Banks That Never Experienced The Financial Crisis

While all investor attention is riveted on the major banks like Citigroup (NYSE:C) and Bank of America (NYSE:BAC), banks that have seen rising delinquencies on loans and massive losses from investments, little regard is given to those healthy banks that refused to gorge themselves at the trough during the boom times. These banks are now reaping the rewards of this fiscal prudence through sound balance sheets and high-quality assets.

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Risk Averse
These banks refused to load up on risky loans and loans that were backed by too little collateral. There is little doubt that these banks received criticism from investors who were pushing the growth mantra, but they wouldn't compromise lending principles for the sake of growth, and shareholders are probably grateful.

Financial Strength
TFS Financial (Nasdaq:TFSL) owns the Third Federal Savings and Loan Association with headquarters in Ohio. The bank's performance during the financial crisis is even more surprising when you consider that some of its assets are concentrated in Cleveland, Ohio, which was one of the worst areas for subprime lending. TFS Financial did report some stress in its loan portfolio, with non-performing loans equal to 2.13% of total loans, as of December 31, 2008. However, the bank was strong enough to turn down funds from the government as part of the Troubled Asset Relief Program (TARP). (These loans can spell disaster for borrowers, but that doesn't mean they should be condemned, see Subprime Lending: Helping Hand Or Underhanded?.)

Sound Balance Sheets
People's United Financial (Nasdaq:PBCT) has $20 billion in assets and is headquartered in New England. The bank has a superb balance sheet, with a tangible equity ratio of 19.53%. This strong capital position will cushion any losses from its loan portfolio, 51% of which is concentrated in commercial real estate. The bank's ratio of non-performing loans to total loans was only 0.58% at the end of 2008.

Capitol Federal Financial (Nasdaq:CFFN) operates the Capitol Federal Savings Bank with 40 branches in Kansas, and $8.1 billion in assets. Although 96% of its loan portfolio is for real estate, the bank has a ratio of non-performing assets to total assets of only 0.29% as of December 31, 2008. Capitol achieved this stability by sticking to the basics. The bank made sure the majority of the people it lent to could pay it back, and if the borrowers couldn't pay it back, then there was enough collateral value left to cover any default. This is reflected in the loan portfolio statistics, where the weighted average loan-to-value (LTV) ratio is 66% and the weighted average credit score of borrowers is 754. (Learn more in Conquering The LTV Calculation and Make Yourself A More Attractive Mortgage Candidate.)

The Bottom Line
Investors are too fixated on the larger banks because of the big banks' asset size, and are ignoring the many banks that did not make mistakes prior to the financial crisis. Investors could make better use of their time by looking for buying opportunities in these financially healthy banks.