HCBK (MM)

 

March 20, 2008

 

Dear Stockholder:

 

You are cordially invited to attend the 2008 Annual Meeting of Stockholders of Hudson City Bancorp, Inc., which will be held on April 22, 2008 at 9:30 a.m., Eastern Time, at the Park Ridge Marriott, 300 Brae Boulevard, Park Ridge, New Jersey 07656.

 

The attached Notice of the 2008 Annual Meeting of Stockholders and Proxy Statement describe the business to be transacted at the annual meeting. Directors and officers of Hudson City Bancorp, as well as a representative of KPMG LLP, the accounting firm appointed by the Audit Committee of the Board of Directors to be Hudson City Bancorp’s independent registered public accounting firm for the fiscal year ending December 31, 2008, will be present at the annual meeting to respond to appropriate questions.

 

The Board of Directors of Hudson City Bancorp has determined that an affirmative vote on each matter to be considered at the annual meeting is in the best interests of Hudson City Bancorp and its stockholders and recommends a vote “FOR” each of these matters.

 

Please complete, sign and return the enclosed proxy card promptly, or if you prefer, vote by using the telephone or Internet, whether or not you plan to attend the annual meeting. Your vote is important regardless of the number of shares you own. Voting by proxy will not prevent you from voting in person at the annual meeting, but will assure that your vote is counted if you are unable to attend. If you are a stockholder whose shares are not registered in your own name, you will need additional documentation from your record holder to attend and to vote personally at the annual meeting. Examples of such documentation include a broker’s statement, letter or other document confirming your ownership of shares of Hudson City Bancorp common stock.

 

On behalf of the Board of Directors and the employees of Hudson City Bancorp, we thank you for your continued support and hope to see you at the annual meeting.

 

Sincerely yours,

 

Ronald E. Hermance, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer

 

Hudson City Bancorp, Inc.

West 80 Century Road

Paramus, New Jersey 07652

(201) 967-1900

 

 

 

 

TABLE OF CONTENTS

 

HUDSON CITY BANCORP, INC.

 

 

How To Vote

 

You may vote your shares:

 

 

Alternatively, you may attend the annual meeting and vote in person. If you are a stockholder whose shares are not registered in your own name, you will need an assignment of voting rights or a proxy from your stockholder of record to vote personally at the annual meeting.

 

Vote Required

 

Proposal 1.   Directors are elected by a plurality of the votes cast in person or by proxy at the annual meeting. The holders of common stock may not vote their shares cumulatively for the election of directors. Shares held by a broker who submits a proxy card but fails to cast a vote on this proposal and shares for which a proxy card is not returned will have no effect on the outcome of the vote on this Proposal 1 because only a plurality of votes cast is required to elect a director.

 

Proposal 2.   In order for the stockholders to approve Proposal 2, we must obtain the affirmative vote of the holders of a majority of the shares of our common stock represented in person or by proxy at the annual meeting and entitled to vote on the proposal. Under the voting standard for Proposal 2, shares as to which the “ABSTAIN” box has been selected on the proxy card will count as shares represented and entitled to vote and will be treated as votes “AGAINST” the proposal. Shares held by a broker who submits a proxy card but fails to cast a vote on this proposal and shares for which a proxy card is not returned will be treated as shares that are not represented and will have no effect on the outcome of the vote.

 

Our Board of Directors recommends that you promptly sign, date and mark the enclosed proxy card(s) in favor of proposals 1 and 2 and return the card(s) in the enclosed self-addressed, postage-prepaid envelope or, if you prefer, vote by using the telephone or Internet. Proxy cards must be received prior to the commencement of the annual meeting. Returning the proxy card will not prevent you from voting in person if you attend the annual meeting. Your vote is very important.

Revocability of Proxies

 

You may revoke your grant of a proxy at any time before it is voted by:

 

 

If you voted using the Internet, you can change your vote at the Internet address shown on your proxy card. The Internet voting system is available 24 hours a day until 11:59 p.m., Eastern Time, on Monday, April 21, 2008.

 

If you voted by telephone, you can change your vote by using the toll free telephone number shown on your proxy card. The telephone voting system is available 24 hours a day in the United States until 11:59 p.m., Eastern Time, on Monday, April 21, 2008.

 

We are soliciting proxies only for the annual meeting. If you grant us a proxy to vote your shares, the proxy will only be exercised at the annual meeting.

 

Solicitation of Proxies

 

Our officers, members of our Board of Directors and our employees may solicit proxies on our behalf by telephone or through other forms of communication but none of these persons will receive any compensation for their solicitation activities in addition to their regular compensation. We will request persons, firms and corporations holding shares in their names or in the name of their nominees, which are beneficially owned by others, to send proxy materials to and obtain proxies from such beneficial owners, and will reimburse such holders for reasonable expenses incurred in connection therewith. We will bear all costs of solicitation.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on April 22, 2008

 

The proxy statement and annual report are available on Hudson City Bancorp’s website at www.hcbk.com.

 

 

 

Directors and Executive Officers

 

The following table sets forth information about the shares of common stock beneficially owned by each director of Hudson City Bancorp, by each named executive officer of Hudson City Bancorp identified in the Summary Compensation Table included elsewhere herein, and all directors and executive officers of Hudson City Bancorp or Hudson City Bancorp’s wholly owned subsidiary, Hudson City Savings, as a group as of February 29, 2008. Except as otherwise indicated, each person and each group shown in the table has sole voting and investment power with respect to the shares of common stock indicated.

 

 

 

(Notes on following page)

 

 

(Notes continued on following page)

 

 

PROPOSAL 1

ELECTION OF DIRECTORS

 

General

 

The certificate of incorporation and Bylaws of Hudson City Bancorp provide for the election of directors by the stockholders. For this purpose, the Board of Directors of Hudson City Bancorp is divided into three classes, each class to be as nearly equal in number as possible. The terms of office of the members of one class expire, and a successor class is to be elected, at each Annual Meeting of Stockholders. There are currently nine directors of Hudson City Bancorp.

 

The terms of three directors expire at the annual meeting. Each of the incumbent directors with terms expiring at the annual meeting, Ronald E. Hermance, Jr., William G. Bardel and Scott A. Belair, have been nominated by the Board of Directors, upon recommendation by the Nominating and Governance Committee, to be re-elected at the annual meeting for three-year terms expiring at the Annual Meeting of Stockholders to be held in 2011, or when their successors are otherwise duly elected and qualified. Each nominee has consented to being named in this proxy statement and to serve if elected. Pursuant to the Bylaws of Hudson City Bancorp, the Board of Directors has fixed the size of the Board of Directors at nine members.

 

Assuming the re-election of Messrs. Hermance, Bardel and Belair, at the conclusion of the annual meeting, our Board of Directors will consist of nine members divided into three equal classes, and our Chief Executive Officer and Chief Operating Officer will be the only members who are not “independent” under the listing requirements of the NASDAQ Global Market. See “Corporate Governance.”

