Profit fell 33% at Hudson City Bancorp (HCBK) in Paramus, N.J., as its interest margin continued to tighten.

The $39.7 billion-asset company reported a second-quarter profit of $48.7 million, down from $72.3 million in the second quarter of 2012. Earnings per share were 10 cents, in line with the average estimate of analysts polled by Bloomberg.

A steep drop in loan income hurt the bottom line. Net interest income fell 29%, to $159.9 million, as interest from first mortgages fell 16%, to $283.9 million. Net interest margin fell to 1.64% from 2.12%, and total assets declined by $899.9 million.

"The low market interest rates continue to affect our net interest margin… as profitable growth opportunities remain scarce," Ronald Hermance, chairman and chief executive, said in a news release Wednesday. "As a result, we continued to decrease the size of our balance sheet and have maintained an elevated level of liquidity."

Noninterest income more than tripled, rising to $9.6 million.

The company made a $12.5 million provision for loan losses, after making a $25 million provision in the same period in 2012, and net chargeoffs fell 8%, to $16.3 million.

Hudson City earned a $7.2 million profit last quarter on the sale of $405.7 million of corporate bonds, after recording no gain on securities sales in the second quarter of 2012.

Its pending sale to M&T Bank (MTB) in Buffalo, N.Y., was delayed after regulators issued an enforcement action requiring M&T to improve its anti-money-laundering controls. Either Hudson City or M&T can terminate the $3.7 billion merger if it has not closed by Jan. 31.

M&T remains optimistic that the deal will go through, Chief Financial Officer Rene Jones said during an earnings conference call in July.

M&T's second-quarter profit rose 49% last quarter, to $348 million, driven by sales of its holdings in Visa and MasterCard.

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