Hudson City Bancorp, Inc. (HCBK) reported the fifth consecutive quarter of positive earnings surprise with fourth-quarter 2014 earnings coming in at 8 cents per share. The bottom line outpaced the Zacks Consensus Estimate of 5 cents, but came a penny below the prior-year quarter figure.
For 2014, earnings of 32 cents per share surpassed the Zacks Consensus Estimate of 28 cents. However, this compared unfavorably with the prior-year quarter figure of 37 cents.
Better-than-expected results were driven by a significant rise in non-interest income as well as a fall in operating expenses. However, these were partially offset by a continued decline in net interest income. Further, strong capital ratios and improving asset quality marked other highlights.
Hudson City’s net income for the quarter came in at $39.1 million, down 14.6% from the prior-year quarter. For 2014, net income was $158.0 million, a decrease of 14.7% year over year.
Details
Total revenue (net of interest expense) of $134.7 million surpassed the Zacks Consensus Estimate of $105.0 million. However, the figure was down 9.8% year over year.
For 2014, total revenue (net of interest expense) of $552.5 million outpaced the Zacks Consensus Estimate of $503.0 million. Notably, the reported figure was almost stable with the 2013 level.
Net interest income fell 35.8% year over year to $87.2 million. The decline was mainly due to an overall decrease in the average balance of interest-earning assets and interest-bearing liabilities, a continued rise in the average balance of short-term liquid assets and the persistent low interest rate environment.
Also, net interest margin came in at 1.01%, down 46 basis points from the year-ago quarter.
Non-interest income totaled $47.5 million, up substantially from $13.5 million in the prior-year quarter. The reported quarter included $45.9 million of gain from the sale of mortgage-backed securities compared with $11.1 million in the year-ago quarter.
Total non-interest expense decreased 4.5% from the prior-year quarter to $70.2 million. The decline was primarily the result of lower compensation and employee benefits costs, and other expenses.
The efficiency ratio increased to 51.60% from 48.77% in the year-ago quarter. An increase in efficiency ratio indicates a decline in profitability.
As of Dec 31, 2014, net loans were $21.4 billion, down 10.5% year over year. Total deposits were $19.4 billion, a fall of 34.9% from the Dec 31, 2013 level.
Credit Quality
Credit metrics continued to improve with allowance for loan losses declining 14.8% year over year to $235.3 million. Non-performing loans were $852.0 million as of Dec 31, 2014, down 18.8% year over year.
Further, the reported quarter witnessed nil provision for loan losses, similar to the year-ago quarter. Nonperforming assets decreased 16.8% year over year to $932.0 million. Moreover, net charge-offs came in at $6.9 million, down 53.8% from the prior-year quarter.
Capital Ratios
Hudson City’s capital ratios continued to improve. As of Dec 31, 2014, the bank’s Tier 1 leverage capital ratio advanced to 11.74% from 10.82% as of Dec 31, 2013.
Equity to total assets was 13.08%, up from 12.28% as of Dec 31, 2013. Total risk-based capital ratio was 28.75%, up from 25.31% in the year-ago quarter.
Our Viewpoint
Hudson City’s results reflect a decent performance. Though the company has been struggling with its net interest income due to a low interest rate environment, its ability to capitalize on non-interest revenue sources retain our optimism on the stock.
Further, we expect Hudson City to continue with its balance sheet restructuring activities and gradual implementation of some of its Strategic Plan (announced in 2012) initiatives – particularly the launch of commercial real estate lending and secondary mortgage market operations. These will support its results in the upcoming quarters to a great extent.
However, mounting levels of repayments on mortgage assets and uncertainty surrounding new and anticipated regulations will likely be headwinds for Hudson City. Also, we remain cautious over the ambiguity surrounding the materialization of the proposed merger with M&T Bank Corp. (MTB), the closure of which was delayed for the third time in December.
Hudson City currently carries a Zacks Rank #2 (Buy).
Performance of Other Savings & Loan Institutions
People's United Financial Inc.’s (PBCT) fourth-quarter 2014 operating earnings of 22 cents per share slivered past the Zacks Consensus Estimate by a penny. Moreover, the bottom line came in 10% higher than the prior-year quarter figure.
Citizens Financial Group, Inc.’s (CFG) fourth-quarter 2014 adjusted earnings came in at 39 cents per share, beating the Zacks Consensus Estimate of 35 cents. Further, the figure compared favorably with the prior-year quarter adjusted earnings of 30 cents.
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