 

The terms of the remaining two classes of directors expire at the Annual Meetings of Stockholders to be held in 2009 and 2010, respectively, or when their successors are otherwise duly elected and qualified. In the event that any nominee for election as a director at the annual meeting is unable or declines to serve, which the Board of Directors has no reason to expect, the persons named in the proxy card will vote with respect to a substitute nominee designated by the present Board of Directors.

Who Our Directors Are

 

The table on the following page states certain information with respect to each nominee for election as a director and each director whose term does not expire at the annual meeting (including time spent on the Board of Directors or Board of Managers of Hudson City Savings prior to the incorporation of Hudson City Bancorp on March 4, 1999). There are no arrangements or understandings between Hudson City Bancorp and any director or nominee pursuant to which such person was elected or nominated to be a director of Hudson City Bancorp. For information with respect to security ownership of directors, see “Security Ownership of Certain Beneficial Owners and Management — Security Ownership of Management.”

 

 

 

 

Directors

 

The business experience of each of our directors is as follows:

 

Nominees for Election as Director

 

Ronald E. Hermance, Jr. has been President and Chief Executive Officer of Hudson City Bancorp and Hudson City Savings since January 1, 2002 and Chairman of the Board since January 1, 2005. Prior to assuming such positions, Mr. Hermance had served as President and Chief Operating Officer of Hudson City Bancorp since its incorporation in 1999 and of Hudson City Savings since January 1997. Mr. Hermance previously was Senior Executive Vice President and Chief Operating Officer from the time he joined Hudson City Savings in 1988. He was elected to the Board of Managers of Hudson City Savings in 1988. Prior to joining Hudson City Savings, Mr. Hermance was Chief Financial Officer of Southold Savings Bank on Long Island, New York. In addition to his most recent service, Mr. Hermance served in various lending capacities in both a commercial bank and a thrift institution. In 2004, Mr. Hermance was elected to the board of directors of the Federal Home Loan Bank of New York.

 

William G. Bardel was the Associate Headmaster and Chief Financial Officer of the Lawrenceville School, a preparatory high school in Lawrenceville, New Jersey, from 1994 until 2006. Previously, from 1988 to 1994, he served as head of the Government Advisory Group of Lehman Brothers in London,

England, which provided financial market guidance to developing nations in Africa, Asia, Eastern Europe, South America and the Middle East. Mr. Bardel currently serves as the audit committee financial expert.

 

Scott A. Belair is a co-founder of Urban Outfitters, Inc., a NASDAQ-listed retailer and wholesaler operating under the brand names Urban Outfitters, Anthropologie and Free People, and has served on its Board of Directors since 1970. Previously, Mr. Belair, a CPA, was a Principal at Morgan Stanley and Vice President and Chief Financial Officer of the international offices and subsidiaries at Goldman Sachs. In addition, Mr. Belair has been Principal at The ZAC Group, performing financial advisory services, since 1989.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE NOMINEES FOR ELECTION AS DIRECTORS.

 

Continuing Directors

 

Denis J. Salamone has served as Senior Executive Vice President of Hudson City Bancorp and Hudson City Savings since October 2001 and succeeded Mr. Hermance as Chief Operating Officer on January 1, 2002. He was elected to the Board of Directors in October 2001. Prior to joining Hudson City, Mr. Salamone had a twenty-six year career with the independent accounting firm of PricewaterhouseCoopers LLP, where he had been a partner for sixteen years. Immediately prior to joining Hudson City Bancorp, Mr. Salamone was the Global Financial Services leader for Audit and Business Advisory Services, and a member of the PricewaterhouseCoopers eighteen member board of partners.

 

Michael W. Azzara has been a part-time Senior Consultant with the executive search and consulting firm of Foley Proctor Yoskowitz since October 2003. He is the retired President and Chief Executive Officer of Valley Health System, a regional health care provider comprised of The Valley Hospital in Ridgewood, New Jersey, Valley Home and Community Health Care and the Healthnet Medical Group, a position he held from 1997 to his retirement in 2003. Prior to assuming such position, Mr. Azzara served as President and Chief Executive Officer of The Valley Hospital. Mr. Azzara serves on the Advisory Board to the Dean of the School of Arts and Sciences, Rutgers University. He also served on the Board of Directors of Ridgewood Savings Bank until its purchase by another community bank. A graduate of Rutgers University, he has received a Masters degree from Cornell Graduate School of Business and Public Administration.

 

Victoria H. Bruni served as Vice President for Administration and Finance at Ramapo College of New Jersey, a public four year liberal arts college, from June 1993 until July 2006. She was responsible for financial planning and reporting, budgets, public financings, accounting operations, and purchasing, as well as administrative functions such as human resources and capital facilities planning, construction and maintenance. From 1964 to 1993 she served in various positions at New Jersey Bell Telephone Co./Bell Atlantic, including Assistant Comptroller, Treasurer, Assistant Secretary and Attorney. A graduate of Smith College, she received her J.D. with honors from Seton Hall University School of Law.

 

William J. Cosgrove served at Citibank, N.A. from 1963 to 1991 when he retired as Senior Banker, Senior Credit Officer. From 1993 to 2004, he served as Executive Vice President at Citadel Group Representatives, Inc. From 1991 to 2005, he served as a Trustee and later as Lead Trustee of the John Hancock Funds, and since 1991 has served as an adjunct Professor at the Lubin Graduate School of Business of Pace University.

 

Donald O. Quest, M.D. has been a neurological surgeon since 1976, a professor at Columbia University since 1989, Assistant Dean for Student Affairs at Columbia University, and an attending physician at Valley Hospital and Columbia-Presbyterian Medical Center since 1978. He is a member of the Neurosurgical Associates of New York and New Jersey. Dr. Quest has been President of the American Association of Neurological Surgeons, the American Academy of Neurological Surgeons, the Congress

of Neurological Surgeons, the Chairman of the American Board of Neurological Surgery and the Chairman of the Residency Review Committee for Neurological Surgery.

 

Joseph G. Sponholz is a retired Vice Chairman of Chase Manhattan Bank, a position he held from 1997 to his retirement in 2000. Prior to assuming the position of Vice Chairman, Mr. Sponholz had served as Chief Administrative Officer of Chase Manhattan Bank. Serving as a member of Chase’s Executive Committee, Mr. Sponholz spearheaded the company’s Internet efforts as leader of Chase.com. Prior to its merger with Chase, he served as Chief Financial Officer and Chief Technology Officer at Chemical Bank. He is recognized as an industry leader in the areas of business strategy, technology and financial management. A graduate of Fordham University, Mr. Sponholz holds an MBA in Finance from New York University. Mr. Sponholz currently serves as our lead independent director

 

Executive Officers

 

In addition to Messrs. Hermance and Salamone, Hudson City Bancorp and Hudson City Savings have the following executive officers:

 

Ronald J. Butkovich, age 58, has been Senior Vice President of Hudson City Savings Bank and Hudson City Bancorp since April 2004. He is responsible for the development of the Long Island Region. Mr. Butkovich joined Hudson City Savings in 2004. He formerly served as Operations/ Retail Banking Officer of Southold Savings Bank on Long Island, New York for 16 years until 1988 and the Director of Real Estate, Branch Development, and Construction for North Fork Bank for 16 years until April 2004. Mr. Butkovich holds an undergraduate degree from Albany State University and is a graduate of the National School of Savings Banking and the Executive Development Program at Fairfield University. Mr. Butkovich has served on various industry, community, and civic associations including treasurer of the Southold Fire Department since 1978.

