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.

Terms

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.

10. Prosperity Bancshares

Company Profile

Prosperity Bancshares ( PRSP) of Houston has seen its stock decline 4% year-to-date, closing at $38.18 Friday. The company's third-quarter efficiency ratio was 41.98% according to SNL Financial.

On December 13, John Rodis of Howe Barnes Hoefer & Arnett downgraded Prosperity to a neutral rating from a buy, "due solely to recent stock price appreciation," of 10% over the previous month. The shares trade for 14.7 times Rodis's 2011 earnings estimate of $2.60 a share.

Income Statement

Third-quarter net income was $32.2 million, or 69 cents a share, compared to $29.3 million, or 63 cents a share, during the third quarter of 2009. The ROA for the third quarter was 1.36% after exceeding 1% during for every previous quarter since the end of 2007, except for the third quarter of 2008 when it dipped to 0.91%, according to SNL Financial.

The net interest margin for the third quarter was 3.97%, compared to 4.08% in the third quarter of 2008. Fluctuation of the margin has been an issue for the stock, as a drop in the margin to 4% during the second quarter from 4.20% during the first quarter contributed to an 11% drop in the stock over the three weeks following the second-quarter earnings release in July.

Balance Sheet

Total assets were $9.4 billion as of September 30, increasing 6% over the past year as the company acquired three Texas branches from U.S. Bancorp ( USB) and 19 Texas branches from First Bank of Creve Coeur, Mo.

The nonperforming assets ratio was a very strong 0.22% as of September 30. The net charge-off ratio for the third quarter was 0.51% and loan loss reserves covered 1.50% of total loans as of September 30.

Prosperity Bancshares didn't participate in TARP. The company's Tier 1 leverage ratio was 6.45% and its total risk-based capital ratio was 14.47% as of September 30. The tangible common equity ratio was 5.73%, according to SNL.

Stock Ratios

Reflecting the stability of earnings through the credit crisis, the shares trade for a relatively high 3.8 times tangible book value according to SNL. The forward price-to-earnings ratio is 14 based on the consensus 2011 earnings estimate of $2.76 among analysts polled by Thomson Reuters.

Analyst Ratings

Four out of 19 analysts covering Prosperity Bancshares rate the stock a buy, while the remaining analysts all recommend investors hold the shares.

9. Nara Bancorp

Company Profile

Shares of Nara Bancorp ( NARA) of Los Angeles closed at $9.21 Friday, declining 19% year-to-date.

The company's efficiency ratio for the third quarter was 41.75, according to SNL Financial.

The company announced on December 9 an agreement to merge with Los Angeles competitor Center Financial ( CLFC) in an all-stock deal valued at $285.7 million, to create "the largest and best-capitalized Korean-American community bank," with operations in California, New York and New Jersey, according to a statement by the companies.

Although the deal is termed a merger of equals, shareholders of Center Financial were to receive 0.7804 share of Nara stock for each Center Financial stock they held. Based on the December 8 closing prices of $9.17 for Nara and $6.65 for Center Financial, Center's investors would receive $7.16 per share, or an 8% premium. The deal is expected to close during the second half of 2011. Nara Bancorp's CEO Alvin Kang will serve as the combined company's CEO, with Center Financial's CEO Jae Whan Yoo set to serve as the new company's president. The surviving company has yet to be named.

The deal features a $10 million breakup fee if either bank takes a superior offer before the merger is consummated.

Following the announcement of the merger agreement, Howe Barnes analyst Chris Stulpin upgraded his firm's rating of Nara Bancorp to a buy, with a $12 price target, saying that the company deserves "a higher TBV multiple driven by its superior growth potential." Stulpin said his firm assigned "a 70% probability of completion" to the merger agreement.

Income Statement

For the third-quarter, Nara reported net income available to common stockholders of $4 million, or 11 cents a share, improving from $2.9 million, or 11 cents a share a year earlier. The third-quarter ROA was 0.69%. The provision for loan losses during the third quarter increased to $11.1 million, from $8.5 million the previous year.

