Hudson City Bancorp (NASDAQ: HCBK) is a top notch regional bank that has a very strong financial footing and a lot of potential upside to offer investors. Hudson City Bancorp has been around for 141 years; it was founded in 1868 and is based in Paramus, New Jersey.
Hudson City Bancorp takes a slower more measured approach to growth, which has paid off keeping them away from the problems plaguing other banks, such as sub-prime mortgages. Hudson City manages a network of 130 bank branches spread throughout affluent regions of New Jersey, New York and Connecticut. Hudson City Bancorp has over $20 billion in deposits and approximately $56 billion in total assets.
Hudson City Bancorp has been rated one of the nation's three strictest mortgage underwriters. So when most other banks relaxed their standards in recent years to attract riskier clientele, Hudson City stuck to its conservative roots and refused to budge. No alt-A or sub-prime mortgages are on Hudson City’s balance sheet.
Hudson City Bancorp does even do any auto loans, credit card or commercial real estate loans. The firm has never originated one single subprime mortgage and steers clear of exotic option adjustable-rate mortgage products. Instead HCBK deals primarily with wealthy customers with top FICO scores who can make large down-payments and easily afford their monthly notes.
HCBK’s branches are concentrated in 10 of the nation's top-50 counties in terms of median household income. And its conservative loan-to-value ratio is much lower than that of its peers, has insulated them from the current real estate correction.
Hudson City maintains an industry-leading efficiency ratio (operating expenses/revenues) below 20%. HCBK has thrived through this economic downturn; they did not need any TARP funds. The company is well on its way to delivering its 11th straight year of record earnings in 2009.
Hudson City first hit the market 10 years ago and since then the firm has generated cumulative profits of $2.3 billion, and every dollar has been returned to shareholders through dividends and share repurchases.
HCBK investors have been treated to six dividend hikes in the past six quarters. Most banks have been forced to slash their dividends or eliminate them entirely. Only a select few have had strong enough balance sheets to raise payments. That speaks volumes that Hudson City has lifted distributions not once but six times since the recession started.
Despite putting up record profits of $127 million (up +44%) in the first quarter, HSBK shares are currently at $12.85, down from a peak above $20. This is a case of indiscriminate selling all financial stocks since the fall of 2008. HSBK traded down to a low of $7.37 at the worst of the market sell off, HSBK has now been in a trading range of $11-13.30 for almost 3 months.
I think HSBK is a best of the best regional bank and is an attractive buy on any pullbacks to the bottom of the current trading range, in the $11.50-11.75 range. And watch out for any major pull back or retest of the lows in financial stocks, this will create a golden opportunity to buy a quality stock at a major discount because HSBK will be sold off indiscriminately if that scenario occurs again. HSBK has a great 4.7% dividend yield and is a quality company that offers investors an attractive long term growth opportunity as well.
Note: I do not own HSBK
