UPDATE: Hudson City 2Q Tops Street, But Loan Concerns Weigh
July 21 2009 - 4:16PM
Dow Jones News
Hudson City Bancorp Inc.'s (HCBK) second-quarter earnings rose
16% on deposit growth and increased revenue as the New Jersey
regional bank beat analysts' expectations, although it failed to
alleviate concerns about loss severities.
The company has stuck to its core business of writing
conservative loans to borrowers mostly in the New York metropolitan
area and, as a result, largely avoided the sky-high rates of
default that have plagued its competitors.
But analysts said Tuesday the bank's growth in loans was slow
and warned loan-loss provisions will likely continue to grow, and
investors seized on the fears, particularly as the bank itself
warned again of rising charge-offs.
Standard & Poor's equity analyst Kevin Cole cut his
investment rating on Hudson City, saying that while the
second-quarter profit topped his expectations, there will be
moderation in higher mortgage rates which will hamper margins the
rest of the year. "Despite relatively strong credit quality, we see
increasing loss severities forcing (Hudson City) to raise its
reserves to 30% of nonperformers (currently 20%) by year-end," Cole
said in a note to clients.
Shares recently fell 74 cents, or 5.1%, to $13.86 after rising
in premarket trading after the release of the earnings report.
Hudson City posted income of $127.9 million, or 26 cents a
share, up from $110.7 million, or 22 cents a share, a year earlier.
The latest results included $21.1 million for a Federal Deposit
Insurance Corp. special assessment and was slightly better than the
25-cent profit analysts polled by Thomson Reuters had been
expecting.
Revenue increased 40% to $329 million, handily topping the $293
million Wall Street was looking for.
Net interest income rose 30%. Deposits rose 17% in the first
half of the year, while total assets climbed 6% during that same
time to $57.41 billion.
Loan-loss provisions soared to $32.5 million in the latest
quarter from $20 million in the first quarter and $3 million a year
earlier amid an increase in nonperforming loans as economic
conditions, especially unemployment levels, continue to
deteriorate. Net charge-offs rose to $9.6 million in the quarter
from $4.7 million in the previous quarter and $694,000 last year.
Nonperforming assets rose to 0.77% from 0.59% and 0.25% in the
respective periods.
The company's Tier 1 capital leverage ratio, a key measure of
financial strength, fell to 7.7% from 8.4% a year earlier and 7.8%
in the prior quarter.
FBR Capital analysts said in a note that the credit trends were
"basically in line" with expectations but warned that "balance
sheet growth was light." Fox-Pitt analysts said the loan growth was
below their expectations.
Chairman and Chief Executive Ronald Hernance, Jr. reiterated an
earlier warning that charge-offs are increasing. He has cited
defaults from rising unemployment coupled with expected further
declines in home values, which are expected to plague the New York
region, as reasons for the increase.
Hudson City, which didn't participate in the federal
government's Troubled Asset Relief Program, was the best-performing
bank in the Standard & Poor's 500 index last year, rising 7.7%
as most other banks' shares were plummeting.
-By Kerry Grace Benn and David Benoit, Dow Jones Newswires;
212-416-2353; david.benoit@dowjones.com