Offsetting the increased provision were increases in net interest income and non-interest income, with $3.7 million earned from loan sales during the third quarter, as loan originations increased to $18.9 million from $4.2 million a year earlier.

The net interest margin improved to 3.88% during the third quarter, from 3.14% in the third quarter of 2009, and was "was primarily caused by the downward repricing of our interest bearing liabilities."

Balance Sheet

Total assets were $3 billion as of September 30 and the nonperforming assets ratio was 1.81%. The third-quarter net charge-off ratio was 1.91% and reserves covered 2.93% of total loans

Nara Bancorp owes the government $67 million in bailout funds received through the Troubled Assets Relief Program, or TARP - one of only two companies among this group still participating in the program. The company is in a strong capital position, with a Tier 1 leverage ratio of 12.78% and a total risk-based capital ratio of 7.82% as of September 30. The tangible common equity ratio was 9.69% according to SNL Financial.

Stock Ratios

The shares trade for 1.2 times tangible book value according to SNL and 25 times the consensus earnings estimate of 37 cents a share for 2011. The forward P/E drops to 12, based on the 2012 consensus estimate of 74 cents a share.

Analyst Ratings

Out of seven analysts covering Nara Bancorp, four rate the shares a buy, while the remaining three analysts recommend investors hold the shares.

8. Investors Bancorp

Company Profile

Shares of Investors Bancorp ( ISBC) of Short Hills, N.J. closed at $12.87 Friday, rising 18% year-to-date.

The company's third-quarter efficiency ratio was 40.66, according to SNL Financial.

Income Statement

Third-quarter net income was $16.6 million, or 15 cents a share, increasing from $10.5 million, or 10 cents a share, during the third quarter of 2009. The provision for loan losses increased to $19 million from $12.4 million a year earlier, but this was more than offset by 53% increase in net interest income year-over-year (after the provision), to $51.4 million during the third quarter. The third-quarter ROA was 0.74%.

Balance Sheet

Total assets were $9 billion as of September 30, with a nonperforming assets ratio of 1.59%. The third-quarter net charge-off ratio was a low 0.34% and loan losses have been minimal through the credit crisis. Loan loss reserves covered 1.12% of total loans as of September 30.

Investors Bancorp is strongly capitalized, with a Tier 1 leverage ratio of 9.87% and a total risk-based capital ratio of 16.25% as of September 30. The tangible common equity ratio was 9.76% according to SNL.

Stock Ratios

The shares trade for 1.7 times tangible book value according to SNL and 20 times the consensus earnings estimate of 66 cents a share for 2011. The forward P/E drops to 18, based on the consensus earnings estimate of 72 cents a share for 2012.

Analyst Ratings

Analyst sentiment for Investors Bancorp is strong, with five out of seven analysts covering the company rating the shares a buy, while the other two recommend holding the shares.

7. Westamerica Bancorporation

Company Profile

Shares of Westamerica Bancorporation ( WABC) of San Rafael, Calif. closed at $54.14 Friday and were flat year-to-date. Based on a quarterly payout of 36 cents, the shares have a dividend yield of 2.66%.

The company's third-quarter efficiency ratio was 40.61, according to SNL Financial.

Income Statement

Third-quarter net income was $23.7 million, or 81 cents a share, down slightly from net income to common shareholders of $23.8 million , or 81 cents a share, in the third quarter of 2009, when the company still owed $83.7 million in TARP money. Westamerica completed its repayment of the government in November 2009.

Westamerica's third-quarter ROA was a very strong 1.96% -- the highest by far among the holding companies listed here, and its net interest margin was also the highest, at 5.57%, according to SNL Financial.

Balance Sheet

Total assets were $5 billion as of September 30 and the nonperforming assets ratio was 2.09%, increasing from 1.08% a year earlier. The third-quarter net charge-off ratio was 0.60% and reserves covered 1.27% of total loans as of September 30.

The Tier 1 leverage ratio was 8.52% and the total risk-based capital ratio was 14.88% as of September 30. According to SNL Financial, the tangible common equity ratio was 7.95%.

