Its loan-loss provision is more than 10 times the size it was last year, but Hudson City Bancorp Inc. does not appear to be in danger of losing its golden child status.
The Paramus, N.J., company, heralded since the start of the credit crisis for sticking to its knitting and avoiding the subprime mess, boosted second-quarter net income by 16% to $127.9 million, or 26 cents a share. The provision buildup, from $3 million a year ago to $32.5 million as of June 30, was more than offset by a gain on the sale of mortgage-backed securities, higher net interest margins and growth in deposits and new loans.
"With substantial equity in the residential portfolio, we expect relatively low severities on problem loans," FBR Capital Markets analyst Bob Ramsey wrote to clients.
At the time of origination, loans in Hudson City's residential portfolio had an average loan-to-value ratio of 61%. That gave Hudson City's chairman and chief executive, Ronald E. Hermance Jr., a measure of comfort even as chargeoffs for nonperforming loans climbed to $9.6 million, from $694,000 a year earlier and from $4.7 million in the first quarter. The losses reflected the lower value of the residential properties on which Hudson City made first mortgages.
"The losses we took for the quarter were almost totally for appraisals we did on things we don't own yet," Hermance said in an interview, referring to properties in the foreclosure process. "It's generally never the first mortgage that puts somebody in trouble."
Hudson City, the holding company for Hudson City Savings Bank, has 131 branches in New Jersey, New York and Connecticut.