The Best U.S. Banks and Thrifts Now

Looking back, City National was posting returns on equity well in excess of 20% during 2005, 2006 and 2007. The year-to-date return on equity for 2008 was been lower, since the bank didn't pay any dividends during the first three quarters and its capital ratios increased considerably from December 2007.

Second on the list is Broadway National Bank of San Antonio, Texas, which had total assets of $1.8 billion, and was upgraded to an A+ Financial Strength Rating from an A by TheStreet.com Ratings.

Broadway National's rating was upgraded because the institution's earnings have been strong for many years and have recently improved, while the bank's leverage ratio has increased and loan quality has remained strong.

Net income for the first three quarters was $25.3 million, for an ROA of 1.89% and ROE of 15.58%.

The bank is strongly capitalized, with a leverage ratio of 11.00% and a risk-based capital ratio of 15.23%, as of Sept. 30. Problem loans have been kept to a minimum, with a nonperforming assets ratio of 0.06% as of Sept. 30 and an annualized net charge-off ratio of 0.20% for the first three quarters of 2008.

While Broadway has a lower concentration in construction loans than City National, and a relatively small loan portfolio (comprising just 57% of total assets), it maintained a relatively high net interest spread of 4.85% during the first three quarters of 2008, on its portfolio of commercial real estate and commercial & industrial loans, as well as its securities portfolio. The institution was also able to avoid any of the securities losses that plagued so many banks.

When asked about Broadway National Bank's success, CEO James Goudge said the bank avoided making subprime or low-documentation loans. He also emphasized the community-based approach of the family-owned institution. Rather than pushing loan growth by pursuing individual deals, "we focus on developing full deposit and lending relationships with our customers, so we know them and they know us," he said. "This approach has served us well through our 68-year history."

Goudge also pointed out that the San Antonio area is not going through the same boom-and-bust cycle being experienced in so many areas of the country. One factor that prevented some risky lending was Texas' home equity lending law, which essentially bars banks from making second-lien home equity loans that would push the combined loan to value ratio above 80%.

Broadway National Bank has 37 branches in the San Antonio area, including seven operating on or near military bases, under the Eisenhower Bank name.

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