A couple of weeks ago, several of the nation's banks underwent a so-called "stress test" to determine whether they were healthy enough to survive a major economic contraction without requiring new capital. Some failed, but most passed.
Yet, even before the dust has settled from the good news, questions are starting to surface again. And, they're surfacing for understandable reasons.
One of those questions puts Bank of America (NYSE: BAC) right back in investors' crosshairs. Technically, BofA passed the test. Those who are more than just a little familiar with the situation, however, know Bank of America has been eating more than its fair share of loan losses, and it may have more than the anticipated $60 billion in liabilities to work through if the economy tanks again.
Citigroup (NYSE: C) flat out failed the test. So did SunTrust Banks (NYSE: STI) and a couple of other major financial institutions.
It all begs the question: If two icons of the U.S. banking industry -- Citigroup and Bank of America -- are looking troubled with or without a passing grade on the stress test, can any of them really be all that healthy?
Better alternatives
There is one common element among the banks that are struggling the most -- they're large banks that were big enough to dig themselves into a deep bad-debt hole in the first place.
Smaller, regional banks, however, were lucky in the sense that their holes were never that deep to begin with. Many of them have fully escaped the 2008 loan debacle and are actually growing earnings again. Indeed, three of these small banks stand out as attractive combinations of earnings growth and dividend yields.
1. Independent Bank Corp. (Nasdaq: INDB)
Although Massachusetts-based Independent Bank Corp. struggled on the earnings front in 2009 along with most other banks, 2011's per-share income of $2.14 puts it right back in line with 2007's income of $2.13 per share.