Hudson City Bancorp Inc.
) reported third quarter 2012 operating earnings of 12 cents per
share, two cents below the Zacks Consensus Estimate.
Including $6.1 million of expenses associated with the prior
disclosed merger with
M&T Bank Corporation
), Hudson City's net income came in at $55.9 million or 11 cents
per share for the quarter under review, down from earnings of
$84.2 million or 17 cents per share reported in the year-ago
The lower-than-expected results at Hudson City were mainly due to
a decrease in revenue as well as increase in expenses. Also, the
continuation of the low interest rate environment impacted its
net interest margin.
Total revenue in the reported quarter came in at $206.3 million,
below the Zacks Consensus Estimate $221 million. Moreover,
revenue fell 9.2% sequentially and 16.7% year over year.
Quarter in Detail
Hudson City's net interest income decreased 16.9% year over year
to $203.3 million. Net interest margin came in at 2.02% for the
reported quarter, down from 2.12% in the prior quarter and
slightly above 1.97% in the year-ago quarter.
The fall in net interest income was driven by the decrease in
average balance of interest-earning assets as well as
interest-bearing liabilities. Moreover, the low market interest
rates continue to put pressure on net interest margin.
HUDSON CITY BCP (HCBK): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
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Hudson City's non-interest income was $3.0 million in the
reported quarter, down 2.5% year over year, reflecting a decrease
in service charges and other income.
Moreover, total non-interest expense at Hudson City escalated
12.2% from the prior-year quarter to $93.9 million. The increase
was primarily due to a rise in compensation and employee benefit
costs and merger related expenses, partly mitigated by a decrease
in Federal deposit insurance expense.
Credit metrics were mixed in the quarter. Non-performing loans
continued to increase and amounted to $1.14 billion as of
September 30, 2012, increasing 4.8% sequentially and 20.1% year
over year. The ratio of non-performing loans to total loans was
4.12% as of September 30, 2012, up from 3.88% in the prior
quarter and 3.16% in the year-ago quarter. Results reflected a
delay in the foreclosure process.
Nonperforming assets to total assets ratio was 2.84% in the
reported quarter, up from 2.60% in the prior quarter and 1.95% in
the comparable quarter last year.
However, the ratio of net charge-offs to average loans came in at
0.24% in the reported quarter, slightly below the 0.25% reported
both in the prior quarter as well as the year-ago quarter.
Provision for loan losses amounted to $20 million in the reported
quarter, down 20.0% both sequentially and year-over-year. 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.
Hudson City's capital ratios remained strong during the quarter.
The bank's Tier 1 leverage capital ratio advanced to 9.75% as of
September 30, 2012 from 9.44% as of June 30, 2012. Equity to
total assets was 11.25% compared with 10.70% as of June 30, 2012.
Concurrent with the earnings release, Hudson City declared a
quarterly cash dividend of 8 cents per share. The dividend is
scheduled to be paid on November 30, 2012 to shareholders of
record on November 9, 2012.
In addition to the unfavorable interest rate environment,
sluggish economic recovery and uncertainty surrounding the new
and anticipated regulations are likely to serve as headwinds for
Hudson City. However, during the third quarter, M&T agreed to
takeover Hudson City in cash and stock deal. The deal is expected
to close in the second quarter of 2013.
Notably, on the basis of the average closing price of M&T
common stock on the New York Stock Exchange for the 10 trading
days ending October 19, 2012, the implied value of the
consideration was around $8.71 per share of the company's common
stock to be received by the shareholders of the company in the
However, the value that the shareholders will finally receive
will depend on the average closing price of M&T common stock
for the 10 trading days immediately prior to the completion of
Amidst a low interest rate environment and despite restructuring,
Hudson City's business model was encountering challenges in the
path to growth. Though it announced initiatives to diversify
earlier this year, it did not have adequate flexibility with
respect to its balance sheet. Hence, this deal is a strategic fit
for Hudson City.
The deal would combine Hudson City's retail network with
M&T's full service commercial banking suite and help in
expanding the premier community banking franchise in eastern U.S.
and give M&T the fourth largest deposit share in New Jersey.
Hence, the shareholders can benefit from this enhanced scale of
business of the combined entity.
On the other hand, M&T Bank Corp.'s third quarter 2012
operating earnings of $2.24 per share were significantly above
the Zacks Consensus Estimate of $1.84. In addition, it surpassed
the prior-quarter earnings of $1.82 per share. The results were
aided by bolstered net interest and non-interest income as well
as lower operating expenses.
Within Hudson City's peer group, last week
People's United Financial Inc.
) reported its third-quarter 2012 operating earnings per share of
19 cents, in line with the Zacks Consensus Estimate. Earnings
compared unfavorably with 20 cents per share, reported in the
Higher non-interest expenses and elevated provision for loan
losses were the dampeners for the quarter. However, higher
revenue aided by improved non-interest income acted as a
Hudson City currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating.