If there continues to be an unintended consequence of the financial crisis it is that financial institutions continue to be viewed with disdain. No one will deny that some financial institutions have engaged in questionable practices over the past few years, but the nature of capitalism is that disruption must occur from time to time. In fact, looking over the past decades, there are also plenty of non-financial businesses that have created turmoil in the markets.

So, before you start slamming the banks, consider the following: Banking is as vital to U.S. and global prosperity as its ever been, and extending credit to consumers is an essential part of economic growth. While this credit extension was recently abused by both lenders and borrower, lending still has an important place in the economy. When done prudently and for the right reasons both lender and borrower benefit tremendously. Plus, not all banks have been behaving badly. Let's take a look at a few of the best small banks right now. (For more, see The History Of Consumer Credit Rights.)

Small Banks, Big Potential
Metro Bank (Nasdaq:METR) is a regional bank operating in Pennsylvania. Shares trade at 0.94 times book value and, over the past couple of years, the bank stuck to business as usual. Pennsylvania is a state not widely associated with a major real estate meltdown, and small regional banks' steadfast lending policies have been partly credited for this. Recently, Metro abandoned its bid to acquire rival Republic First Bancorp (Nasdaq:FRBK) after running into regulatory hurdles, but I don't expect this company's merger appetite to go away anytime soon.

Old National Bancorp (NYSE:ONB) also operates in the less glamorous states of Illinois, Indiana and Kentucky. But in banking, boring is a very good thing. To be sure, Old National wasn't immune to taking a larger provision of loan losses, but when national unemployment is at 10%, even the best of loans will go bad. This bank has been around since 1834, and has survived the country's worst financial panics. It's on its way through this one as well.

Turning Money Into More Money
Before investing in any bank, always dig deep into the financials but keep in mind that there's a reason why Warren Buffett didn't flinch when his investments in names like Wells Fargo (NYSE:WFC) and other financial institutions experienced share price declines of 80% or more. If a bank's management stays the course and doesn't let an easy lending environment get in the way of sound lending practices, that institution will find ample opportunity to grow in good and bad times. (For more, see The Evolution Of Banking.)

Related Articles
  1. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  2. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  3. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  6. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  7. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  8. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  9. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  10. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!