 

V. Barry Corridon, age 59, has been Senior Vice President of Mortgage Servicing of Hudson City Savings since January 2000 and Senior Vice President of Hudson City Bancorp since January 2004. He previously served as First Vice President of Mortgage Servicing of Hudson City Savings from 1995 to 2000 and as a Vice President from 1982 to 1995. He is responsible for the administration of our mortgage portfolio, supervision of new loan set-up, post-closing, payoffs, mortgage accounting, collections and foreclosures. Mr. Corridon was President of the Mortgage Bankers Association of New Jersey in 1995. He is the past President of the Mortgage Bankers Association’s Educational Foundation. Mr. Corridon also serves on the board of WOODLEA/ PATH Advisory Council of Children’s Aid and Family Services. He earned his undergraduate degree at Fairleigh Dickinson University and is also a graduate of the Graduate School of Savings Banking at Brown University and the Executive Development Program at Fairfield University. He joined Hudson City Savings in 1970.

 

James A. Klarer, age 55, joined Hudson City Savings in 1976. He has served as Senior Vice President of Hudson City Savings and Hudson City Bancorp since January 2005. He previously served as First Vice President of Hudson City Bancorp in 2004 and of Hudson City Savings from 2002 to 2004, and as a Vice President of Hudson City Savings from 1992 to 2002. Mr. Klarer has also served as Secretary of HudCiti Service Corp. since January 1993. He is responsible for real estate development, branch expansion, insurance, purchasing and general services. Mr. Klarer has been an active member of the Institute of Real Estate Management (IREM) since 1999. He is a graduate of William Paterson College.

 

James C. Kranz, age 59, has been Executive Vice President and Chief Financial Officer of Hudson City Savings since September 2007. He previously served as Senior Vice President and Chief Financial Officer of Hudson City Savings from January to December 2007 and Senior Vice President and Investment Officer of Hudson City Savings since January 2000 and Senior Vice President of Hudson City Bancorp from January 2004 to 2006. He maintains oversight of the entire accounting and finance functions as well as primary execution responsibility for investments and borrowings. Mr. Kranz joined

Hudson City Savings in 1983. Mr. Kranz is a member of the New Jersey Bond Club and serves on the Asset and Liability Management Committee of the New Jersey League of Community and Savings Bankers. Mr. Kranz has an undergraduate degree and a MBA from Lehigh University. He is a graduate of the Graduate School of Savings Banking at Brown University.

 

Thomas E. Laird, age 55, joined Hudson City Savings in 1974. He has served as Executive Vice President and Chief Lending Officer since September 2007. He previously served as Senior Vice President and Chief Lending Officer from January 2002 to September 2007, Senior Vice President of Hudson City Bancorp since January 2004 and Senior Vice President and Mortgage Officer from January 2000 to 2002. Prior to that, he served as First Vice President and Mortgage Officer from 1991 to 2000. His primary areas of responsibility are mortgage and consumer lending and loan production. Mr. Laird holds an undergraduate degree from St. Peter’s College and is a graduate of the National School of Banking at Fairfield University. Mr. Laird was actively involved from 1989 to 1999 on the Wanaque Board of Education, having served for two terms as Board President. He has also been active in the New Jersey League of Community and Savings Bankers and presently is a board member of the Dover Housing Development Corporation. He is a former member of the Board of Governors of the Mortgage Bankers Association of New Jersey.

 

Michael B. Lee, age 58, has served as Senior Vice President of Hudson City Savings since January 2000 and as Senior Vice President of Hudson City Bancorp since January 2004. He previously served as First Vice President of Hudson City Savings from 1989 to 2000, and as Secretary from 1989 to 2003. He is responsible for branch administration, training and customer retirement programs. He has an undergraduate degree in management from St. Peter’s College and a Masters Degree from New Jersey Institute of Technology. He has also graduated from the National School of Finance and Management at Fairfield University. Mr. Lee is a Past President of the Bergen Chapter of the American Institute of Banking and has served on several committees of the New Jersey League of Community and Savings Bankers. Mr. Lee joined Hudson City Savings in 1971.

 

Veronica A. Olszewski, age 48, has served as Senior Vice President, Treasurer and Corporate Secretary of Hudson City Bancorp and Hudson City Savings since June 2007. She previously served as Senior Vice President and Corporate Secretary of Hudson City Bancorp and Hudson City Savings from January 2004 to June 2007, Senior Vice President from January 2002 to December 2003, First Vice President from January 2000 to December 2001 and Vice President and Assistant Auditor from March 1997 to December 1999. Ms. Olszewski joined Hudson City Savings in 1980. She is responsible for the functions of Corporate Secretary, special projects and strategic planning. Ms. Olszewski is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants, New Jersey Society of CPAs and the American Society of Corporate Secretaries. She is a graduate of Jersey City State College.

Certain Transactions with Members of Our Board of Directors and Executive Officers

 

Transactions with related persons, including directors, executive officers and their immediate family members, have the potential to create actual or perceived conflicts of interest between Hudson City Bancorp and such persons. Transactions with related persons generally are categorized as either loans that we may make in the ordinary course of business as a financial institution or all other related person transactions.

 

We do not currently make loans or extend credit to directors or executive officers. We have made residential mortgage loans to one of our executive officers prior to promotion to executive officer status and to members of the immediate families of certain of our officers and directors. Such loans were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features.

All other related person transactions are generally treated as potential violations of our Code of Ethics for which a waiver must otherwise be obtained if they are found to create a conflict of interest. Under both our Code of Ethics and our Audit Committee Charter, the Audit Committee is charged with reviewing and approving all related person transactions, including any loans to directors, executive officers or their immediate family members, for potential conflicts of interest.

