The Best U.S. Banks and Thrifts Now

One institution whose earnings stand out is Applied Bank of Wilmington, Del., which has traditionally specialized in "providing secured and unsecured Visa and MasterCard Credit Cards to people with little or no credit history." Applied Bank's ROA for the first three quarters of 2008 was 12.28% and its ROE was 36.45%. These amazing earnings results were achieved with a minimum of loan charge-offs, and the bank has very high capital ratios.

Rocco Abessinio, Applied Bank's president, confirmed that the institution sells the credit card loans it originates and derives most of its income from servicing those loans. He also said that the privately held bank is switching directions, moving into commercial lending in the Wilmington area and would like to leverage its capital by acquiring other institutions.

The largest institution on the A+ list is City National Bank of Florida, which, despite being headquartered in the troubled Miami market and having a balance sheet with a 41% concentration in construction and commercial real estate loans, has maintained strong earnings and stellar loan quality. It sports a net charge-off ratio of just 0.01% for the first three quarters of 2008.

The loans in which City National Bank of Florida specializes tend to have relatively short maturities and relatively high adjustable rates, which allows the bank to maintain a healthy net interest spread. The spread was 4.42% for the first three quarters of 2008, compared to a total of 3.33% for the industry.

Of course, many community banks focus on local construction and commercial mortgage lending, however, with so many areas feeling the economic slowdown, very few have been able to maintain such outstanding asset quality. When commercial borrowers begin to default, earnings can quickly head south.

Despite the overall economic slowdown and challenging interest-rate environment (now mitigated with strong Federal Reserve interest rate cuts), City National Bank posted excellent earnings results for the first three quarters of 2008. Net income was $45.7 million, or an ROA of 2.17% and ROE of 17.34%.