Hudson City Bancorp Inc. ( HCBK )
reported second quarter 2012 earnings of 15 cents per share, a
penny ahead of the Zacks Consensus Estimate. However, the results
compared unfavorably with prior-year quarter's earnings of 19 cents
per share.
Hudson City's results were aided by a decrease in expense as
well as an expansion in fee income. Yet, net interest income moved
down and the continuation of the low interest rate environment
impacted its net interest margin.
Total revenue in the reported quarter came in at $227.2 million,
almost in line with the Zacks Consensus Estimate $228 million.
However, the revenue fell 4.1% sequentially and 17.6% year over
year.
Notably, Hudson City also announced that Ronald Hermance will
return to his position of Chairman and Chief Executive Officer
effective August 1, 2012, after being on a medical leave since
February.
Quarter in Detail
Hudson City's net interest income decreased 17.8% year over year
to $224.3 million. Net interest margin came in at 2.12% for the
reported quarter, down from 2.15% in the prior quarter and 2.14% in
the year-ago quarter. Besides the decrease in net interest margin,
the fall in net interest income also reflects the overall drop in
interest-earning assets as well as interest-bearing
liabilities.
Hudson City's non-interest income was $2.9 million in the
reported quarter, up 7.0% year over year, reflecting an increase in
service fees and charges on deposit and loan accounts.
Total non-interest expense at Hudson City declined 2.6% from the
prior-year quarter to $83.6 million. The decline was primarily due
to a reduction in Federal deposit insurance expense, partially
offset by increases in compensation and employee benefit costs,
occupancy expense and other expenditures.
Notably, the reduction in the size of Hudson City's balance
sheet as a result of balance sheet restructuring moves and debt
extinguishment led to a fall in Federal deposit insurance expense
in the reported quarter.
Credit Quality
Credit metrics were mixed in the quarter. The ratio of
non-performing loans to total loans was 3.88% as of June 30, 2012,
up from 3.71% in the prior quarter and 3.01% in the year-ago
quarter. Nonperforming assets to total assets ratio was 2.60% in
the reported quarter, up from 2.49% in the prior quarter and 1.84%
in the comparable quarter last year. Results reflected a delay in
the foreclosure process.
However, the ratio of net charge-offs to average loans came in
at 0.25% in the reported quarter, flat sequentially and down from
0.30% in the year-ago quarter.
Provision for loan losses amounted to $25 million in the
reported quarter, unchanged sequentially and down 16.7% from $30
million reported in the prior-year quarter. The overall declining
trend in net charge-offs and a reduction in the size of the loan
portfolio primarily contributed to the drop in loan loss
provisions.
Capital Ratios
Hudson City's capital ratios remained strong during the quarter.
The bank's Tier 1 leverage capital ratio advanced to 9.44% as of
June 30, 2012 from 9.17% as of March 31, 2012. Equity to total
assets was 10.70% compared with 10.46% as of March 31, 2012.
Dividend Update
Concurrent with the earnings release, Hudson City declared a
quarterly dividend of 8 cents per share. The dividend is scheduled
to be paid on August 29, 2012 to shareholders of record on August
8.
Our Take
Hudson City's strong business model, solid capital position and
conservative underwriting will boost its financial position. The
debt pay-off and balance sheet restructuring are also strategic
fits for the company.
The company is also making efforts to diversify its revenue
base. It plans to offer eligible residential mortgage loans for
sale in the secondary market. Moreover, it also intends to foray
into the commercial real estate market. Such measures are likely to
be implemented next year.
However, with the continuation of the low interest environment,
the company is expected to face continued margin pressure. We
believe, in addition to the unfavorable interest rate environment,
sluggish economic recovery and uncertainty surrounding the new and
anticipated regulations would continue to pose as headwinds, going
forward.
Within Hudson City's peer group, People's United
Financial Inc. ( PBCT )
reported second-quarter 2012 operating earnings per share of 20
cents, beating the Zacks Consensus Estimate by a penny. Moreover,
earnings compared favorably with 18 cents per share reported in the
prior quarter.
Higher revenue aided by improved net interest income and
non-interest income were the positives for the quarter. Moreover,
lower non-interest expenses reflected better expense management by
the company. However, elevated net loan charge-offs and reduced net
interest margin were the dampeners.
Hudson City currently retains the Zacks #3 Rank, which
translates into a short-term Hold rating.
HUDSON CITY BCP (HCBK): Free Stock Analysis
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PEOPLES UTD FIN (PBCT): Free Stock Analysis
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