Caution Pays for a Lender in New Jersey NYTimes.com

PARAMUS, N.J. — Ronald E. Hermance Jr. is something of an oddity these days. He is a banker who has not been battered by the credit crisis.

Ronald E. Hermance Jr. has been the chief executive of Hudson City Savings Bank for 11 years.

Hudson City Savings Bank, where he has served as chairman and chief executive for 11 years, never issued a subprime mortgage or sold a collateralized debt obligation. It did not hopscotch into faster-growing markets offering easy money, nor did it plunge into making risky construction loans.

And unlike most of its peers, Hudson City’s billion balance sheet is not soaked in red ink. In fact, when Mr. Hermance spent the last few weeks personally combing through the bank’s problem mortgages, he turned up 328 — a fraction of the number that other banks are reporting.

“It seems dull and boring,” Mr. Hermance said, flashing a grin in a recent interview. “But it happens to have made a lot of money over the past year.”

Hudson City Savings Bank, one of the nation’s largest savings institutions, sits about 12 miles across the Hudson River from the big banks that came to dominate Manhattan with the help of aggressive financial strategies. But there is an ocean of difference in how they are run.

As many of the nation’s lenders widened their loan offerings, Hudson City stuck to collecting deposits and issuing mortgages, preferring to operate as a mom-and-pop boutique instead of a financial department store. It continued to screen borrowers carefully, since it planned to hold their loans instead of selling them to outside investors. And it steered clear of complex investments its executives could not value, the kind that would later turn toxic as the housing market collapsed.

Now, the bank that flew under the radar screen has quietly racked up a market value of billion, eclipsing troubled giants like Washington Mutual that have been swamped by mortgage and credit card losses in recent months.

And Hudson City’s stock has been on a tear. Shares have risen more than 51 percent since the credit crisis began last August. The KBW bank index, one popular measure of the financial sector, is down 40 percent over the same period.

Not everyone, however, is convinced that the bank’s straight-and-narrow approach will keep it immune from the turmoil still afflicting credit markets. Across the industry, delinquencies on mortgages made to the most creditworthy borrowers have started to rise. And with more layoffs and lower bonuses expected for those on Wall Street, Hudson City, which caters to that group as a specialist in so-called jumbo mortgages, could suffer, too.

Some Wall Street analysts believe that means Hudson City’s heyday could end soon. “We believe the music is about to end for this strategy,” said Gerrard Cassidy, a banking analyst at RBC Capital Markets. “The conditions of the market surrounding this company are starting to deteriorate.”

Yet, when measured against the large number of financial institutions with soured loan portfolios, Hudson City is one of the few bright spots in an industry beset with doom and gloom. So far, only a handful of other domestic banks can claim a similar performance.

Shares of Dime Community Bancshares, a small lender based in Brooklyn, have soared 43 percent since last August as investors rewarded Dime for staying true to its roots. A few other small banks in New York, including NBT Bancorp, based in Norwich, and Tompkins Financial, based in Ithaca, have posted similarly strong results. And outside the Northeast, banks like City National Bank in Charleston, W.Va., and UMB Financial of Kansas City, Mo., have performed well by hewing to a similar strategy.

To some extent, these banks shared the good fortune of being far from hot spots on the East and West Coasts, where housing prices have fallen sharply. And they also maintained tried-and-true lending standards, even as competitors loosened theirs.

Hudson City reflects those principles, too. “They have stuck to their markets. They have stuck to their loan product, and they didn’t chase,” said Tom Alonso, a banking analyst at Fox-Pitt Kelton. “Now, they are sort of the last man standing, so now the business is coming to them.”

Founded 140 years ago by immigrants in Jersey City, N.J., the bank never strayed from its roots as a community lender. Mr. Hermance is fond of describing Hudson City as an old-fashioned bank. It went public in 1999, and raised nearly billion in fresh funds six years later.

Instead of spending its capital on a big acquisition, the bank grew at a deliberate pace. It opened dozens of branches in the wealthy suburbs of New Jersey, New York, and Connecticut that ring New York City. (Seeking to avoid its maze of co-op and condominium lending rules, it skipped Manhattan.) It now has 125 locations in the area.