NEW YORK ( TheStreet) -- TheStreet's list of the 10 actively-traded bank and thrift holding companies operating with the greatest efficiency includes some high flyers, but also several bargains trading just above book value. Even though it seems that every bank provides the same commodity services these days, it's not really true. There's a great variety of business models for banks and savings & loan associations, and the ones operating most efficiently can take extremely conservative approaches to lending and still turn a decent profit. A case in point is Hudson City Bancorp ( HCBK), which according to SNL Financial's analysis of Securities and Exchange Commission filings, operates with the lowest overhead expense - as a percentage of operating revenue - among 949 publicly traded U.S. bank and thrift holding companies. (That list excludes shares traded on the Pink Sheets). Although Hudson City's third-quarter net interest margin - essentially the difference between its average yield on loans and investments and its average cost of funds -- was a very low 1.95%, the company's annualized return on average assets (ROA) was 0.82%. In comparison, the aggregate net interest margin for all U.S. banks and thrifts during the third quarter was 3.75%, but the aggregate return on assets was only 0.44%, according to the Federal Deposit Insurance Corp.. Despite a declining margin, Hudson City has maintained decent earnings performance because of very strong loan quality and high operating efficiency. SNL defines a bank's efficiency ratio as its noninterest expense (before expenses on foreclosed property, amortization of intangibles and goodwill impairments) divided by its revenue (excluding securities gains and nonrecurring items). Lower is better, and Hudson City's third-quarter efficiency ratio of 22.55 was the lowest among the nearly 1,000 publicly traded banks and thrifts we looked at. Narrowing down the list to include only actively traded companies with average daily trading volume of at least 50,000 shares, the following list of 10 holding companies with the lowest efficiency ratios is concentrated on both coasts, with thrifts making up the majority. Analyst sentiment is strong for half of the group, as several of the names appear to be undervalued. By selecting this group based only on the efficiency ratio, we have excluded unprofitable banks. In fact, half of the group achieved a third-quarter ROA exceeding 1%, while the entire group beat the industry aggregate.
For each of the 10 banks discussed on the following pages, we'll be looking at capital strength, earnings quality and asset quality. For an explanation of those terms you can click on the box below.