Aug. 18--Jon Bruss didn't want to talk about bank stocks two or three months ago.

He told a Journal Sentinel reporter to call back in the fall.

That changed on July 15.

"I'm on the cusp of saying I believe that July 15 was the day that financial stocks capitulated," said Bruss, managing principal, chief executive officer and portfolio manager at Fortress Partners Capital Management Ltd., Hartland.

The Nasdaq Bank Index has gained about 28% since that day, moving up out of a trough that had been in the making for more than a year.

Capitulation -- when investors throw up their hands and give up on stocks -- happened for several reasons on July 15, says Tom Brown of Bankstocks.com and Second Curve Capital. They include the regulators' shutdown of IndyMac Bancorp., General Motors' dividend suspension, lower-than-expected retail sales in June, the dollar's record low against the euro, and other events, Brown said in his newsletter.

After capitulation, the only thing to do is figure out when to get back in. Consequently, Bruss says it's time to start taking cash off the sidelines and putting it into bank stocks.

"It's important right now to be invested and to be investing," he said.

Bruss says he aims to be in the banks that are best-positioned to do well as this sector begins to perform better. There are three relatively small banks with assets of $900 million to $1.3 billion that Bruss says have caught his eye.

He says he's ready to buy:

Peoples Financial Corp., (PFBX, $22.51), Biloxi, Miss., offers loan, deposit, trust and other services to individuals and small and midsized businesses through 16 branches along the Mississippi Gulf Coast. Its stock has traded as high as $25.49 and as low as $18 in the last 52 weeks.

Despite Hurricane Katrina, Bruss says Peoples has managed to maintain "absolutely pristine" credit quality -- no easy feat in an environment in which subprime lending debacles and defaults are ruining many well-known financial institutions.

He says he's poised to buy Peoples shares because of that and the good job that management has done in maintaining high net interest margins, which generally represent the difference between the rate a bank earns on its loans and other assets and the interest it pays on deposits and other liabilities.

Mississippi Gov. Haley Barbour, a veteran Washington lobbyist, has done a good job of deploying federal disaster funds, and Peoples has moved some of its cash out of securities to fund loans, Bruss said.

Bruss already owns the two other banks:

Pulaski Financial Corp. (PULB, $10.43), St.