Lower Yields, Higher Expenses Hurt Hudson City in 3Q

Lower yields and higher expenses weighed on Hudson City Bancorp (HCBK) in Paramus, N.J., in the third quarter.

Earnings at the $43 billion-asset company, which M&T Bank in Buffalo, N.Y. agreed in August to buy for $3.7 billion in cash and stock, fell 33.6%, to $55.9 million, from the same period a year ago, Hudson City reported Wednesday.

Hudson City recorded net interest income of $203.2 million, down 16.9% from the third quarter of 2011, primarily because of declining interest rates on mortgage loans and a decrease in interest-earning assets. Its net interest margin increased 5 basis points, to 2.02%, from a year earlier because it paid off $4.3 billion in high-cost borrowings in December.

Noninterest income remained roughly unchanged, at $3 million. Noninterest expense rose 12.2%, to $93.8 million, as a result of higher spending on pay and employee benefits, as well as expenses related to the company's merger with M&T.

Residential mortgage lending fell 7.4%, to $27.5 billion, from a year earlier. Consumer loans decreased 13.4%, to $264.5 million. The provision for loan losses fell 20%, to $20 million, from the same period a year earlier. Chargeoffs declined 12.4%, to $16.3 million.

"This quarter's net income is reflective of the conditions affecting residential portfolio lenders," Ronald Hermance, Jr., Hudson City's chief executive, said in a news release. "We are pleased to partner with M&T whose balance sheet structure, geographic markets and business strategies complement those of Hudson City and we believe that our shareholders, customers and communities will benefit from this merger."

The deal is expected to close in the second quarter.

Shares of Hudson City rose 6 cents, to $8.68, in trading Wednesday morning.