It’s a Wonderful Life (In Jersey)

"If you look to the right, you can see New York City," says Ronald Hermance Jr., CEO of Hudson City Bancorp, AS he points out the fourth-floor window of the company's boxy headquarters in unglamorous Paramus, N.J. I had to venture through traffic to this distinctly non-imperial corporate redoubt 11 miles west of the George Washington Bridge—it's just past a union building and across the street from a garden-supply center—in my quest to find a sensible banker in the New York area. (Given the ongoing credit meltdown, I now know how Abraham felt when he was searching for a righteous man in Sodom.)

Despite the proximity to Manhattan, Hermance and his 140-year-old bank have never been part of the fast-money Wall Street scene. And because of its geographic and cultural distance, this bridge-and-tunnel bank has thrived amid the mortgage debacle. Hudson City in late July reported that second-quarter profits were up 52.3 percent. In the first half of 2008, mortgage originations rose 50 percent from 2007. And yet its balance sheet is pristine. "Only 328 out of 79,929 loans are nonperforming at the end of the second quarter," he says. (But who's counting?)

Last Thursday, Hudson City sported a market capitalization of $9.46 billion, twice the size of the Blackstone Group. But Hermance could walk unnoticed through power-lunch hot spots like the Four Seasons. "I'll let everybody else go to the Hamptons," he says in the flat accent of an upstate New Yorker. (He's from Batavia.) When I first spoke to Hermance he was vacationing on a lake near Buffalo.

Hudson City banks the old-fashioned way: it takes deposits and makes mortgages to people who buy homes in which they plan to live. And then it hangs on to them. No subprime, no securitization. Hudson City's bankers are steady daters in a wham-bam-thank-you-ma'am era. "We don't have Wall Street bundle up the mortgages and sell them to someone in Norway," Hermance says. "We're going to live with those loans." As a result, Hudson City maintains higher standards. Throughout the boom, it eschewed computer models and required borrowers to make down payments of at least 20 percent. (The typical mortgage in its portfolio has a 39 percent down payment.) Just as on the singles scene, maintaining high standards in lending means turning down a fair number of dates. But Hudson City builds loyalty by lavishing attention on Realtors and mortgage brokers. "Out of the 44 banks I work with, Hudson City is the one I really and truly love," says Michael Daversa, president of Atlantic National Mortgage in Westport, Conn., which has done $100 million in business with Hudson City in the past eight months.

Boring? Maybe. But Hudson City, which went public in 1999, hasn't had to beg for money from Mideast oil potentates. Instead, its impressive growth has been fueled by the deposits of prosperous New Jersey burghers. The average Hudson City branch has about $138 million in deposits, almost twice the average for FDIC-insured banks. Hudson City's idea of swinging has been to venture tentatively beyond the New Jersey base. In 2005 it moved into New York's Long Island and Staten Island, where the demographics (read: income levels) were similar to those of northern New Jersey. Now Hudson City is spreading from Sopranos territory to John Cheever country—Westchester County in New York and Fairfield County in Connecticut, both of which are thick with affluent households. Hudson City's 123 branches are concentrated in nine of the nation's 50 wealthiest counties. It just opened one in snooty Darien, Conn.

The strategy, which led Hudson City's stock to bump along during the height of the boom, has proved a genius long-term move. A one-year chart of Hudson City's stock compared with the KBW Bank Stock Index looks like the mouth of a Nile crocodile about to swallow a warthog. The stellar performance of Hudson City's stock, which is up nearly 50 percent since last July, has turned the 61-year-old banker—whose first CNBC appearance in 2005 on the B-list 6 a.m. hour was preempted for the Saddam Hussein trial—into a media darling. CNBC's motormouth, James Cramer, has dubbed Hermance a modern-day George Bailey. And while it has been a wonderful life of late for Hermance (last year he was paid a total of $8.45 million and his shares in the bank are worth about $114 million), comparisons between the balding, mustachioed banker and Jimmy Stewart go only so far.

Hudson City has avoided crossing the river into Manhattan. "They don't want to get involved in the condominium marketplace," says Melissa Cohn, president of Manhattan Mortgage. And yet Hudson City is very much tethered to the fortunes of Wall Street, the contracting job engine of the bank's expanding service area. Even though local government officials have warned about impending declines in Wall Street bonuses, Hermance isn't concerned. "The analyst from Bear Stearns who followed us got a new job the week after Bear went down," he says.

So how is it that Hermance kept his head when all the geniuses with higher pay and fancier pedigrees lost theirs? The tristate metro area's only smart banker shrugs. We all approach life's fundamental choices from a unique angle. "It's like my grandfather used to say," he says, "if everybody thought the same way, they would have married your grandmother."

© 2008