Hudson City Bancorp Inc.
) reported second-quarter 2013 operating earnings of 10 cents per
share, in line with the Zacks Consensus Estimate. However, this
compares unfavorably with the prior-year quarter figure of 15
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 revenues due to lower net interest income was a negative.
Hudson City's net income for the quarter came in at 48.7 million,
compared with $72.3 million in the prior-year quarter.
Quarter in Detail
Hudson City's total revenue was $169.4 million, down 25% from the
year-ago quarter. Further, revenues were lower than the Zacks
Consensus Estimate of $174.0 million.
Hudson City's net interest income decreased 29% year over year to
$159.9 million. The fall was due to 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 1.64%, down from 2.12% in the year-ago
Hudson City's non-interest income came in at $9.6 million, up
substantially year over year. Included in non-interest income for
the second quarter of 2013 was a $7.2 million gain on the sale of
corporate bonds. There were no securities sales for the quarter
ended Jun 30, 2012.
Moreover, total non-interest expense at Hudson City waned 8% from
the prior-year quarter to $76.6 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 and benefits.
The efficiency ratio increased to 45.22% from 36.79% in the
year-ago quarter. An increase in the efficiency ratio indicates
decline in profitability.
Credit metrics displayed mixed results in the quarter.
Nonperforming loans reached $1.11 billion as of Jun 30, 2013,
down 3% sequentially and 4% year over year. The ratio of
nonperforming loans to total loans was 4.42% as of Jun 30, 2013,
up from 4.35% in the prior quarter and 3.88% in the year-ago
The ratio of nonperforming assets to total assets was 2.96%, down
from 2.98% in the prior quarter but up from 2.60% in the
comparable quarter last year.
However, the ratio of net charge-offs to average loans came in at
0.26%, down from 0.32% in the prior quarter but up from 0.25% in
the year-ago quarter.
Provision for loan losses amounted to $12.5 million, down 38%
sequentially and 75% on a year-over-year basis. The
year-over-year decrease in provision for loan losses was
primarily due to the stabilization of home prices, a decrease in
the size of the loan portfolio and a decrease in the amount of
total delinquent loans.
Hudson City's capital ratios remained strong during the quarter.
The bank's Tier 1 leverage capital ratio advanced to 10.41% as of
Jun 30, 2013 from 9.44% as of Jun 30, 2012. Equity to total
assets was 11.74%, compared with 10.70% as of Jun 30, 2012.
Along with the earnings release, Hudson City declared a quarterly
cash dividend of 4 cents per share. The dividend will be paid on
Aug 30 to shareholders of record on Aug 12.
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 Corporation
) agreed to take over Hudson City in a cash-and-stock deal. The
deal is expected to close upon the receipt of all essential
regulatory and shareholder approvals and the fulfillment of other
Despite the restructuring in Hudson City's business model, amid a
low interest-rate environment, the company's growth was facing
challenges. 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 helped expand
the premier community banking franchise in eastern U.S. Hence,
shareholders can benefit from the enhanced scale of business of
the combined entity. However 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.
Hudson City currently carries a Zacks Rank #3 (Hold). Some other
well-placed stocks in this sector that are worth considering
Washington Federal Inc.
). Both these stocks carry a Zacks Rank #1 (Strong Buy).
BANNER CORP (BANR): Free Stock Analysis
HUDSON CITY BCP (HCBK): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
WASH FEDL INC (WAFD): Free Stock Analysis
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