Hudson City Loses 73 Cents Per Share

Hudson City Bancorp ($HCBK) reported a big loss today for its fourth quarter of 73 cents per share. But this big loss was expected because the bank has elected to pay off huge amounts of debt. Excluding that item, Hudson’s operating earnings were 12 cents per share. Although this move caused some short-term pain, it greatly helps the bank’s balance sheet.

Ronald E. Hermance, Jr., Hudson’s CEO said:

Our net loss for the quarter was a result of the previously announced extinguishment of structured borrowings. During the past year, the low interest rate environment resulted in elevated levels of liquidity as borrowers prepaid or refinanced their mortgage loans and we experienced a significant increase in the calls of our investment securities. Our options for reinvesting this excess liquidity were limited since the yields available on mortgage-related assets remained at or near historical low levels and we did not believe it would be prudent to put such long-term assets on our balance sheet. As we considered our options for this excess liquidity, we decided that the best long-term solution would be to reduce the amount of borrowings on our balance sheet and therefore we repaid $4.3 billion of structured borrowings. This reduced our total assets to $45.36 billion and reduced the amount of interest rate risk inherent in our balance sheet while having no significant effect on our regulatory capital ratios. The considerable difference in the interest rates we previously earned on the loans and securities that were prepaid compared to Federal funds and other overnight deposits that we held during the quarter and that were used to extinguish the borrowings in December 2011, also contributed to the decline in our operating earnings.

This extinguishment of debt in the fourth quarter and the restructuring transaction in the first quarter of 2011 were designed to strengthen our balance sheet for the future and improve our net interest margin. To that end, we made great strides in 2011 to meet the future head-on by shrinking our balance sheet, reducing our levels of interest rate risk, increasing our Tier 1 leverage capital ratio and increasing staffing levels in critical areas. We believe it is now critical for Hudson City to focus on the longer-term opportunities that will be available when economic conditions normalize. Patience will be rewarded. Our focus will remain on positioning our balance sheet and adjusting our business model for future growth. In the short term, the announced increase in government-sponsored enterprise (“GSE”) fees in the second quarter of 2012 should make portfolio lenders more competitive in the marketplace. Longer term, an improved economy and a sensible resolution of the GSEs will provide Hudson City with significant opportunities to grow our residential business.

Posted by on January 25th, 2012 at 9:04 am


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