Hudson City Bancorp (HCBK) in Paramus, N.J., reported lower quarterly earnings as its planned sale to M&T Bank (MTB) still awaits regulatory approval.

The $38.2 billion-asset company's first-quarter earnings fell 11% from a year earlier, to $42.5 million, or 9 cents a share.

Hudson City's net interest income fell 25%, to $132.3 million, because of low interest rates and shrinkage in its balance sheet. Its net interest margin compressed 39 basis points, to 1.41%.

The company agreed to sell itself to M&T in September 2012, but issues related to Bank Secrecy Act compliance at M&T have stalled the transaction. The companies now expect to complete the transaction by the end of this year.

Hudson City said it plans to launch commercial real estate lending and secondary mortgage market operations that it originally planned in 2012. The company has hired a 30-year banking veteran for its commercial lending team and hopes to soon appoint someone to lead the secondary mortgage market team.

"While interest rates still remain low, prepayments on our mortgage related assets have slowed although they continue to be at an elevated level," Ronald Hermance Jr., Hudson City's chairman and chief executive, said in a press release Tuesday. "As a result, we continue to carry an elevated and increasing level of overnight funds since we do not want to invest in longer duration assets at these low interest rates. We believe that while this impacts our current earnings, it better positions us for future initiatives such as a further balance sheet restructuring and the completion of the merger with M&T."

Hudson City did not record a loan-loss provision in the first quarter, compared to $20 million a year earlier. Net chargeoffs were half those of a year earlier, at $10.4 million.

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