $4 billion of assets over the next three to five years, Mr. Schutz said.
He said the company should concentrate on Arizona, New Mexico, and Utah for "fill in" acquisitions. Texas and Nevada are also worth a look, he said.