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TWST: Joe, what is the strategy that you’re telling investors to use in this group today?

Mr. Morford: I think if you look at the current market for bank stocks, there is still a tug-of-war going on between the positive perception of lower rates and the negative concerns about asset quality in a slowing economy. We remain cautious on the credit front and feel it’s a bit early to declare victory there. And again, as I mentioned earlier, a lot of the banks on our coverage list are seeing fundamentals weaken in the near term due to the pressure of lower rates on margins. Since the beginning of the year when the Fed began aggressively cutting rates, we’ve seen an interesting shift in the group, as investors have been willing to take on a little more risk and buy some of the broken-down names, like Bank of America (NYSE:BAC). We, however, take a different approach and think that in an uncertain environment you really ought to focus on high quality names, specifically those with strong management teams and proven track records, for we believe they’re the ones best positioned to deliver strong earnings growth on a consistent basis. We’d agree with Jim that it’s going to be a challenging environment for the next couple of quarters, and thus we don’t think there is real hurry to step up and buy a lot of these names. Instead, we’d be selective, focusing on just a handful of high performers.

TWST: Joe, are there any names that you would suggest today?

Mr. Morford: On the small cap side, I think City National (NYSE:CYN) still offers great upside. For the past year its stock has suffered from a variety of concerns including interest rate sensitivity, credit quality and, more specifically, the syndicated loan exposure. Recently, however, it posted a great first quarter, with management aggressively downsizing syndicated lending to just 2% of the portfolio, nonperforming assets falling 10%-15% sequentially, and the margin holding steady in the face of significant rate cuts. What’s more, it now seems that the writers and actors may not strike, providing some relief to the Southern California economy. Thus, a lot of the issues surrounding the stock keep falling by the wayside and, meanwhile, you’ve got a high performing bank trading at essentially an average group multiple, which we think is pretty attractive. Finally, we would highlight Silicon Valley Bancshares (Nasdaq:SIVB) as a name that’s been beaten down recently on concerns over the slowdown in technology and the pressure of higher interest rates. In our view, much of that has been overly discounted into the stock here, and while the next couple of quarters may be challenging, I think if you have any kind of mid- to longer-term outlook, there is huge upside potential in this stock.