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10 Well-Run, Profitable Banks (Update 3)

Updated with Deutsche Bank analyst Dave Rochester's comments on Signature Bank and Prosperity Bancshares, after his firm initiated coverage for both stocks on Thursday morning, and also with SNL's inclusion of Prosperity in its "decade of dividend dominance" report.

NEW YORK ( TheStreet) -- TheStreet has identified the 10 most efficient actively traded U.S. bank and thrift holding companies.

The list includes the 10 bank and thrift holding companies with the lowest third-quarter overhead expense -- as a percentage of operating revenue -- among industry names with three-month average daily trading volume of at least 50,000 shares. Data was provided by SNL Financial.

Back in November of 2010, we identified a similar list of efficient and profitable banks and thrifts, with the lowest (best) efficiency ratios, and while only three had positive stock market returns during 2011, six of the names beat the performance of the KBW Bank Index (I:BKX) dropped 25% for the year.

Looking at the remaining four of our original list of 10 actively traded, efficient and profitable bank and thrift holding companies, the worst performer was Wilshire Bancorp (WIBC) of Los Angeles, with shares declining 52% during 2011, as the company continued trimming its balance sheet and raised $109 million in common equity during the second quarter.

Right behind Wilshire was Hudson City Bancorp (HCBK - Get Report), with shares dropping 49%, following a first-quarter balance sheet restructuring that was forced by regulators, after the company's long-term strategy of leveraging wholesale borrowings by investing in securities, backfired in the prolonged low-rate environment.

Meanwhile, Shares of New York Community Bancorp (NYB) had a negative return of 30% during 2011, with the decline partly reflecting concerns of a high dividend payout ratio. The company has maintained its 25-cent dividend for 31 consecutive quarters, but it paid out 91% of what it earned, during the first three quarters of 2011.

Rounding out our previous list of 10 efficient banks and thrifts, Nara Bancorp of Los Angeles in December merged with its hometown competitor Center Financial to form BBCN Bancorp (BBCN).

Our updated list of 10 efficient and profitable U.S. banks includes seven of the names featured on last year's list. While we have seen that this method of picking bank stocks was a mixed bag, 2011 was a terrible year for most bank stocks, and half of the names on the new list had positive returns last year.

The efficiency ratio is, effectively, the number of pennies of overhead expense for each dollar of a bank's revenue, with adjustments made for certain items. SNL defines the efficiency ratio as noninterest expense (before foreclosed property expense, amortization of intangibles, and goodwill impairments) divided by the sum of net interest income and noninterest revenues (excluding gains from securities transactions and nonrecurring items).

The 10 names on the new list reported decent or better operating earnings for the third-quarter, with seven of companies beating the industry's aggregate return on assets of 1.03%, as reported by the Federal Deposit Insurance Corp. Several of the stocks feature attractive dividend yields.

Here's the new list of 10 efficient and profitable banks, in descending order by efficiency ratio.
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