 

Section 16(a) of the Exchange Act requires Hudson City Bancorp’s executive officers and directors, and persons who own more than 10% of Hudson City Bancorp common stock to file with the Securities and Exchange Commission reports of ownership and changes of ownership. Officers, directors and greater than 10% stockholders are required by Securities and Exchange Commission regulation to furnish Hudson City Bancorp with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, Hudson City Bancorp believes that, with the exception of one Form 5 filed on behalf of Mr. Hermance and one Form 4 filed for each of Ms. Olszewski and Messrs. Butkovich, Corridon, Lee and Tassillo, all filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with. The Form 5 filed on behalf of Mr. Hermance reflected a bona fide gift to a charitable foundation in November 2006 that was inadvertently not previously reported and an acquisition of 2,416 shares in October 2007 that was inadvertently not previously reported. A Form 4 filed on behalf of each of Ms. Olszewski and Messrs. Butkovich, Corridon and Lee reflected a transaction inadvertently not reported in April 2005, whereby the issuer withheld shares from vesting stock awards to satisfy payroll tax withholding obligations of the reporting person. A Form 4 filed on behalf of Mr. Tassillo reflected a disposition of 35,219 shares in December 2006 that was inadvertently not previously reported.

 

PROPOSAL 2

­ ­

 

General

 

The Audit Committee of the Board of Directors has appointed the firm of KPMG LLP to act as Hudson City Bancorp’s independent registered public accounting firm for the fiscal year ending December 31, 2008, subject to ratification of such appointment by our stockholders. A representative of KPMG LLP is expected to be present at the annual meeting and will be given an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions. No determination has been made as to what action the Board of Directors would take if the stockholders do not ratify the appointment.

 

Audit Fees

 

For the fiscal year ended December 31, 2007, KPMG LLP billed Hudson City Bancorp an aggregate of $913,835 for professional services rendered for the audits of the Company’s financial statements for such period and internal control over financial reporting as of December 31, 2007, and the reviews of the financial statements included in Hudson City Bancorp’s Quarterly Reports on Form 10-Q during such period. Such fees were $930,000 for the fiscal year ended December 31, 2006.

 

Audit-Related Fees

 

For the fiscal year ended December 31, 2007, KPMG LLP billed Hudson City Bancorp an aggregate of $120,000 for services that are reasonably related to the audit or review of the Company’s financial statements and not described above under the caption “Audit Fees.” The services comprising these fees were employee benefit plan audits. Audit-related fees were $80,000 for the fiscal year ended December 31, 2006.

 

Tax Fees

 

For the fiscal year ended December 31, 2007, KPMG LLP billed Hudson City Bancorp an aggregate of $117,100 for professional services rendered for federal and state tax compliance and advice. Tax fees were $82,400 for the fiscal year ended December 31, 2006.

 

All Other Fees

 

KPMG did not perform other services for Hudson City Bancorp for the fiscal years ended December 31, 2007 and 2006.

 

Acting under its charter, the Audit Committee annually appoints the independent registered public accounting firm, in its sole discretion, and reviews the scope of the audit services to be performed for the year with the independent registered public accounting firm, the principal accounting officer and the senior internal auditing executive and pre-approves all such audit services. In addition, the Audit Committee pre-approves the retention of the independent registered public accounting firm for all non-audit services and the fees to be paid for such services. In accordance with such policies, the Audit Committee pre-approved 100% of the services described above under “Audit-Related Fees,” “Tax Fees” and “All Other Fees.”

 

Under the guidance of a written charter adopted by the Board of Directors, the Audit Committee is primarily responsible for:

 

 

In fulfilling its responsibilities, the Audit Committee, among other things:

 

 

In accordance with the Audit Committee Charter, the Audit Committee has reviewed and discussed the audited financial statements of Hudson City Bancorp for the fiscal year ended December 31, 2007, with Hudson City Bancorp’s management. The Audit Committee has discussed with KPMG LLP Hudson City Bancorp’s audited financial statements for the fiscal year ended December 31, 2007, including the following matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees):

 

 

 

The Audit Committee has also received the written disclosures and the letter from KPMG LLP required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees) and the Audit Committee has discussed the independence of KPMG LLP with that firm. Based on the review and discussions with Hudson City Bancorp’s auditors and management as noted above, the Audit Committee recommended to the Board of Directors that the financial statements for the fiscal year ended December 31, 2007 be included in Hudson City Bancorp’s Annual Report on Form 10-K for filing with the Securities and Exchange Commission.

 

Audit Committee of Hudson City Bancorp, Inc.

 

William G. Bardel, Chair

 

William J. Cosgrove , Member

 

Victoria H. Bruni, Member

 

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL OF THE RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

Hudson City Bancorp aspires to the highest standards of ethical conduct. In that spirit, we are committed to being a leader in corporate governance reform. In addition to our ongoing compliance with the Sarbanes-Oxley Act of 2002, the rules of the NASDAQ Global Market and Delaware law, Hudson City Bancorp continues to strive to follow high standards of corporate governance.

 

A majority of the Board of Directors and each member of the Compensation, Nominating and Governance and Audit Committees are independent, as affirmatively determined by the Board consistent with the criteria established by the NASDAQ Global Market and as required by Hudson City Bancorp’s Bylaws. In addition to explicitly requiring compliance with applicable exchange independence requirements and in order to further ensure the independence of our directors, Hudson City Bancorp’s Bylaws prohibit directors from serving on the board of directors of an insured depository institution, bank holding company, financial holding company or thrift holding company other than Hudson City Bancorp and its affiliated entities and the Federal Home Loan Bank of New York. This prohibition prevents directors from simultaneously serving as a director of another financial institution that may have a business relationship with Hudson City Bancorp.

 

The Board has conducted an annual review of director independence for all current nominees for election as directors and all continuing directors. During this review, the Board considered transactions and relationships during the prior year between each director or any member of his or her immediate family and Hudson City Bancorp and its subsidiaries, affiliates and equity investors, including those reported under “Certain Transactions with Members of our Board of Directors and Executive Officers” below. The Board also examined transactions and relationships between directors or their affiliates and members of the senior management or their affiliates. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent.

 

As a result of this review, the Board affirmatively determined that of the nominees, William G. Bardel, Scott A. Belair and the following continuing directors, meet Hudson City Bancorp’s standard of independence: Michael W. Azzara, Victoria H. Bruni, William J. Cosgrove, Donald O. Quest, M.D. and Joseph G. Sponholz. The remaining directors were not determined to be independent for the following reasons: Ronald E. Hermance, Jr. and Denis J. Salamone are currently executive officers of Hudson City Bancorp.

 

The Board of Directors has created the position of lead independent director, whose primary responsibility is to preside over periodic executive sessions of the independent members of the Board of Directors. The lead independent director also prepares the agenda for meetings of the independent directors, serves as a liaison between the independent directors and management and outside advisors, and makes periodic reports to the Board of Directors regarding the actions and recommendations of the independent directors. The independent members of the Board of Directors have designated Joseph G. Sponholz to serve in this position for 2008.

