My good friend Goran “G.” Djenadic pointed me to this interesting article. Thus my shout out to Chicago: “Thanks G. !”
While the major national banks are teetering on the brink of collapse, this New Jersey thrift seems to be doing alright:
Decade of record profits for Hudson City Bancorp:
Hudson City Bancorp, the largest New Jersey-based thrift, continues to stand out as a pillar of profitability in a battered industry.
The parent of Hudson City Savings Bank on Wednesday reported a fourth-quarter profit of $124.3 million, up 60 percent from the previous year as both loans and deposits grew by nearly 22 percent year-over-year. Per-share profit rose to 25 cents a share from 16 cents.
For the year, profits rose more than 50 percent to $445.6 million.
“This was the 10th straight year of record profits, and we think ’09 will continue that trend,” said Chief Executive Officer Ronald E. Hermance Jr. in an interview.
Hudson City is thriving while many banks, including such titans as Citigroup and Bank of America Corp., flounder. Citi lost $8.29 billion and BOA $1.79 billion in the fourth quarter. Both banks slashed their dividends to a penny a share.
The New Jersey lender, on the other hand, increased its quarterly dividend to 14 cents from 13 cents.
“We think it’s a good sign to put out there, and we would not be doing it if we didn’t see future earnings growth,” Hermance said.
The bank is enjoying the fruit of its relatively low overhead costs and long-adhered-to policy of avoiding subprime and other risky loans, lending only to those with verifiably good credit and collateral, said Theodore Kovaleff, president of banking consultant Informed Sources Service Group.
“I look at them as an area of serenity amidst a major maelstrom,” said Kovaleff, who owns Hudson City shares.
Hudson City is a jumbo mortgage specialist with 127 branches in the northern New Jersey, Long Island and Western Connecticut suburbs. Although the real estate market remains poor, the bank has benefited from the demise of competitors such as Long Island-based American Home Mortgage and the scant availability of wholesale funding for loan brokers.
Hudson City, which raised $3.9 billion in a 2005 stock offering, remains very well capitalized compared to its peers, said analyst Matthew Kelley of Sterne Agee & Leach Inc.
And the bank’s above-average rates on certificates of deposit have allowed it to rake in high-end consumer deposits, Kovaleff said.
Lending was boosted in recent months by lower interest rates, bringing a surge in refinancings of loans that were made by competitors.
The bank has also benefited from a flight of consumer deposits — a comparatively low-cost source of funding for loans — from equity markets and from banks with besmirched reputations.
Meanwhile, Hudson City’s national, Internet-based deposit-gathering program has brought in more than $50 million since being quietly launched in November.
Hudson City has not been immune from the housing market woes.
It added $9 million to its reserve against future possible loan losses in the fourth quarter, up from a $2 million provision in the year-earlier period. Loans with payments 90 days or more past due increased to $217.6 million from $79.4 million, year-over-year.
“When [Hudson City] is forced to foreclose the losses are quite modest,” Kelley said, adding that the bank’s portfolio of securities investments “is the cleanest of the banks we cover in the Northeast.”
The coming year is going to be more challenging, he said.
“They are not going to grow loans quite as fast and the [profit] spread has compressed over the last couple of weeks,” he said.
“But I continue to believe Hudson City will outperform on earnings and on stock performance.”
Now, it remains to be seen if Hudson City will be able to weather the storm. They are, like most banks, also highly leveraged and we have no idea what assets they really have on their balance sheet. But at least they haven’t been begging for taxpayer money over the past year. Depositors are rewarding them with their trust and their deposit money.
Performance ultimately prevails in a free market. It can’t, however, stand out so long as the government subsidizes one failure after another.