PARAMUS, N.J. ( TheStreet) -- Hudson City Bancorp ( MI) on Wednesday reported third-quarter net income of $124.6 million, or 25 cents a share, missing the consensus earnings estimate of analysts polled by Thomson Reuters by a penny.

Shares were down 1% in early trading to $11.78.

Earnings declined from $142.6 million, or 29 cents a share, in the second quarter and $135.1 million, or 27 cents a share, during the third quarter of 2009. The thrift holding company's net interest margin - essentially the average yield on loans and investments less the average cost of deposits and borrowings - declined to 1.97% from 2.13% in the second quarter and 2.31% a year earlier, as it continued to suffer in the low interest rate environment.

CEO Ronald Hermance said the company believed "historically-low market interest rates coupled with the expected second round of quantitative easing by the Federal Reserve Board will continue to place pressure on our net interest margin for the remainder of 2010," adding that "Asset growth in this environment is just not prudent."

Hudson City's net interest margin is low when compared to the second -quarter national aggregate margin of 3.76% reported by the Federal Deposit Insurance Corp., but the company's earnings have remained fairly strong, especially for the current environment.

Hudson City's return on average assets (ROA) for the third quarter was 0.82%, declining from 0.93% for both the previous quarter and the third quarter of 2009. The return on average equity (ROE) was 8.86%, declining from 10.42% the previous quarter and 10.34% a year earlier.

The efficiency ratio - noninterest expense divided by the sum of net interest income and noninterest income - was 20.27% for the third quarter. While third-quarter numbers weren't yet available for many of the largest bank and thrift holding companies, Hudson City's tax-adjusted second-quarter efficiency ratio of 20.13% was by far the lowest among the largest 50 U.S. bank and thrift holding companies.

The next-best was Washington Federal ( WFSL) with a second-quarter efficiency ratio of 31.48% followed by New York Community Bancorp ( NYB) with a second-quarter efficiency ratio of 36.52%, according to SNL Financial.

Hudson City Bancorp had total assets of $60.6 billion as of September 30. Nonperforming assets, including problem loans and repossessed real estate, totaled $877.7 million or 1.45% of total assets, increasing from 1.33% the previous quarter and 0.90% a year earlier.

The third-quarter provision for loan losses was $50 million, the same level as the previous two quarters but increasing from $40 million in the third quarter of 2009. Loan loss reserves continued to increase, as net charge-offs - loan losses less recoveries - during the third quarter totaled $26.7 million.

Loan loss reserves covered 0.68% of total loans as of September 30, which was "way ahead of the pace" of loan losses, as the annualized ratio of net charge-offs to average loans for the third quarter was a very low 0.33%.

Hudson City was very strongly capitalized, especially for a profitable holding company in the current environment. For main subsidiary Hudson City Savings Bank, the Tier 1 leverage ratio was 7.91% and the total risk-based capital ratio was 22.42%. These ratios need to be at least 5% and 10% for most banks to be considered well-capitalized by regulators. While the company didn't include a tangible common equity ratio in its third-quarter earnings release, its tangible common equity ratio was 8.86% as of June 30, according to SNL Financial.

Hudson City's shares trade for about 1.1 times the tangible book value of $11.08 the company reported as of September 30. Based on a 15 cent quarterly dividend payout, the forward yield on the shares is 5.09%, and the dividend is very comfortably supported by earnings.

Analysts lack conviction on the shares. Out of 16 analysts covering Hudson City, 12 have hold ratings, two rate the shares a buy and two recommend investors sell the shares.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.