 

We will continue our effort to be a leader in corporate governance. Hudson City Bancorp’s Bylaws, among others things, define who may be considered an “independent” director, establish a mandatory retirement age for all directors, require the independent directors to meet periodically in executive session, and require that the responsibilities of the committees of the Board of Directors conform with the requirements of the Sarbanes-Oxley Act and related rules and regulations. In addition, Hudson City

Bancorp has Corporate Governance Guidelines and a Code of Ethics, both of which are available on our website at www.hcbk.com. Further actions to enhance our corporate governance mechanisms will be taken as required by law and the exchanges upon which our shares are listed, or as otherwise deemed necessary or appropriate by the Board of Directors, with a continuing focus on high standards of corporate governance.

 

Stockholders of Hudson City Bancorp may contact the Board of Directors, either individually or as a group, by writing to the Board of Directors, c/o Corporate Secretary, Hudson City Bancorp, Inc., West 80 Century Road, Paramus, New Jersey 07652. The Corporate Secretary will forward a copy of all written communications to each member of the Board of Directors.

 

During 2007, Hudson City Bancorp’s Board of Directors held eight meetings. The independent members of the Board of Directors met in executive session four times during 2007. No current director attended fewer than 75% of (a) the total number of Board meetings held in 2007 during the period for which such director has been a director and (b) the total number of committee meetings held in 2007 during the period which such director was a committee member. While we do not have a specific policy regarding attendance at the annual meeting, all nominees and continuing directors are expected to attend. All of the incumbent directors attended last year’s annual meeting.

 

The Board of Directors of Hudson City Bancorp maintains the following three independent standing committees:

 

The Nominating and Governance Committee consists of Mr. Azzara, Mr. Bardel, Mr. Belair, Ms. Bruni, Mr. Cosgrove and Dr. Quest, with Mr. Belair serving as Chairman. All members of the Nominating and Governance Committee have been determined by the Board to be independent of Hudson City Bancorp and meet the definition of independence in Rule 4200 (a)(15) of the NASDAQ Global Market’s listing standards. The Nominating and Governance Committee acts under a written charter adopted by Hudson City Bancorp’s Board of Directors, a copy of which is available on Hudson City Bancorp’s website at www.hcbk.com. This committee is responsible for developing and implementing policies and practices relating to corporate governance, including developing and monitoring implementation of Hudson City Bancorp’s Corporate Governance Guidelines. In addition, the Nominating and Governance Committee is responsible for developing criteria for the selection and evaluation of directors and recommends to the Board of Directors candidates for election as directors and senior management.

 

The Nominating and Governance Committee employs a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee will review the performance of Hudson City Bancorp’s current Board members to determine if they should stand for reelection. If a determination is made that a current Board member will not be recommended by the Nominating and Governance Committee for reelection, due to no longer satisfying the minimum qualifications, retirement or otherwise, the Nominating and Governance Committee will conduct a search for individuals qualified to become members of Hudson City Bancorp’s Board of Directors, unless the Board of Directors decides to reduce the size of the Board. The Nominating and Governance Committee will also evaluate director nominations by stockholders that are submitted in accordance with the procedural and informational requirements set forth in Hudson City Bancorp’s Bylaws and described herein under “Notice of Business to be Conducted at Annual Meeting.”

 

Hudson City Bancorp’s Corporate Governance Guidelines contain criteria considered by the Nominating and Governance Committee in evaluating nominees for a position on its Board. All nominees, including incumbent directors, board nominees and stockholder nominees, are evaluated in the same

manner. Generally, the Nominating and Governance Committee believes that directors should possess the highest personal and professional ethics and integrity and should have broad experience in positions with a high degree of responsibility, corporate board experience and the ability to commit adequate time and effort to serve as a director. Other criteria that will be considered include expertise currently desired on the Board of Directors, geography, finance or financial service industry experience, ethical standards and involvement in the community. The Nominating and Governance Committee also evaluates potential nominees to determine if they meet Hudson City Bancorp’s standard of independence (to ensure that at least a majority of the directors will, at all times, be independent).

 

Directors of Hudson City Bancorp may not serve on the board of more than three other public companies and may not serve on the board of another unaffiliated insured depository institution, bank holding company, financial holding company or thrift holding company, other than the Federal Home Loan Bank of New York, while serving as a director of Hudson City Bancorp. The Nominating and Governance Committee met three times during 2007.

 

The Audit Committee consists of Mr. Bardel, Ms. Bruni and Mr. Cosgrove, each of whom have been determined by the Board to be independent of Hudson City Bancorp and meet the definition of independence in Rule 4200 (a)(15) of the NASDAQ Global Market’s listing standards. Mr. Bardel serves as Chairman of the Audit Committee and Hudson City Bancorp’s Board of Directors has determined that Mr. Bardel is an “audit committee financial expert,” as defined by the rules and regulations of the Securities and Exchange Commission.

 

The Audit Committee acts under a written charter adopted by Hudson City Bancorp’s Board of Directors, a copy of which is available on Hudson City Bancorp’s website at www.hcbk.com. The Audit Committee is primarily responsible for: monitoring the integrity of Hudson City Bancorp’s financial reporting process and systems of internal controls regarding finance, accounting, legal compliance and public disclosure of financial information; monitoring the independence and performance of Hudson City Bancorp’s independent registered public accounting firm and internal auditing department; and maintaining free and open communication between the Audit Committee, the independent registered public accounting firm, management, the internal auditing department, and the Board of Directors. The Audit Committee met six times during 2007.

 

The Compensation Committee consists of the following members: Mr. Azzara (Chair), Mr. Belair and Dr. Quest. None of the members is or previously was one of our officers or employees, or had a relationship with us requiring disclosure in this proxy statement under the caption “Transactions with Related Persons.” The Compensation Committee has a written charter that has been approved by the Board of Directors, a copy of which is available on Hudson City Bancorp’s website at www.hcbk.com. The Compensation Committee met 10 times during 2007.

 

Our Bylaws require that the Board of Directors, or a board committee to which decision-making authority has been delegated, set executive officer compensation. As a NASDAQ Global Market listed company, we must observe governance standards that require independent directors or a committee of independent directors to set executive officer compensation. Consistent with these requirements, our Board of Directors has established a Compensation Committee all of whose members meet the definition of independence in Rule 4200(a)(15) of the NASDAQ Global Market’s listing standards. The board has delegated authority to the Compensation Committee to:

 

 

 

The Compensation Committee meets in executive session and with its advisors and invited management present. It considers the expectations of the Chief Executive Officer and the Chief Operating Officer with respect to their own compensation, and their recommendations with respect to the compensation of directors and more junior executive officers. It also considers empirical data and the recommendations of advisors. Executive officer compensation matters are presented for discussion at periodic executive sessions of the independent directors and at meetings of the full Board of Directors.

 

The Compensation Committee may delegate any or all of its powers and responsibilities only to subcommittees of its membership. During 2007, the Committee did not delegate its powers or responsibilities.

