Low Interest Rates Haunt Hudson City Bancorp

Low interest rates have haunted the banking industry in recent quarters, hampering results and trimming bottom lines. Another bank that fell prey to this phenomenon was Hudson City Bancorp (Nasdaq: HCBK  ) . Its third-quarter profits fell 32% from a year ago as low interest rates dented net interest income.

Falling revenues, improving quality
Total revenue declined 19% to $247.7 million as a result of a 91% decline in non-interest income and a 16% decline in net interest income.

Results were hurt by low interest rates in the bank's mortgage business, which took the sheen off the improved credit quality. Provisions for loan losses fell in half due to a stabilization of its non-performing loans and a shrinking overall loan portfolio.  

This has been a growing trend in the banking sector for the past few quarters, with peer Synovus Financial (NYSE: SNV  ) recently posting profits aided by a fall in loan loss provisions. People’s United (Nasdaq: PBCT  ) , in its most recent quarter, doubled its profits as it spent less to cover for bad loans.

Also, Hudson’s net charge offs are at their lowest levels since the third quarter of 2009. Delinquencies are at much better levels from the end of last year. It also strengthened its capital position as its Tier 1 capital ratio rose to a more reasonable 8.7%, from 7.9% a year ago.

Foolish takeaway
Uncertain market conditions remain the biggest threat for Hudson. As with many banks, revenue growth will be a major challenge for Hudson against the backdrop of low interest rates. Even though management believes that non-performing assets are at controllable levels, some analysts are skeptical about Hudson’s earnings outlook for the year. However, the improved credit quality is definitely something to take note of.

To see how Hudson tackles low interest rates as it looks to prove skeptics wrong, click here to add Hudson to your own personalized watchlist.

Fool contributor Shubh Datta doesn’t own any shares in the companies listed above. 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.


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  • Report this Comment On November 08, 2011, at 6:12 PM, techy46 wrote:

    Hey, a 5.4% dividend with decreased risk is OK. Just where else can you get that return from a bank? HCBK should be buying their shares back.

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