Looking Beyond Hudson City's Losses and Dividend Cut

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Hudson City Bancorp (Nasdaq: HCBK  ) has posted its first quarterly net loss since going public. It reported a net loss of $555.7 million in the first quarter, followed by a prudent decision to slash quarterly dividends, something I had suggested was a strong possibility in my last article on Hudson's impending dividend cut. Let's take a look at the quarter.

The quarter in detail
The loss for this quarter was almost inevitable thanks to one-time balance sheet restructuring charges taken by the bank. This restructuring reduced the bank's after-tax earnings by $649.3 million. Net interest income decreased to $256.4 million in this quarter, compared to $331.1 million in the corresponding quarter last year.

Now I would like to pay attention to some metrics that remained upbeat and project a positive outlook.

The company's provision for loan losses improved to $40.0 million, from $45.0 million in the first quarter of 2010 -- a sign that credit quality is slowly recovering. Noninterest income amounted to $105.2 million in the quarter, as compared to $33.0 million in the year-ago period. Deposits increased by $288.0 million, while borrowings decreased $7.65 billion on a sequential-quarter basis. Hudson's Tier 1 leverage capital also increased to 8.12% in this quarter, as compared to 7.95% in the last quarter. Strong signals all around.

Low market interest rates fueled loan repayments as net loans decreased by $591.6 million during the quarter. Nonperforming loans increased, but by a declining growth rate of only 1.8% -- the smallest increase in almost three years. Charge-offs also declined, to $21.3 million from $24.7 million in the preceding quarter.

Credit quality is improving, albeit slowly, and this is a good sign for the bank. Improving credit quality seems to be the general trend during first-quarter results across banks. From small banks such as KeyCorp (NYSE: KEY  ) to giants like Citigroup (NYSE: C  ) , most have witnessed improvement in their credit portfolios.

The Foolish bottom line
As I mentioned in a prior article, the now-completed restructuring will reduce Hudson's high interest on borrowings. With lower interest expenses and no further restructuring expenses, Hudson should revert to its old habit of making profits within a quarter or two. In other words, Hudson entered the great recession as a caterpillar; it's now looking more and more like a butterfly emerging from a cocoon. Investors should pay attention.

To stay up-to-speed with Foolish commentary and analysis on Hudson City, or any other company that interests you, click here to add it to your watchlist.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 26, 2011, at 2:42 PM, ltchang wrote:

    Why HCBK stock price keep on falling despite your positive comments. Any unearthed illness in this bank's financial health.


  • Report this Comment On May 28, 2011, at 8:46 PM, sharong55 wrote:

    I am saddened at the loss of this once shining star. I bought 250 shares at the IPO; it grew and grew and grew.

    Now it is tanking fast.

    Mr Hermance, what the heck has happened?

    I'm strongly thinking of "jumping this sinking ship"


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