Despite Moody's concern about Hudson City's credit quality, the thrift's big problem has been a narrowing net interest margin, which is the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings.
Following a first-quarter 2011 restructuring that was forced by regulators and included a charge of $649.3 million to prepay $12.5 billion in higher-cost borrowings, the Hudson City prepaid another $4.3 billion in borrowings during the fourth quarter of last year, resulting in $440.7 million in charges.
Hudson City remained profitable, with second-quarter earnings of $72.3 million, or 15 cents a share, for a mediocre return on average assets (ROA) of 0.66% and a return on average equity (ROE) of 6.19%, but with mortgage loan rates continuing to decline, the company's second-quarter net interest margin was a low 2.12%, declining from 2.15% in the first quarter, and 2.14% in the second quarter of 2011.Astoria is in a similar pickle, with a second-quarter net interest margin of just 2.12%, declining from 2.20% the previous quarter, and 2.34% a year earlier. The company had $17.6 billion in total assets as of June 30, and earned $12.8 million, or 13 cents a share, during the second quarter, increasing from $10 million, or 11 cents a share, during the first quarter, but declining from $16.8 million, or 18 cents a share, during the second quarter of 2011. Astoria's second-quarter ROA was a dismal 0.30%, while its return on average tangible stockholders' equity was 4.70%. The company -- headquartered in Lake Success, N.Y., with an extensive branch network in the New York City Burroughs of Queens and Brooklyn, as well as Nassau and Suffolk Counties on Long Island, and in Westchester County in New York -- has been growing its multifamily mortgage commercial real estate loan portfolios, in order to boost profitability, as single-family mortgage rates remain near historical lows. Total multifamily mortgage and commercial real estate loans grew 17% just in the second quarter, to $2.8 billion, with a weighted average rate of 5.14%, providing hope for Astoria and its investors that the company can right the ship and become more profitable.