Hudson City Bancorp (Nasdaq: HCBK) has posted its first quarterly net loss since going public. It has reported a net loss of $555.7 million in the first quarter followed by a prudent decision of slashing 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 because of the recent 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 from $331.1 million in the corresponding quarter last year.

The losses and dividend cut were quite apparent and were widely expected, though. 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. Non-interest 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, conforming to the recommendation of Basel II. 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 for first-quarter results across banks. From small banks such as KeyCorp (NYSE: KEY) to giants such as Citigroup (NYSE: C), most of them have witnessed an improvement in their credit portfolios.

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

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