Hudson City Bancorp Inc.
) reported third-quarter 2013 operating earnings of 9 cents per
share, in line with the Zacks Consensus Estimate. However, this
compares unfavorably with the prior-year quarter figure of 11
Quarterly results at Hudson City mainly came on the back of
increased non-interest income and lower 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 $42.7
million, compared with $55.9 million in the prior-year quarter.
Quarter in Detail
Hudson City's total revenue was $152.9 million, down 25.9% from
the year-ago quarter. Further, revenues were lower than the Zacks
Consensus Estimate of $154.0 million.
Hudson City's net interest income decreased 31.4% year over year
to $139.4 million. 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 1.48%, down from
2.02% 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 $10.6
million gain on the sale of mortgage-backed securities. There
were no securities sales for the prior-year quarter.
Total non-interest expense waned 16.4% from the prior-year
quarter to $78.5 million. The decline was primarily due to
decreases in federal deposit insurance expense and other
non-interest expense, partially offset by a rise in compensation
The efficiency ratio deteriorated to 51.34% from 45.50% in the
year-ago quarter. An increase in the efficiency ratio indicates a
decline in profitability.
Credit metrics improved in the reported quarter. Nonperforming
loans reached $1.07 billion as of Sep 30, 2013, down 6.1% year
over year. Provisions for loan losses amounted to $4.0 million,
down 80.0% on a year-over-year basis. The decrease was primarily
due to a fall in total delinquent loans and total loans.
Net charge-offs stood at $10.3 million, down 36.8% year over
year. The ratio of net charge-offs to average loans came in at
0.17%, down from 0.24% in the prior-year quarter. Nonperforming
assets decreased 4.2% year over year to $1.14 billion.
Hudson City's capital ratios remained strong during the quarter.
The bank's Tier 1 leverage capital ratio advanced to 10.57% as of
Sep 30, 2013 from 9.75% as of Sep 30, 2012. Equity to total
assets was 11.97%, compared with 11.25% as of Sep 30, 2012.
Total risk-based capital ratio was 24.40%, up from 21.02% in
the year-ago quarter.
Concurrent with the earnings release, Hudson City declared a
quarterly cash dividend of 4 cents per share. The dividend will
be paid on Nov 29, 2013 to shareholders of record on Nov 8.
An unfavorable interest-rate environment, sluggish economic
recovery and uncertainty surrounding the new and anticipated
regulations are likely to be headwinds for Hudson City. However,
in Aug 2012,
M&T Bank Corp.
) agreed to take over Hudson City in a cash-and-stock deal.
Later on, in Apr 2013, the Federal Reserve detected several
loopholes in M&T Bank's efforts to fight money laundering and
put a hold on the acquisition. Nevertheless, in Jun 2013, the
bank successfully reached an agreement with the Fed to improve
compliance with respect to risky activities. Hence, the merger
has managed to overcome all regulation hurdles and is expected to
be completed in the near term.
META FINL GRP (CASH): Free Stock Analysis
HUDSON CITY BCP (HCBK): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
OCEANFIRST FINL (OCFC): Free Stock Analysis
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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 #3 (Hold). Some other
well-placed stocks in this sector that are worth considering
Meta Financial Group, Inc.
OceanFirst Financial Corp.
). Both these stocks carry a Zacks Rank #1 (Strong Buy).