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) -- The rally in U.S. bank stocks has made the industry riskier for investors who only consider the best-known names.

Does anyone have the guts to buy

Bank of America

(BAC) - Get Bank of America Corporation Report

shares now that the price-to-earnings ratio has shot up to 67.6? Or

Fifth Third

(FITB) - Get Fifth Third Bancorp Report

at, gulp, 118.9? Even


(BBT) - Get BB&T Corporation Report

stands at 24.5. The banking sector as a whole is selling for a bit more than 21, which is more than the benchmark

S&P 500 Index

of U.S companies.

Smart investors should look farther afield for bargains. Here are three -- out of more than 1,000 publicly traded U.S. bank and thrift holding companies -- that came out as winners:

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TheStreet Recommends


(CMA) - Get Comerica Incorporated Report

of Dallas,

United Financial Bancorp

(UBNK) - Get United Financial Bancorp Inc Report

of West Springfield, Mass., and

Westfield Financial


of Westfield, Mass.

Here are the criteria, using data provided by SNL Financial:

Price-to-tangible-book-value ratio below 1 as of Oct. 16; three-month average trading volume greater than 50,000 shares; nonperforming assets below 2.5% of total assets; net interest margin greater than 2.5%; positive return on average assets for 2008; and positive return on average assets for the first half of 2009.

We used information mainly from second-quarter filings, since most U.S. holding companies haven't yet announced third-quarter results. Returns on average assets (ROA) are based on net income before dividends paid on preferred stock issued to the Treasury for capital infusions via the Troubled Asset Relief Program (TARP).


By far the largest and best-known among the three banks that meets the criteria is Comerica, which relocated to Texas from Detroit in 2007. It had $60 billion in total assets as of Sept. 30 and does business in its home state, Michigan, California and Florida.

Although the company made our list by posting a positive return on assets stretching back to the start of last year, Comerica suffered a third-quarter net loss of $15 million, or 10 cents a share, after factoring in preferred stock dividends paid to the Treasury. Still, the bank beat analysts' estimates of a loss of 53 cents, based on a survey by Thomson Reuters.

Comerica recorded $239 million in net loan charge-offs during the third quarter, a decline from $248 million in the second quarter, and said it expected another small drop this quarter because it reduced its residential real-estate exposure.

The company's net interest margin (the difference between the average rate earned on loans and investments, and the average cost of funding) declined to 2.68% from 2.73% in the previous quarter, which Comerica attributed to "excess liquidity, which more than offset improved loan spreads and lower core deposit rates."

During Comerica's third-quarter conference call, Chief Financial Officer Beth Acton said: "The fourth-quarter net interest margin will increase as a result of maturities of higher-cost CDs and wholesale funding and a reduction in excess liquidity. In addition, we expect the margin will continue to benefit from improved loan pricing."

Comerica had a high level of capital as of Sept. 30, with a tier 1 leverage ratio of 12.45% and a total risk-based capital ratio of 16.75%.

With the bank so well-capitalized and earnings significantly affected by dividends being paid on $2.25 billion in TARP money received in November, Comerica Chief Executive Officer Ralph Babb said during the call that "we would like to pay it back as soon as feasible."

In a report affirming its "market perform" rating for Comerica, equivalent to "hold," BMO Capital Markets analyst Peter Winter projected the company would repay TARP in mid-2010. He raised his guidance for 2010 to a loss of 55 cents a share (from a loss of $1.40) and net income of $2.60 in 2011.

Comerica shares are near a 52-week high, but they're selling below book value. The stock, which has risen 55% this year, has a low risk of dilution for common shareholders, especially since loan quality is improving. Based on the BMA Capital Markets earnings estimate for 2011 and Friday's closing price of $30.79, the price-to-earnings ratio would be about 12. Before the crisis began, the shares closed at $58.68 at the end of 2006, or 11 times the $5.49 per share earned that year.

After Comerica released earnings results last Tuesday,

Goldman Sachs

(GS) - Get Goldman Sachs Group Inc. (The) Report

analyst Brian Foran summed up the result as "nice credit, weak earnings," saying that the company's credit quality was "the best of the bunch reporting today," which included

Regions Financial

(RF) - Get Regions Financial Corporation Report


Marshall & Ilsley

( MI) and

Zions Bancorp

(ZION) - Get Zions Bancorporation N.A. Report

. Goldman has a neutral rating on Comerica.

