Looking Beyond Hudson City's Profits

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Hudson City Bancorp (NAS: HCBK) recently returned to profitability after posting a loss in the prior quarter.

Hudson's net income declined to $96 million, from $142.6 million in the first quarter of 2010. However, this was a significant improvement from last quarter's net loss of $555.7 million. But the loss in the preceding quarter was due to the balance sheet overhaul, which helped Hudson get rid of a considerable amount of its debt.

The bank continued to witness improvements in its credit quality. Provision for loan losses declined 40% on a year-on-year basis, owing to lower non-performing loans and charge-offs.

Deposits ticked up slightly, and Hudson strengthened its capital position by improving its Tier 1 leverage capital ratio; it increased to 8.44% from 7.95% in December.

The negatives
Hudson's net interest income declined 14.1% to $272.9 million on a year-on-year basis as a result of downsizing from the restructuring. Interest spreads actually widened considerably. The company's revenue for the quarter dipped 21.4% due to the decline in non-interest revenue.

Hudson peers such as First Financial (NAS: FFCH) and Flagstar Bancorp (NYS: FBC) are still struggling to report profits. First Financial's loss, in fact, was due to increased provisions. People's United Financial (NAS: PBCT) , however, fell in line with Hudson, and many other banks for that matter, and managed to pull off profits on the back of reduced provisions.

The Foolish bottom line
I presented my optimistic view of the company in a prior article, where I evaluated the stock's return-generating capacity in context with its price. Improvement in Hudson's credit quality compels me to hold that opinion. Of course, shrinking revenue from the restructuring shouldn't be completely overlooked. Fools should keep an eye on Hudson.

Click here to add Hudson City Bancorp to your stock watchlist.

At the time this article was published Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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