NEW YORK (CNN/Money) - Given the number of former Wall Street darlings now teetering on the edge of financial oblivion, you'd think it would be safe to assume that many banks would be hurting as well. They lent money to these troubled companies after all.

But isn't there a saying about what happens when you assume something?

Since WorldCom announced its accounting problems in late June, the S&P Banking Index has fallen nearly 6 percent. But with the exception of FleetBoston, which posted a loss in the second quarter due to economic woes in Argentina, and Mellon, which was forced to take a provision to cover a loan to WorldCom, most banks that have reported results thus far have not had any credit quality problems.

Citigroup and J.P. Morgan Chase, two other banks that have exposure in Argentina as well as to WorldCom, posted mixed results Wednesday morning, though credit-quality issues did not factor heavily in final numbers. J.P. Morgan Chase missed expectations because of continued weakness in its capital markets related businesses. Earnings, however, increased more than 75 percent. Citigroup beat earnings expectations thanks to strength in its consumer banking businesses.

"All indications are that things are looking better than what you see on television," says Anthony Polini, a bank analyst with Advest.

Credit losses -- also known as net charge-offs -- at Wells Fargo were down 21 percent from the first quarter of this year. Second quarter charge-offs were lower at Fifth Third, Bank One and KeyCorp as well. All four banks reported earnings increases on Tuesday in line with analysts' expectations. (For more about bank earnings, click here.)

And if the economy continues to improve, it seems likely that credit quality will become even less of an issue for banks. "Problem loans are near a peaking point and for the larger banks, credit costs should be coming down," says Lisa Welch, a bank analyst with John Hancock.

Solid credit quality has also helped smaller banks, says Ken Mertz, manager of the Emerald Banking and Finance fund, the third-best performing financial services fund year to date according to Morningstar. "Smaller community banks have been a safe haven," says Mertz, who invests primarily in small-cap banks.

For example, one of Mertz's top holdings, Harleysville National Bank, a bank with $2.2 billion in assets, reported that non-performing loans represented just 0.24 percent of overall loans in the second quarter. That is incredibly low. By way of comparison, large cap bank Fifth Third, with $75 billion in assets, reported that 0.53 percent of its loans were non-performing and that is among the top ratios for large banks. It is common for large banks to have about 1 percent of their total loans classified as non-performing.

In addition to credit quality being under control at most banks, there are other positives for the sector. Interest rates remain low and it does not appear that the Federal Reserve will be raising rates any time soon.

Although loan demand has continued to be sluggish due to problems in the overall economy, it appears that consumers who have been dissatisfied with stocks have been putting their money in the bank. Wells Fargo, Bank of America, Fifth Third and SunTrust continued to report strong year-over-year increases in deposits from a year ago, for example. This was not the case for banks in the late 1990s when the market was booming. Welch says that bodes well since deposits are a low-cost source of funding for banks.

With that in mind, some think the WorldCom inspired sell-off has created some values in the sector. Christopher Bingaman, manager of the Diamond Hill Bank and Financial fund, says Bank of America, which reported a 13 percent increase in second quarter earnings on Monday, is an attractive value. The stock is trading at 10.6 times 2003 earnings estimates and earnings are expected to increase 11.3 percent.

Bingaman also likes Citigroup, saying that concerns about exposure to WorldCom and the possibility of New York State Attorney General Eliot Spitzer bringing a conflict of interest case against Citigroup's Salomon Smith Barney investment banking unit are overblown. Merrill Lynch settled a similar case with Spitzer by agreeing to pay $100 million.

"The risks are fully reflected in the stock price," Bingaman says. Citigroup is trading at just 9.8 times 2003 earnings estimates. Earnings are expected to increase 16 percent.

Welch thinks Wells Fargo is also attractive, considering its strong performance in the second quarter. Wells Fargo, more so than most banks, has benefited immensely from a surge in mortgage refinancing.

Mortgage volume surged 30 percent in the second quarter and a prolonged period of relatively low rates bodes well for the bank. Wells Fargo is expected to post an earnings increase of 11.5 percent in 2003 and the stock is trading at 12.8 times 2003 earnings estimates.

Polini suggests sticking with the quality companies that have held up well during the market's downturn even though they might be more expensive. Fifth Third, for example, is trading at 20 times 2003 earnings estimates, an extremely high multiple for a bank stock. But it has been a model of consistency. Earnings have increased at an average rate of 18 percent over the past 5 years and they are expected to increase 17 percent this year and 14 percent in 2003.

However, Polini thinks Fleet might also be worth scooping up at these levels, despite its myriad problems. Polini says if Fleet continues to struggle in the near-term, it will become more vulnerable to a takeover. "If you want to roll the dice, roll with Fleet. If they screw up, they're sold. Its put up or shut up time," he says. And since the stock has a dividend yield of 5.1 percent, there is protection for investors if the stock falls further.