Comerica stands out from many other regional banks because of its early improvement in credit quality. With the repayment of TARP and normalization of earnings over the next several years, there is tremendous upside potential.

Two Small Massachusetts Thrifts

The two other companies that meet our selection criteria are smaller neighboring thrift holding companies United Financial Bancorp, which had $1.25 billion in total assets as of Sept. 30, and Westfield Financial, with $1.16 billion in assets as of June 30. Westfield Financial has yet to announce third-quarter results.

Neither company applied to participate in TARP.

United Financial

United Financial has a pending agreement to acquire

CNB Financial

( CFNA) of Worcester, Mass., for $25 million in cash and stock, which CNB's shareholders approved Thursday. CNB Financial had $287 million in total assets as of June 30.

CFO Mark Roberts told

that the CNB acquisition, expected to be completed this quarter, was attractively priced and would allow it to enter the contiguous Worcester market. (Worcester is 45 miles west of Boston.) He also said United Financial's senior management was familiar with CNB's market and had conducted a rigorous review of CNB's loan portfolio with the help of an outside group.

United Financial is strongly capitalized, with a 17.35% ratio of equity to assets as of Sept. 30. Other regulatory capital ratios weren't available for the third quarter.

Asset quality has remained strong through the crisis, with nonperforming assets comprising 0.92% of total assets as of Sept. 30, which compares with the industry's average of 2.77% at the end of the second quarter. The annualized ratio of net charge-offs to average loans was a very low 0.12% for the third quarter, and has remained below 0.25% over the past year. In comparison, the industry aggregate for the second quarter was 2.55%, according to the FDIC.

Roberts said the Springfield area hadn't seen the pattern of speculative growth that fed the real estate crisis in southern states. (Springfield is 90 miles west of Boston and 45 miles west of Worcester.) He also stressed the experience of United Financial's commercial lenders in previous down markets and long-term customer relationships.

United Financial has the best net interest margin of the three companies we selected: 3.38% for the third quarter.

Supporting the stock is a buyback of 5% of the company's shares, which began in February, with 633,000 shares repurchased through Oct. 16. There were 208,000 shares left to be repurchased.

United Financial's shares are attractively priced, selling for below book value and considerably less than their 52-week high of $15.48. The company's stock has fallen 15% this year. United Financial's strong capital, buyback, excellent loan quality, good net interest margin and coming expansion make it a compelling play.

Westfield Financial

Westfield Financial is scheduled to announce third-quarter results Wednesday.

Looking at second-quarter numbers, the company was very strongly capitalized with a total risk-based capital ratio of 37.55% as of June 30. To put that in perspective, the aggregate risk-based capital for all U.S. banks and thrifts was 13.76% as of June 30. Most institutions need to maintain a ratio of 10% to be considered


under regulatory guidelines.

Westfield has been putting the capital to use with a buyback that began in January 2008. At the end of the second quarter, there were $1.7 million shares remaining that could have been repurchased under the buyback plan.

Westfield's credit quality is strong, with a nonperforming-assets ratio of 1.16% as of June 30, and its ratio of net charge-offs to average loans for the second quarter of 0.19%.

While both Westfield and United Financial have commercial real-estate loans comprising about 17% of total assets, Westfield also focuses on non-mortgage commercial and industrial lending. Those loans accounted for about 14% of total assets as of June 30, compared with about 6% for United Financial.

Chief Credit Officer Louis Gorman said the institution had been focused on building its commercial portfolio for many years, having "assembled a team of very experienced C&I lenders with solid skills and reputations." He said Westfield shied away from riskier loans, wasn't focusing on any particular industry, and that its largest credit was to a local college.

Westfield makes for another compelling investment, also selling for below book value and much less than its 52-week high of $10.55. It has by far the highest level of capital among our three picks, giving the company many options, including continued share buybacks, dividend increases and expansion through acquisitions. The stock has dropped 21% this year.

-- Written 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.