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Bank Stocks to Buy Now (Maybe)

If Northern Trust could repay the money, it would also leave open the possibility of a dividend increase. TARP recipients must first win Treasury approval for any increase in dividends on common shares for three years after being handed the money. Northern trust's quarterly dividend is 28 cents, for a not-particularly-attractive yield of 2.06% at Tuesday's market close.

Capitol Federal and Hudson City

Two bank holding companies with strong, safe dividends include Capitol Federal Financial and Hudson City Bancorp.

Capitol Federal Financial, like Northern Trust, has a high price-to-book ratio of 2.91, perhaps reflecting its stellar 2.26% Texas ratio.

The company's main subsidiary, Capitol Federal Savings, is primarily a mortgage lender and performed well during 2008, with earnings increasing throughout the year. Net income for the S&L subsidiary for 2008 was $58.1 million, or a return on average assets (ROA) of 0.72% and return on average equity (ROE) of 7.89%.

While these would not be stellar numbers in a strong economy, they certainly stood out last year, and the ROE also reflected the S&L's strong capital position, with a tier-1 leverage ratio of 9.95% and a risk-based capital ratio of 22.96% as of Dec. 31, all while not applying for any TARP money. The S&L's nonperforming assets ratio was a low 0.28% as of Dec. 31, and net charge-offs (actual loan losses) for 2008 were a miniscule 0.03% of average loans.

Shares returned a negative 20.69% year-to-date as of Tuesday's close, according to Bloomberg, but returned a positive 7.75% from a year earlier. The dividend is very attractive, at 50 cents per quarter, for a yield of 5.59% based on Tuesday's market close. Plus, it seems quite safe with such strong asset quality and excess capital.

Hudson City Bancorp also had a strong 2008, with main subsidiary Hudson City Savings Bank earning $436 million, for an ROA of 0.89% and ROE of 10.07%.

Hudson City didn't apply to participate in TARP, and the thrift subsidiary remained well capitalized. With excess capital and strong asset quality, the holding company's quarterly dividend of 14 cents per common share seems safe, with an attractive dividend yield of 5.52% at Tuesday's close. The company's price-to-book ratio of 1.52 also made it appear less expensive than several other strong holding companies on the list.

New York Community

New York Community Bancorp (NYB) has been battered because of $104 million in impairment charges on securities during 2008, including $42 million related to the bankruptcy of Lehman Brothers. The company also took $285 million in charges related to the repositioning of its wholesale debt, as it prepaid $4 billion in wholesale borrowings and replaced them with $3.8 billion in lower-cost borrowings. Net income for 2008 was $78 million, down from $279 million in 2007.

On a more positive note, New York Community maintained strong asset quality through 2008. The multifamily lending specialist's nonperforming assets ratio was a low 0.35% and its ratio of net charge-offs to average loans was just 0.03% for the year.

The company's multifamily lending activity is not the type of condominium project lending that got Corus Bancorp (CORS) into so much trouble. New York Community's multifamily loans are primarily to companies operating apartment houses whose tenants are mainly working-class families who continue to pay rent. The company's multifamily loan portfolio grew 12% year-over-year, to $15.7 billion as of Dec. 31.

New York Community's price-to-book ratio was just 0.76 at Tuesday's market close, with the 25-cent quarterly dividend on common shares yielding 10.80%. The market clearly doesn't trust the company to continue paying at that rate without additional significant impairment charges on securities.

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