 

During 2007, the Compensation Committee continued to work with Frederic W. Cook & Co., Inc., a nationally recognized compensation consulting firm, to assist it in carrying out its duties, including but not limited to conducting a competitive review of our named executive officer compensation levels and practices. The consultant performs no other services for us. The Compensation Committee communicates directly with, and receives written work product directly from, its consultant. It determines the compensation of its consultant and meets with the consultant both in executive session and with invited executive officers present. The Compensation Committee relies on consultants for survey data, for assistance in understanding market practices and trends and for recommended compensation strategies. The Compensation Committee has relied on Hudson City’s outside legal counsel for advice as to its obligations under applicable corporate, securities, tax and employment laws, for assistance in interpreting its obligations under compensation plans and agreements, and for drafting plans and agreements to document business decisions. The Compensation Committee has the right to select other legal counsel.

Compensation Committee Interlocks and Insider Participation

 

During 2007, the following directors served as members of the Compensation Committee: Michael W. Azzara (Chair), William G. Bardel, Scott A. Belair and Victoria H. Bruni. Of these members, none of them was, during 2007, one of our officers or employees; none of them had formerly been one of our officers; and none of them had any relationship requiring disclosure by us in this proxy statement under the caption “Transactions with Related Persons.”

 

None of our executive officers served as a director or member of the compensation committee (or equivalent body) of another entity where any of our directors or any member of our Compensation Committee served as an executive officer or director.

Compensation Committee Report

 

The Compensation Committee has reviewed the Compensation Discussion and Analysis included in this proxy statement and has discussed it with management. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation Committee of Hudson City Bancorp, Inc.

 

Michael W. Azzara, Chair

 

Scott A. Belair, Member

 

Donald O. Quest, Member

 

Private Securities Litigation Reform Act Safe Harbor Statement

 

This Compensation Discussion and Analysis contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “consider” “should,” “plan,” “estimate,” “predict,” “continue,” “probable” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to estimates with respect to the financial condition, results of operations and business of Hudson City Bancorp, Inc. These factors include, but are not limited to:

 

 

Our ability to predict results or the actual effects of our plans or strategies is inherently uncertain. As such, forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. We do not intend to update any of the forward-looking statements after the date of the Proxy Statement that includes this Compensation Discussion and Analysis or to conform these statements to actual events.

 

Descriptions of compensation plans, programs and individual arrangements referred to in the Compensation Discussion and Analysis (other than broad-based plans that are open to substantially all salaried employees) that are governed by written documents are qualified in their entirety by reference to the full text of their governing documents. We have filed these documents as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2007 and incorporate them here by this reference.

 

Objectives

 

The creation of long-term value for our shareholders is highly dependent on the development and execution of business strategy by our executive officers. Our executive officer compensation program seeks to:

 

 

The factors that influence the design of our executive compensation program include the following:

 

 

 

The executive compensation program includes several components designed, in combination, to address these factors. Our executive officer compensation program was in a state of transition during 2006 and 2007 as we adapted it to our new organizational structure and business plan resulting from our stock offering completed in June 2005. We expect that the components of our executive compensation program and their relative significance may change further from year to year as circumstances change.

 

Key Elements of the Compensation Package

 

In General.   Our executive compensation program consists of three key elements: base salary to provide a reasonable level of predictable income; annual cash incentives to motivate our executives to meet or exceed annual performance objectives derived from our business plan; and long-term incentives to retain talented executives and provide an incentive to maximize shareholder return in the long term. We also provide fringe benefits and perquisites, and retirement and other termination benefits, to reduce outside distractions. Performance-based compensation opportunities make up a significant portion of each named executive officer’s total annual compensation opportunities. Long-term incentive, with values derived from stock price appreciation, make up a majority of the performance-based compensation opportunities.

Use of Discretion.   The Compensation Committee exercises substantial discretion in setting pay levels and determining the elements of compensation, and their relative weight in the compensation packages of our named executive officers. The following table summarizes the most significant elements of our named executive officers’ compensation packages and the basis on which each has been determined:

 

Base Salary.   Base salaries are reviewed annually. They do not vary substantially and directly with annual performance. Instead, they reflect market factors, experience and tenure in office, job content and sustained job performance over an extended period, and general cost of living. In 2007, our named executive officers’ base salaries were set above the median of an indicated range of salaries for their position derived from an independent compensation consultant’s report. These decisions reflect a combination of the individual’s experience and tenure in office, sustained performance, and in the cases of Messrs. Kranz and Laird, promotion to the position of Executive Vice President. In 2007, base salary increases for our named executive officers were as follows:

 

Cash Incentives.   Our Executive Annual Incentive Plan provides performance-based annual incentives to motivate named executive officers to execute specific financial and non-financial elements of our business plan, and to reward individual conduct that supports shared corporate goals. In years prior to 2006, we based annual incentives mainly on whether the company met predetermined pre-tax income targets. In 2007, we continued a transition begun in 2006 to an incentive program that incorporates individual performance objectives for each named executive officer. We now base incentive payments on subjective evaluation of performance in addition to the achievement of shared corporate financial goals.

 

Our business plan includes the following elements:

 

 

For 2007, each of our named executive officers had the opportunity to earn an incentive payment once the Company’s annual income before taxes and extraordinary items equaled or exceeded a threshold level of $324.833 million. In the cases of Messrs. Hermance, Salamone and Tassillo, we set a maximum incentive payment for each in early 2007 and the actual payment was based on a subjective, retrospective review of corporate and individual performance indicators. In the case of Messrs. Kranz, Butkovich and Laird, we established threshold, target and superior payment levels that each executive could earn based on the Compensation Committee’s subject review of our annual income before taxes and extraordinary items and individual performance relative to pre-established performance factors. The Compensation Committee set threshold, target and superior payment levels to create a linkage between the executive’s incentive payment and the Compensation Committee’s assessment of his performance. In light of the subjective nature of the individual performance factors, the Compensation Committee did not attach quantitative performance measures to the payment levels. This approach enabled us to control the portion of our net income before taxes and extraordinary items expended for cash incentives. It focused management on the income effects of increases in overhead expense associated with expansion of the branch network, balance sheet growth and other strategic and operating decisions. It also afforded management flexibility to adapt to business conditions as they emerged during the year and afforded the Compensation Committee the ability to reward or discipline management for its actions based on a retrospective review of the business context in which action was taken.

The following table sets forth the individual performance factors which the Compensation Committee used to evaluate the performance of each of the named executive officers in 2007.

 

 

For 2007, the named executive officers’ target and maximum award opportunities, and actual incentives awarded as a percentage of maximum, were:

 

 

Final award decisions reflected our actual income before taxes and extraordinary items of $481.743 million, a record level which the Compensation Committee regarded as a superior achievement, and the Compensation Committee’s subjective assessment of the individual performance factors described above, and, in the case of executives other than the Chief Executive Officer, the Chief Executive Officer’s subjective assessment of their individual performance.

