Hail! Hail! Hudson CityAs of Wednesday, Hudson City Bancorp of Paramus, N.J. had the lowest closing price relative to tangible book value among the five companies, and its shares were also trading for the lowest multiple to consensus earnings estimates among analysts polled by Thomson Reuters, for 2010, 2011 and 2012. Shares are also supported by a 15 cent quarterly dividend, for a yield of 4.14%. This week Hudson City reported first-quarter earnings of $148.9 million, or 30 cents a share, up from $136.6 million, or 28 cents a share, in the fourth quarter and $127.7 million, or 26 cents a share, in the first quarter of 2009. The company's annualized return on assets was 0.98% and its return on equity was 10.96%, which was very good for a thrift in the current environment. While Hudson City hasn't suffered from debilitating loan losses during the credit crisis, one concern for the company is that the thrift holding company's net interest margin -- the difference between the average yield on loans and investments and its average cost of funds -- bucked the industry trend and declined to 2.20% during the first quarter. The margin doesn't compare favorable to most other regional holding companies, but Hudson City has a long-term track record for remarkable efficiency. The company's efficiency ratio - essentially its noninterest operating expenses divided by operating income - was 19.33% during 2009, by far the lowest for any of the 48 regional companies we analyzed. Hudson City's efficiency ratio has consistently lead large banks and has been improving for years.
An interesting development tied to the coming financial reform legislation was Hudson City's announcement in early March that it had sent an application to the Office of the Comptroller of the Currency to convert main subsidiary Hudson City Savings Bank from a thrift to a nationally-chartered commercial bank. The company also said it would apply with the Federal Reserve to convert to a bank holding company. This will not only prevent any confusion associated with the possible elimination of the thrift charter as part of the proposed financial reform legislation being discussed in Congress, it will also remove restrictions limiting commercial lending. With an excellent long-term track record of conservative lending, a good dividend yield, excess capital and a low valuation relative to tangible book value and projected earnings, Hudson City is a very attractive, conservative pick for long term investors.