Hudson City Bancorp’s (HCBK) third-quarter earnings came in at 25 cents per share, just a penny behind the Zacks Consensus Estimate of 26 cents. This also compares unfavorably with the earnings of 27 cents in the prior-year quarter.
The results were primarily affected by lower interest and dividend income, increased non-interest expense and higher provision for loan losses. However, lower interest expense and higher service charges and other income were among the positives.
Quarter in Detail
Revenue for the reported quarter came in at $324.2 million, down 1% year-over-year. However, this compares favorably with the Zacks Consensus Estimate of $321.0 million.
Net interest income decreased 11% year over year to $290.3 million. Net interest margin declined 34 basis points (bps) year over year to 1.97%.
Total non-interest income was $33.9 million compared with $2.5 million in the year-ago quarter. Non-interest income for the reported quarter included net realized securities gains of $31.0 million.
Total non-interest expense increased 4% year over year to $65.7 million. The increase was primarily due to higher federal deposit insurance assessment expense, partially offset by lower expenses related to compensation and employee benefits. The efficiency ratio increased to 20.27% from 19.18% in the prior-year quarter.
The provision for loan losses at Hudson City increased 25% year over year to $50.0 million, reflecting the risks inherent in the company’s loan portfolio.
Credit Quality
Hudson City’s witnessed a significant deterioration in credit quality during the reported quarter. The ratio of non-performing loans to total loans was 2.64% at September 30, 2010, up from 2.46% at June 30, 2010. Net charge-offs increased to $26.7 million from $13.2 million in the year-ago quarter. The ratio of net charge-offs to average loans increased to 0.33% from 0.17% in the year-ago quarter.
Profitability Ratios
Hudson City’s return on average assets for the quarter was 0.82% and its return on average equity was 8.86%, down from 0.93% and 10.34%, respectively, in the prior-year quarter.
Dividend Update
Concurrent with the earnings release, Hudson City declared a quarterly dividend of 15 cents per share. The dividend will be paid on November 30, 2010to shareholders of record on November 5, 2010.
We believe that the elevated levels of credit metrics remain a concern for the company. The recent regulatory moves are also expected to pull down the company’s bottom-line to some extent.
Hudson City currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. Also, we have a long-term Underperform recommendation on the stock.
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