Mr. Hermance’s incentive payout for 2007 reflects the Compensation Committee’s assessment of his success in directing the Company to record earnings on record mortgage volume with continued deposit growth and sustained operating efficiency in a year when many other mortgage lenders and depository institutions were posting substantial credit losses and declining new business. The Compensation Committee attributed these results to Mr. Hermance’s core vision for the Company and discipline in adhering to a business model focused on high operating efficiency, conservative credit underwriting, traditional mortgage products, favorable pricing and measured, organic growth. The Compensation Committee also took into account favorable market performance of the Company’s common stock in comparison to the stocks of other publicly-traded mortgage lenders and the linkage between this performance and Mr. Hermance’s success in differentiating the Company’s business model from the business models of other mortgage lenders in the eyes of analysts and investors through effective investor relations efforts.

 

Mr. Salamone’s incentive payment for 2007 reflects his success in assuming certain investor relations responsibilities previously borne exclusively by Mr. Hermance, allowing Mr. Hermance to spend more time on other functions, and in transitioning the Chief Financial Officer function to Mr. Kranz, deepening the Company’s senior management team as part of the evolving management development and succession plan. It also reflects Mr. Salamone’s contributions, through oversight of his direct reports, to our continuing superior operating efficiency and continuing, disciplined growth in our core business.

 

Mr. Kranz’ incentive payment for 2007 reflects an assessment of his success in transitioning to his new position as Chief Financial Officer, assuming from Mr. Salamone primary responsibility for supervision of accounting and finance, oversight of financial reporting and internal controls and contributions to balance sheet management.

 

Mr. Laird’s incentive payment for 2007 reflects his achievement of significant growth in our mortgage volume, achieved through internal originations and an expanded broker network, despite declining volume in the mortgage markets generally. His incentive payment also reflects his adherence to the conservative internal underwriting standards that are critical to differentiating us from our competitors in the investment markets and maintaining our high operating efficiency. The Compensation Committee also took into account his role in evaluating the commercial lending operation assumed in the Sound Federal acquisition.

 

Mr. Butkovich’s incentive payout for 2007 reflects his continuing success in building what is, in effect, a de novo banking franchise on Long Island. During 2007, Mr. Butkovich successfully identified and opened new bank branch locations that have achieved high rates of deposit growth, and has recruited experienced, service-oriented branch managers to build customer relationships and brand loyalty. He actively participated in community events to raise Hudson City Savings’ profile and build brand recognition.

 

Mr. Tassillo’s incentive payment for 2007 reflects his contribution to the development of our technology infrastructure and the refinement of our internal control processes, as well as the successful transition of his executive officer responsibilities to others.

 

Equity Compensation.   In 2007, we continued a transition begun in 2006 to a performance-based equity compensation program from a more traditional service-based approach.

 

Prior to 2006, it had been our practice to consider stock option and restricted stock grants at the time of hire or promotion for newly hired or promoted executive officers and annually in connection with our annual executive officer compensation review for incumbent executive officers. We used equity awards as a retention tool and as an incentive for executive officers to make strategic and operating decisions that, over time, result in stock price appreciation. Awards vested ratably over a vesting period, contingent only on continued service through the vesting date or the occurrence of certain acceleration events such as death, disability, retirement and change in control. We valued awards based on the grant-

date fair market value of our common stock (in the case of restricted stock awards) and the grant-date value of stock options based on a recognized option valuation methodology. We amortized the grant-date value over the award’s vesting period and included each year’s amortization amount as part of that year’s compensation package in evaluating the overall compensation package. It has not been our practice to reduce compensation or retirement benefits in subsequent years based on stock price performance that causes previously granted equity awards to increase in value, or to grant additional compensation or retirement benefits where stock price performance has impaired the value of previous awards, because such practices could weaken the intended linkage between equity compensation and mid- to long-term shareholder return.

 

In 2006, we implemented, with shareholder approval, the 2006 Stock Incentive Plan, our first equity compensation plan since 2000. During 2007, we made our second awards under the 2006 Stock Incentive Plan. We granted and priced these awards on the third trading day after our release of annual financial results for 2007. All awards took the form of stock option grants, rather than a mix of stock options and restricted stock, tying the value of the awards directly to stock price appreciation. While stock options granted in 2006 were a mix of retention awards with service-based vesting and performance awards with a combination of service- and performance-based vesting, the stock options granted to our named executive officers, other than Mr. Tassillo, are all performance-based stock options.

 

Mr. Tassillo received only retention stock options because performance-based stock options have multi-year performance conditions that are not consistent with his arrangements to continue working for the Company beyond his normal retirement date. Retention stock options for Mr. Tassillo vest 100% on the first anniversary of the grant date and are scaled to provide a one-year rather than multi-year retention incentive, reflecting the nature of his arrangement to continue working past his normal retirement date. In contrast to grants prior to 2006 and in order to strengthen the retention aspect of retention stock options, vesting of retention stock options does not accelerate on retirement, and acceleration in cases of death or disability is limited to those options scheduled to vest within six months of the termination date. Vesting accelerates in the event of a change of control only if the executive is discharged without cause or resigns with good reason before the option’s regularly scheduled vesting date.

 

Performance stock options granted in 2007 have been structured to reward option holders for stock price appreciation that is achieved through sustained earnings and increased return on equity. All performance stock options will vest 100% on January 26, 2010, if certain performance measurements are satisfied. The specified performance measures are (1) as to one-half of the number of options granted to each recipient, a target level of aggregate diluted earnings per share measured over any four consecutive calendar quarters during calendar years 2007, 2008 and 2009, and (2) as to the balance of the number of options, a target level for return on average equity which must be attained or exceeded for at least one calendar quarter during 2007, 2008 or 2009. Performance stock options have the same acceleration features as retention stock options. We have tied vesting of performance stock options to targets for earnings per share and return on equity in order to encourage conduct that produces stock price appreciation. We expect to achieve these performance targets. If we do not, performance stock options are subject to forfeiture at the discretion of the Compensation Committee, and the Company will recover prior expense accruals relating to all forfeited grants. See the notes to unexercised unearned options in the Outstanding Equity Awards at Fiscal Year-End Table —  2007 below for additional detail on the vesting conditions attached to performance stock option grants.

 

Our current policy is to consider stock option grants to incumbent executive officers in the first quarter of each year, giving consideration to any episodic grants we may award to promoted or newly hired executives. We seek to price our performance stock option grants shortly after the release of quarterly or annual financial results or at other times when we would permit our directors and executives to purchase or sell our common stock on the open market under our securities trading policy.