Stock Ratios

The shares trade for 4.1 times tangible book value according to SNL, the most expensive among this group of 10 companies by that measure, and reflecting Westamerica's consistent performance. The forward P/E is 16 based on the 2011 consensus earnings estimate of $3.36 a share and the 2012 estimate of $3.49 a share.

Analyst Ratings

Out of 10 analysts covering Westamerica, one has a buy rating, eight rate the shares a hold and one analyst recommends investors part with the shares.

6. Dime Community Bancshares

Company Profile

Dime Community Bancshares ( DCOM) of Brooklyn, N.Y. has seen its stock rise 31% this year to close at $14.75 Friday. Based on a quarterly payout of 14 cents, the shares yield 3.80%.

The company's third-quarter efficiency ratio was 40.08, according to SNL Financial.

Income Statement

Net income for the third quarter was $11.4 million, or 34 cents a share, increasing from $10 million, or 30 cents a share during the third quarter of 2009. While the provision for loan losses declined to $667 thousand during the third quarter from $3.8 million a year earlier, Dime Community recorded $1.6 million in impairment charges on securities investments.

The net interest margin improved to 3.60% from 3.11% a year earlier, and the third-quarter ROA was 1.11% according to SNL Financial.

Balance Sheet

Dime Community had $4 billion in total assets as of September 30. For main thrift subsidiary Dimes Savings Bank of Williamsburgh, the nonperforming assets ratio was a low 0.49% and the third-quarter net charge-off ratio was a miniscule 0.14%. Reserves covered 0.51% of total loans as of September 30.

The thrift subsidiary's Tier 1 leverage ratio was 8.02% and its total risk-based capital ratio was 11.08% as of September 30. The holding company's tangible common equity ratio was 6.77% according to SNL.

Stock Ratios

The shares trade for 1.9 times tangible book value according to SNL and 11 times the consensus earnings estimates of $1.31 a share for 2011 and $1.33 for 2012.

Analyst Ratings

Out of eight analysts covering Dime Community Bancshares, two rate the stock a buy, while the other six analysts all recommend investors hold.

5. Wilshire Bancorp

Company Profile

Shares of Wilshire Bancorp ( WIBC) of Los Angeles closed at $7.45 Friday, down 9% year-to-date.

The company's third-quarter efficiency ratio was 39.48, according to SNL Financial.

Income Statement

Third-quarter net income available to common shareholders was $4.1 million, or 14 cents a share, compared to a net loss of $4.6 million, or 15 cents a share in the third quarter of 2009. The earnings improvement mainly reflected a decline in the provision for loan losses to $18 million in the third quarter from $32 million a year earlier.

The third-quarter net interest margin was 3.93%, increasing slightly from 3.87% in the third quarter of 2009. The ROA was 0.59% according to SNL Financial.

Balance Sheet

Total assets were $3.2 million as of September 30 and the nonperforming assets ratio was 2.55%. The third-quarter net charge-off ratio of 2.05% was the highest among the holding companies listed here. Reserves covered 3.82% of total loans as of September 30.

Wilshire Bancorp owes $62.2 million in TARP money. The company's Tier 1 leverage ratio was 10.01% and its total risk-based capital ratio was 15.56% as of September 30. The tangible common equity ratio was 6.28% according to SNL, and was the lowest among this group of 10 companies.

Stock Ratios

The shares trade for 1.1 times tangible book value according to SNL and 11 times the 2011 consensus earnings estimate of 69 cents a share. The forward P/E drops to 7 based on the 2012 earnings estimate of $1.12 a share.

Analyst Ratings

Out of six analysts covering Wilshire Bancorp, one rates the shares a buy, while the remaining analysts all recommend investors hold the shares.

4. Oritani Financial

Company Profile

Shares of Oritani Financial ( ORIT) of the Township of Washington, N.J. closed at $11.95 Friday, up 34% year-to-date. Based on a quarterly payout of 10 cents, the shares have a dividend yield of 3.35%.

