Hudson City Bancorp said Monday it has completed a "restructuring" of its balance sheet that reduced its high-cost borrowings and should allow for "increased future net interest income."

Regulators had told the Paramus, N.J., thrift to reduce its interest rate risk.

It expects the restructuring to reduce its after-tax earnings this quarter by $644 million, or $1.30 per share. Its net interest margin, in turn, could now increase by as much as 40 basis points higher than it was at yearend, Hudson City said in a press release.

The $60-billion asset company said earlier this month that its level of interest rate-risk meant it would likely have to enter a memorandum of understanding with its primary regulator, the Office of Thrift Supervision.

Analysts had expected Hudson City to respond by deleveraging its balance sheet, or reducing its securities investments and wholesale funding.

The press release did not state whether the restructuring completely resolved its regulatory issues, but Chief Executive Ron Hermance said in the release that it was "in the best interest" of Hudson City's "long-term health" and is "consistent with the regulatory guidelines and directives regarding interest rate risk….applicable to banks and thrifts."

Hudson City sold $8.66 billion of MBS and borrowed $5 billion in "shorter-term fixed maturity borrowings." Doing that enabled it to pay off $12.5 billion of what it described as "putable" borrowings, or loans subject to put options that the release said "can cause uncertainty" about when they're due.

Paying off those borrowings are the "necessary first step to mitigate the current price risk exposure," the release said.

Hudson City said it "intends to further modify or hedge" some of its remaining $16.6 billion in putable borrowings in order to "reduce our exposure to price sensitivity from interest rate movements.

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