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The following story is the first in a series that highlight investment opportunities among the most strongly capitalized community and regional banks and thrifts with the highest growth prospects.



) -- On Friday nights, half of America is watching football. Meanwhile, bankers are doing deals during those hours, snapping up failed financial institutions, encouraged by the government's generous loss-sharing guarantees.

People's United Financial

(PBCT) - Get People's United Financial, Inc. Report

of Bridgeport, Conn., last month agreed to buy

Financial Federal

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, a non-bank equipment-financing company based in New York, for $738 million at a 35% premium. So there are other ways for a strongly capitalized bank to expand.

People's United, which had $20.8 billion in assets as of Sept. 30, has weathered the credit crisis, buoyed by good asset quality and minimal loan losses. With a very high tangible common equity ratio of 18.6%, according to SNL Financial, the company is looking to leverage its excess capital in a transaction that People's expects to increase earnings as soon as next year.

An analysis by

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highlights eight other profitable bank and thrift holding companies that are moving through the credit crisis with low loan losses and enough money to increase their footprint as the country emerges from the worst recession since the 1930s. The strong not only survived, but are getting bigger.

We began with a list of 920 publicly traded U.S. bank and thrift holding companies (excluding those traded on the Pink Sheets), for which September financial information was available from third-quarter Federal Reserve or Securities and Exchange Commission filings. (The data were provided by SNL Financial.)

We then narrowed the list using the following criteria: tangible common equity ratio above 7%; positive return on assets for the first three quarters of 2009; nonperforming-assets ratio less than 2%; ratio of loans/total assets above 50%; year-to-date net charge-offs of less than 1% of average loans; average trading volume above 50,000 shares a day; any Troubled Asset Relief Program (TARP) has been repaid; total assets over $5 billion.

Hudson City

The largest bank on the list is

Hudson City Bancorp


of Paramus, N.J., a favorite of many analysts, which has sailed through the crisis. The shares have fallen 14% this year and are trading at 1.3 times tangible book value, low for a healthy thrift. The price-to-book value has been as high as 1.6 in the past three years.

Hudson City pays a dividend of 15 cents a quarter, producing a yield of 4.56%. The bank hasn't been a high-flyer because it's very conservative. As a result, earnings have been subdued. The company's net interest margin for the first three quarters of the year was 2.18%, which compares with the industry average of 3.46%, according to the Federal Deposit Insurance Corp. Hudson City's margin was well below 2% from 2006 through 2008.

Hudson City's balance sheet is divided between loans and securities, with nearly all loans secured by single-family homes. The company relies on Federal Home Loan Bank borrowings for a significant portion of its funding, though it increased its deposits 6.6% during the third quarter and 34% year-over-year, as interest rates fell, which helped net interest margins. The bank's net income for the first three quarters was $391 million, or a 0.92% return on average assets (ROA), exceeding ROA of 0.91% in 2008, 0.74% in 2007 and 0.91% in 2006.

Room for improvement in net interest margins, combined with solid loan quality and the prospect of using excess capital to expand in lending or grow in size via an acquisition, make Hudson City a compelling play. Plus, you get a fat dividend yield while you wait.

-- Reported by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.