At a time when observers say most thrifts are trying to look more like commercial banks, one-to-four-family mortgage loans remain the bread-and-butter business at Hudson City Bancorp.

One year after taking its main subsidiary public, the $8.89 billion-asset company's portfolio is about 95% residential mortgage loans.

"We are not flashy," said Leonard S. Gudelski, chairman and chief executive officer of the Paramus, N.J., company. "We do not trade securities, our fee income is nominal, and we do not have a venture capital arm. With us, day in and day out it is interest received minus interest expense."

The strategy may be dull, but it is also successful.

Shares in the parent of Hudson City Savings Bank closed at $16.56 Monday, up 65% since its initial public offering on July 13, 1999. Second-quarter profits jumped 16.1% over the year-earlier period, to $28.9 million, and earnings through June 30 were $57.3 million. On Monday, Hudson City joined the Nasdaq Financial-100 Index.

Michael McDonough, an analyst at Friedman Billings Ramsey in Arlington, Va., praised the converted mutual thrift's consistent performance.

"Their business plan is not incredibly complex, but they continue to grow earnings," Mr. McDonough said. "I think they have met or beaten my estimate every quarter since they went public. Given the unfavorable interest rate climate and their very competitive market, I would say that is commendable."

Hudson City "is about as plain as it gets, but they are very efficient at what they do," said Robert Clark, a research analyst at SNL Securities in Charlottesville, Va. "Their performance in the year since their conversion surprised me, and it continues to surprise me."

No other thrift has clung as doggedly to its savings bank character, Mr. Clark said. Those that are acting more like commercial banks include Independence Community Bancorp in Brooklyn, N.Y.

Since converting to stock ownership on March 17, 1998, Independence has acted aggressively to build its commercial loan portfolio. The $6.78 billion-asset company's purchase last year of Broad National Bancorp in Newark, N.J., gave it "firepower to emerge as a commercial bank," said Charles J. Hamm, Independence's chairman and CEO. But its stock price closed at $13.50 Monday, down 28% from its peak of $18.76 in May 1998.

The story is similar at $235.7 million-asset Gaston Federal Bancorp in Gastonia, N.C., which has also diversified into commercial lending. Gaston Federal's share price soared 65%, to $16.38, after it converted in 1998, but was $10.25 Monday.

Mr. Hamm at Independence said he does not regret his change in direction, despite the downward direction of his company's stock price. The market for one-to-four-family residential mortgages has grown "increasingly tough to navigate," he said. "It is becoming commoditized at an alarming rate."

Mr. Gudelski said he understands why other thrift executives are changing course, but he has no intention of following them. The New Jersey suburbs have a strong housing market, and that works in Hudson City's favor, as does the company's cost-consciousness: Its efficiency ratio of 30.88% is among the lowest in the nation for thrifts.

"I still think you can make money in the one-to-four-family mortgage business," he said. "I'll concede that the spread is narrowing, but if you are very efficient, you can still do it. Until that is proven otherwise, we'll stick in there."

SNL's Mr. Clark said that Mr. Gudelski's keep-it-simple approach has one major drawback. "If rates rise and their loan originations start to slow, they are going to have to change their strategy," the analyst said. "They are definitely taking an interest rate risk, but it has worked so far. Maybe it will continue to work."

That's what Mr. Gudelski is counting on. "For the foreseeable future, we have no plans to change," he said.


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