The company's third-quarter efficiency ratio was 37.01, according to SNL Financial.

Income Statement

Third-quarter net income was $7.2 million, or 14 cents a share, increasing from $4.4 million, or 8 cents a share a year earlier, as net interest income increased 48% year-over-year to $17.3 million. The company said in its earnings release that its yield on mortgage loans increased as the portfolio grew, and it also benefitted from a lowering of deposit costs in-line with the overall rate environment.

The third-quarter return on average assets was 1.15% according to SNL.

Balance Sheet

Total assets were $2.5 billion as of September 30. Oritani Financial completed second-step conversion from a mutual holding company to full public ownership during the second quarter, raising nearly $414 million in common equity and leaving the company very strongly capitalized, with a tangible common equity ratio of 26.25% as of September 30, according to SNL.

The company's nonperforming assets ratio was 1.90% as of September 30. The third-quarter net charge-off ratio was 0.23%.

Stock Ratios

The shares trade just above tangible book value, as investors wait for Oritani Financial to deploy additional excess capital through organic growth or through an acquisition. Mike Shafir has a buy rating on the shares with a price target of $12.50, saying after the third-quarter earnings announcement that "Oritani will have an opportunity to bolster earnings as it continues to deploy capital."

The forward P/E based on the consensus earnings estimate of 47 cents a share is 25, declining to 21 based on the 2012 estimate of 58 cents a share.

Analyst Ratings

Oritani Financial is a good play for long term investors confident in management's ability to continue to effectively deploy a mountain of excess capital. All three analysts covering the company recommend buying the shares.

3. New York Community Bancorp

Company Profile

Shares of New York Community Bancorp of Westbury closed at $18.10 Friday, returning 32% year-to-date. Based on a quarterly payout of 25 cents, the shares have a dividend yield of 5.52%.

The company's third-quarter efficiency ratio was 35.82, according to SNL Financial.

Income Statement

New York Community was featured among TheStreet's 10 Banks With Real Earnings Improvement as its pre-provision net revenue increased 53% year-over-year to $286 million during the third quarter, mainly from $76.5 million in mortgage banking revenue. This business was acquired as part of New York Community's purchase of the failed AmTrust Bank of Cleveland in December 2009.

Net income for the third quarter was $ 135.6 million, or 31 cents a share, increasing from $98.6 million, 28 cents a share, during the third quarter of 2009. The third-quarter ROA was 1.31% according to SNL.

Balance Sheet

Total assets were $41.7 billion as of September 30 and the nonperforming assets ratio was 1.76%. The company's third-quarter net charge-off ratio was a low 0.27% and loan loss reserves covered 0.53% of total loans as of September 30.

The company's Tier 1 leverage ratio was 8.87% and its total risk-based capital ratio was 14.35% as of September 30. The tangible common equity ratio was 7.59% according to SNL.

For several decades, New York Community has focused its lending activities on apartment buildings in the New York City area featuring below-market average rents, with many of the buildings being rent-controlled or rent-stabilized. This focus - as detailed in TheStreet's Best of Class series -- has led to a very strong track record of minimal loan losses.

Stock Ratios

The shares have come a long way over the past year, and now trade for 2.7 times tangible book value according to SNL and 14 times the consensus earnings estimate of $1.34 a share for 2011.

Analyst Ratings

Out of 18 analysts covering the shares, 10 rate New York Community a buy, while seven have hold ratings and one analyst recommends selling the shares.

With such strong performance year-to-date, New York Community is probably not a choice for investors looking for a quick killing, but for patient long-term investors, it is an excellent dividend play and is a below-average risk, based on its performance through the credit crisis. A new, profitable mortgage lending business acquired in the AmTrust deal is icing on the cake, as a new fee revenue source that should continue growing as the economy improves.

2. Washington Federal

Company Profile

Shares of Washington Federal ( WFSL) of Seattle closed at $15.50 Friday, down 19% year-to-date.

The company's third-quarter efficiency ratio was 32.19, according to SNL Financial.

