Hudson City Q4 Earnings Beat - Analyst Blog


Hudson City Bancorp Inc. ( HCBK ) reported fourth-quarter 2013 operating earnings of 9 cents per share, beating the Zacks Consensus Estimate by 2 cents. However, this compares unfavorably with the prior-year quarter figure of 10 cents.

Quarterly results at Hudson City mainly came on the back of increased non-interest income and no provision for loan losses. Further, decreased expenses and a strong capital position were the tailwinds for the quarter. However, a decline in the top line due to lower net interest income was a negative.

Hudson City's net income for the quarter came in at $45.8 million, compared with $47.9 million in the prior-year quarter. For 2013, net income was $185.2 million or 37 cents per share compared with $249.1 million or 50 cents per share in the prior year. However, results outpaced the Zacks Consensus Estimate by 2 cents.

Performance in Detail

For 2013, Hudson City's total revenue, net of interest expense was $651.6 million, down 24.7% from the prior year. Yet, revenues outpaced the Zacks Consensus Estimate of $640.0 million.

The company reported total revenue of $149.4 million in the final quarter, down 23.4% from the year-ago quarter. However, revenues were above the Zacks Consensus Estimate of $137.0 million.

Hudson City's net interest income decreased 29.3% year over year to $135.9 million in the quarter. The fall was mainly due to the overall decline in the average balance of interest-earning assets and interest-bearing liabilities and the persistent low interest rate environment. Net interest margin came in at 1.20%, down from 1.75% in the year-ago quarter.

Non-interest income came in at $13.5 million, substantially up on a year-over-year basis. Reported quarter results included $11.1 million gain on the sale of mortgage-backed securities. There were no securities sales in the prior-year quarter.

Total non-interest expense waned 16.1% from the prior-year quarter to $73.5 million. The decline was primarily due to lower federal deposit insurance expense, partially offset by a rise in other non-interest expense.

The efficiency ratio deteriorated to 48.77% from 44.87% in the year-ago quarter. An increase in the efficiency ratio indicates decline in profitability.

Credit Quality

Credit metrics were a mixed bag in the reported quarter. Nonperforming loans declined to $1.05 billion as of Dec 31, 2013, down 9.5% year over year. There was no provision for loan losses in the reported quarter compared with $25.0 million in the year-ago quarter. The decrease was primarily due to a fall in total delinquent loans and total loans.

Nonperforming assets decreased 7.4% year over year to $1.12 billion. However, net charge-offs stood at $14.9 million, up 4.9% year over year. The ratio of net charge-offs to average loans came in at 0.24%, up from 0.21% in the prior-year quarter.

Capital Ratios

Hudson City's capital ratios remained strong during the quarter. The bank's Tier 1 leverage capital ratio advanced to 10.82% as of Dec 31, 2013 from 10.09% as of Dec 31, 2012. Equity to total assets was 12.28%, compared with 11.58% as of Dec 31, 2012. Total risk-based capital ratio was 25.31%, up from 21.59% in the year-ago quarter.

M&T Bank and Hudson City Merger Delayed

M&T Bank Corp 's ( MTB ) proposed acquisition of Hudson City in a cash and stock deal worth $3.7 billion - the largest deal in 2012 - has being delayed further. The companies anticipate regulatory approvals to take more time, which would consequently push back completion of the proposed merger.

M&T Bank believes that the approval is not likely before the second half of 2014. Therefore, M&T Bank and Hudson City have planned to extend the deal's closure date from Jan 31, 2014 to Dec 31, 2014, after which either of the two companies may terminate the merger agreement if it is still not complete.

M&T Bank and Hudson City plan to complete the merger at the earliest, following the sanction of regulatory bodies and shareholders as well as fulfillment of other customary criteria.

Our Viewpoint

An unfavorable interest-rate environment, sluggish economic recovery and uncertainty surrounding the new and anticipated regulations are likely to be headwinds for Hudson City.

Despite the restructuring in Hudson City's business model, amid a low interest-rate environment, the company was encountering challenges in its growth trajectory.  Although it announced some initiatives to diversify in 2012, it did not have adequate flexibility with respect to its balance sheet. Hence, the above-mentioned deal was a strategic fit for Hudson City.

The deal would combine Hudson City's retail network with M&T Bank's full service commercial banking suite and help expand the premier community banking franchise in eastern U.S. Hence, shareholders can benefit from the enhanced scale of business of the combined entity.

Hudson City currently carries a Zacks Rank #4 (Sell). Among some better-ranked stocks in the same sector - Investors Bancorp Inc. ( ISBC ) and WSFS Financial Corp. ( WSFS ) are scheduled to report their fourth-quarter 2013 earnings on Jan 30.

HUDSON CITY BCP (HCBK): Free Stock Analysis Report

INVESTORS BANCP (ISBC): Free Stock Analysis Report

M&T BANK CORP (MTB): Free Stock Analysis Report

WSFS FINL CORP (WSFS): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: HCBK , ISBC , MTB , WSFS

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