Zacks_Analysts' Blog : Hudson City Beats Marginally - Analyst Blog

Hudson City Bancorp’s (HCBK) fourth-quarter earnings came in at 25 cents per share, slightly ahead of the Zacks Consensus Estimate of 22 cents. This also compares unfavorably with the earnings of 28 cents in the prior-year quarter.

The results were primarily affected by lower interest and dividend income, and increased non-interest expense. However, lower interest expense, stable provision for loan losses and a substantial increased non-interest income were among the positives.

For full year 2010, earnings increased to $1.09 per share from $1.07 in 2009. This also surpassed the Zacks Consensus Estimate of $1.07. 

Quarter in Detail



Revenue for the reported quarter came in at $314.8 million, down 6% year over year. However, this compares favorably with the Zacks Consensus Estimate of $302.0 million.

Net interest income decreased 24% year over year to $251.8 million. Net interest margin declined 57 basis points (bps) year over year to 1.73%.



Total non-interest income was $62.9 million compared with $2.2 million in the year-ago quarter. Non-interest income for the reported quarter included net gains on securities transactions of $60.2 million.

Total non-interest expense increased 11% year over year to $69.6 million. The increase was primarily due to higher federal deposit insurance assessment expense. The efficiency ratio increased to 22.10% from 18.84% in the prior-year quarter.

The provision for loan losses at Hudson City decreased 10% sequentially but remained flat year over year at $45.0 million. The sequential decrease was due to a slower growth rate in non-performing loans, a stable level of charge-offs, stabilizing economic conditions and slightly improved unemployment rate.

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 2.82% at December 31, 2010, up from 2.64% at September 30, 2010. Net charge-offs increased to $24.7 million from $19.8 million in the year-ago quarter.

The ratio of net charge-offs to average loans increased to 0.32% from 0.25% in the year-ago quarter. However, net charge-off ratio improved 1 basis point sequentially.

Profitability Ratios



Hudson City's return on average assets for the quarter was 0.80% and its return on average equity was 8.50%, down from 0.92% and 10.21%, 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 February 25, 2011 to shareholders of record on February 4, 2011.

Ongoing credit quality deterioration and recent regulatory moves are expected to pull down the company’s bottom-line to some extent. However, Hudson City's strong business model, solid capital position and conservative underwriting will help improve financials.

Hudson City’s close competitor Citizens South Banking Corp. (CSBC) is scheduled to release its fourth quarter 2010 earnings on January 24.

Hudson City currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. However, considering the fundamentals we maintain a long-term Neutral recommendation on the stock.