Income Statement

Third-quarter net income was $16 million, or 14 cents a share, increasing from $9.6 million, or 11 cents a share in the third quarter of 2009, mainly because the provision for loan losses declined to $26 million from $51.8 million.

For the company's fiscal 2010 ended September 30, net income was $118.7 million, or $1.05 a share, compared to $40.7 million, or 46 cents a share, for fiscal 2009. Fiscal 2010 earnings included a $54.8 million after-tax gain on the bargain purchase of the failed Horizon Bank of Bellingham, Wash. from the FDIC in January.

Balance Sheet

Total assets were $13.5 billion as of September 30 and the NPA ratio was 3.72%. The third-quarter net charge-off ratio was a very low 0.25%, and reserves covered 1.08% of total loans as of September 30.

Washington Federal is strongly capitalized with a tangible common equity ratio of 11.98% as of September 30, according to SNL.

Stock Ratios

The shares trade for 1.1 times tangible book value according to SNL and 14 times the 2011 consensus earnings estimate of $1.07 a share. The forward P/E declines to 11, based on the 2012 estimate of $1.43 a share.

Analyst Ratings

Eight of the 12 analysts covering Washington Federal rate the shares a buy, while the remaining analysts all rate the shares a hold.

1. Hudson City Financial

Company Profile

Shares of Hudson City Bancorp of Paramus, N.J. closed at $12.51 Friday, down 4% year-to-date. Based on a quarterly payout of 15 cents, the stock has a dividend yield of 4.80%.

The company's third-quarter efficiency ratio was 22.55, according to SNL Financial, far ahead of rest of this group of 10 bank and thrift holding companies and the best among 949 publicly traded U.S. holding companies as defined by SNL (excluding those traded on the Pink Sheets).

On Friday, Hudson City reversed course and withdrew its application with the Office of the Comptroller of the Currency to convert its main thrift subsidiary - Hudson City Savings Bank - into a nationally chartered commercial bank.

The thrift will still come under the supervision of the OCC, as its current regulator, the Office of Thrift Supervision, is scheduled to be merge with the OCC in July.

Income Statement

Third-quarter net income was $124.6 million, or 25 cents a share, down from $135.1 million, or 27 cents a share, during the third quarter of 2009, mainly because the net interest margin declined to 1.97% from 2.31%, as earnings were hit in the low-rate environment. CEO Ronald Hermance warned that "the expected second round of quantitative easing by the Federal Reserve Board will continue to place pressure on our net interest margin for the remainder of 2010," and also said that "Asset growth in this environment is just not prudent."

The third-quarter ROA was 0.82%, declining from 0.93% a year earlier. Despite the decline in the margin to a low level, especially for a large institution, the ROA was still good, especially for the current environment. Hudson City's operating efficiency also helped it to comfortably support its dividend, as the payout was 60% of earnings during the third quarter.

Balance Sheet

Total assets were $60.6 billion as of September 30. For Hudson City Savings Bank, the NPA ratio was 1.35%. The thrift's net charge-off ratio during the third quarter was 0.33% and reserves covered 0.66% of total loans as of September 30.

The holding company's tangible common equity ratio was 9.04% as of September 30.

Stock Ratios

The shares trade for 1.2 times tangible book value according to SNL Financial and 14 times the consensus earnings estimate of 92 cents a share for 2011.

Analyst Ratings

Out of 16 analysts covering Hudson City, only one has a buy rating, while 13 have hold ratings and one analyst recommends selling the shares. Most ratings and price targets are made with only one year's performance in mind, but for long term investors, Hudson City is a bargain.

The company sailed through the credit crisis, benefitting from its conservative lending and high efficiency. The dividend yield is much higher than income-seeking investors will find in many other investments in the low-rate environment, and with the shares trading just above the company's liquidation value and the margin already squeezed, there's likely to be improvement and growth in the shares over the next several years.

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

>To see these stocks in action, visit the 10 Efficient U.S. Banks portfolio on Stockpickr.

To contact the writer, click here: Philip van Doorn.

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To submit a news tip, send an email to: tips@thestreet.com.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., 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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