NEW YORK (TheStreet) -- The smaller regional banks will be among the financial sectors to get a competitive boost if reform legislation puts new clamps on the big banks.

Five Regional Bank and Thrift Holding Companies Trading Below 2x Book

With that thesis in mind, TheStreet.com Ratings did an analysis (see table above) to find regional bank and thrift holding companies with low stock valuations for investors looking to get some exposure to the group to consider. The exercise found Hudson City Bancorp ( HCBK) to be a standout with Astoria Financial ( AF) and People's United Financial ( PBCT) not too far behind. Honorable mentions went to BancorpSouth Inc. ( BXS), and Bok Financial Corp. ( BOKF).

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First a word on the methodology. After beginning with a list of all publicly-traded U.S. bank and thrift holding companies with between $10 billion and $100 billion in total assets, the group was narrowed down to these five actively-traded names, with price-to-tangible-book ratios below two.

Companies with nonperforming assets -- including nonaccrual loans and repossessed real estate -- plus performing loans past due 90 days or more comprising 5% or more of total assets, were excluded.

We chose to narrow down the list using price-to-tangible-book ratios, since earnings haven't yet "normalized" for many of the regional banks making large provisions for loan loss reserves over the past year.

Hail! Hail! Hudson City

As of Wednesday, Hudson City Bancorp of Paramus, N.J. had the lowest closing price relative to tangible book value among the five companies, and its shares were also trading for the lowest multiple to consensus earnings estimates among analysts polled by Thomson Reuters, for 2010, 2011 and 2012.

Shares are also supported by a 15 cent quarterly dividend, for a yield of 4.14%.

This week Hudson City reported first-quarter earnings of $148.9 million, or 30 cents a share, up from $136.6 million, or 28 cents a share, in the fourth quarter and $127.7 million, or 26 cents a share, in the first quarter of 2009. The company's annualized return on assets was 0.98% and its return on equity was 10.96%, which was very good for a thrift in the current environment.

While Hudson City hasn't suffered from debilitating loan losses during the credit crisis, one concern for the company is that the thrift holding company's net interest margin -- the difference between the average yield on loans and investments and its average cost of funds -- bucked the industry trend and declined to 2.20% during the first quarter.

The margin doesn't compare favorable to most other regional holding companies, but Hudson City has a long-term track record for remarkable efficiency. The company's efficiency ratio - essentially its noninterest operating expenses divided by operating income - was 19.33% during 2009, by far the lowest for any of the 48 regional companies we analyzed. Hudson City's efficiency ratio has consistently lead large banks and has been improving for years.

An interesting development tied to the coming financial reform legislation was Hudson City's announcement in early March that it had sent an application to the Office of the Comptroller of the Currency to convert main subsidiary Hudson City Savings Bank from a thrift to a nationally-chartered commercial bank. The company also said it would apply with the Federal Reserve to convert to a bank holding company. This will not only prevent any confusion associated with the possible elimination of the thrift charter as part of the proposed financial reform legislation being discussed in Congress, it will also remove restrictions limiting commercial lending.

With an excellent long-term track record of conservative lending, a good dividend yield, excess capital and a low valuation relative to tangible book value and projected earnings, Hudson City is a very attractive, conservative pick for long term investors.

Slow and Steady Astoria Financial

Astoria Financial of Lake Success, N.Y., has remained profitable through the crisis, although earnings have been weak for several years.

On Thursday the company reported first-quarter net income of $12.9 million, or 14 cents a share, up from a profit of $8.1 million, or 9 cents a share, for the fourth quarter and $8.8 million, or 10 cents a share, in the first quarter of 2009.

Astoria's annualized return on assets was 0.26%. The last time the company achieved a full-year return on assets in excess of 0.60% was 2006, when the ROA was 0.80%.

Like Hudson City, Astoria's net interest margin was a rather-low 2.39%, although it increased from 2.15% the previous quarter and 2.16% a year earlier.

Elevated provisions for loan losses have been dragging on the company's earnings, although those costs declined during the first quarter.

Supporting his firm's "Overweight" or "Buy" rating on Astoria's shares, Barclays Capital analyst Bruce Harting increased his firm's 2010 earnings-per-share estimate to 91 cents a share, with a 2011 estimate of $1.27 a share following the report. Harting also increased his 12-month price target on the stock to $20.

Astoria's shares closed at $16.70 Wednesday, up 36% year-to-date.

Play Expansion with People's United

Last Thursday, when we discussed the first quarter earnings report from People's United Financial, we mentioned that the Bridgeport, Conn. lender had plenty of excess capital to fund acquisitions. The company promptly acquired a failed bank the next day, scooping up Butler Bank of Lowell Mass.

While People's United reported a drop in first-quarter income, the poor results mainly reflected extraordinary merger and systems conversion expenses. The company's loan quality has remained strong through the credit crisis, with minimal loan losses.

Peoples United is a play on expansion during an economic recovery, as the company deploys its excess capital, but only for investors going in for the long haul. Shares have been quite volatile over the past year, and were down 2% year-to-date as of Wednesday's close. The shares are supported by a decent dividend yield of 3.83%, which People's United could easily afford to increase.

-- Written by Philip van Doorn in Jupiter Fla.

Philip W. van Doorn joined TheStreet.com 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.

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