Other Elements of the Executive Compensation Package

 

Our 2007 compensation program for our named executive officers includes the following additional elements:

 

Retirement Benefits.   In addition to base salary, annual cash incentives and long-term equity incentives, our named executive officers are eligible to participate in the same broad-based, tax-qualified retirement and savings plans as other employees with similar dates of hire. They are also eligible to participate in certain non-qualified supplemental executive retirement plans because applicable tax rules do not permit them to receive benefits under our broad-based, tax-qualified plans at the same percentage of salary as other employees. The supplemental executive retirement plans generally provide benefits that, when added to the benefits available under our qualified plans, are equivalent, as a percentage of salary, to the benefits provided to other employees. We provide these benefits in lieu of additional current cash or equity compensation to assure that our named executive officers have a source of retirement income that is available at the time of retirement without regard to the performance of their personal savings and investment portfolios and because these programs enjoy more favorable corporate and/or personal income tax treatment under the federal tax laws than current compensation.

 

We also use the supplemental plans to provide additional pension benefits to executives who are recruited from other employers in mid-career by granting additional years of service credits for periods of employment with a prior employer. It has been our practice to grant additional years of service credit only at the time of hire and as part of the employment negotiation. Messrs. Hermance, Salamone and Butkovich received negotiated prior service credits as part of their hiring packages in their respective years of hire.

 

Under our supplemental employee stock ownership plan, Messrs. Hermance and Salamone also participate in an additional benefit designed to duplicate the benefits each would earn under our leveraged employee stock ownership plan if the plan were to repay all acquisition debt incurred by the plan to purchase common stock for future allocation on or before their respective retirement dates. The plan will award this benefit only in the event of early or normal retirement while our employee stock ownership plan has unpaid acquisition debt. We designed the benefit to approximate an additional employee stock ownership plan benefit that would be provided if, prior to the executive’s retirement, we should experience a change in control that would result in a mandatory prepayment of our tax-qualified employee stock ownership plan’s acquisition debt and an accelerated allocation of any remaining common stock that had secured the acquisition debt. We provide this benefit primarily so that the change in control feature of our employee stock ownership plan does not serve as a financial disincentive to retirement. In addition, in the event of a change in control, we expect that the payment of this benefit to a retirement-eligible executive would reduce the cost of change-in-control benefits otherwise payable to him.

 

Benefits under our broad-based and executive-level retirement programs are tied to base salary. Cash incentives, restricted stock, option-related compensation and other items of compensation do not increase or reduce benefit levels.

 

Perquisites and Other Benefits.   We also provide certain perquisites and benefits to our named executive officers. We provide the use of a company automobile to Messrs. Hermance, Salamone, Tassillo and Butkovich. We pay membership dues in private clubs for Messrs. Hermance and Salamone. We cover travel and entertainment expenses for the wives of all named executive officers to accompany them on certain business travel, both as a convenience and because we believe our business benefits from the travel and entertainment activities which they facilitate. We provide these benefits in kind, but the Compensation Committee takes the cost of these items into account in setting other elements of compensation.

Each of our named executive officers is also eligible, under our charitable matching contribution program, to direct us to make charitable gifts in limited dollar amounts to the tax-exempt organizations of their choice. We offer this program to encourage philanthropy among our named executives and to capture any benefit to our corporate reputation that may result from our named executives’ philanthropic activity.

 

Employment Agreements and Change in Control Agreements.   Consistent with the practices of other financial institutions of similar size and asset and business mix, we have entered into employment or change of control severance agreements with each of our named executive officers. We have found it necessary to offer these arrangements as part of the recruitment packages for newly hired executives. We have offered them to incumbent executives in order to make our package of employment and change in control protections comparable to those available at other employers. If we did not follow market practice in this regard, we believe we would compromise our relationship with our executives and would have to offer increased annual compensation packages, at increased recurring annual cost, in order to attract and retain the executive talent we require.

 

In 2007, our Compensation Committee engaged its independent compensation consultant to review the substantive terms of our employment agreements and change in control agreements and our practices in offering these agreements to various levels of officers. The Compensation Committee also reviewed the estimated costs of settling these contracts in the event of termination of employment in the context of a change in control and in the absence of a change in control. It considered these costs in the aggregate as a percentage of our market capitalization. It also reviewed historical data concerning the published contract settlement costs, as a percentage of reported transaction value, for executive contracts in place at selected financial institutions that have experienced change in control transactions. Based on this information, the Compensation Committee concluded that the substantive terms of our employment agreements and change in control agreements are in line with prevailing industry practices. The Compensation Committee also concluded that the projected costs of such agreements are reasonable in light of our size and the published market data reviewed.

 

The employment agreements with Messrs. Hermance, Salamone and Tassillo help us protect our franchise in two ways. First, each agreement restricts the named executive’s ability to work for competitors in our markets for a specified period following a voluntary resignation without good reason or a discharge with cause. Second, each agreement prohibits solicitation of or disturbance of our relations with customers or employees by the named executive for a specified period following termination for any reason. We have chosen to secure these restrictions through employment agreements rather than by attaching them to equity compensation grants or other items of compensation so that they remain in effect indefinitely and are not tied to a decision to continue or discontinue, or to the value of, a particular item of compensation. In return for these restrictions, these agreements provide the executives a termination benefit equal in value to three years’ compensation and benefits (excluding stock options, restricted stock or other equity compensation) in the event of termination under certain circumstances. These circumstances include discharge without cause or resignation following certain triggering events, including a diminution in title, position, duties or authority, failure to pay or a reduction in compensation, involuntary relocation or other material breach of contract. In addition, for a limited period of time following a change in control, Messrs. Hermance, Salamone and Tassillo may each choose to resign for any reason or no reason and collect the same termination benefits that would be available if their resignation had followed a specified triggering event. We provide these benefits as a retention incentive for these named executives to remain in their positions through the conclusion of a change in control transaction that will be in place regardless of the existence or value, from time to time, of other items of compensation with retention features. We have provided this resignation window following a change in control to reduce the extent to which personal issues might serve to distract these executives from corporate matters during the negotiation and execution of a change in control transaction. Our employment agreements provide benefits only in the event of an actual termination of employment;

payments are not due in the event of a change of control following which the executive retains his position beyond the expiration of the resignation window. We discontinued renewals of Mr. Tassillo’s employment agreement upon his resignation as an executive officer; Mr. Tassillo’s employment agreement will expire on June 4, 2010.

 

The change-in-control agreements in effect with our other named executive officers restrict their right to solicit or disturb our relations with our customers or employees following termination of employment for any reason following a change in control. We choose to secure these restrictions through change in control agreements rather than by attaching them to equity compensation grants or other items of compensation so that they remain in effect indefinitely and are not tied to a decision to continue or discontinue, or to the value of, a particular item of compensation. These agreements provide a termination benefit equal in value to two years’ compensation and benefits (excluding stock options, restricted stock or other equity compensation) in the event of discharge without cause or resignation following certain triggering events. These triggering events include a diminution in title, position, duties or authority, failure to pay or a reduction in compensation, involuntary relocation or other material breach of contract. We provide these benefits as a retention incentive for these named executives to remain in their positions through the conclusion of a change in control transaction that will be in place regardless of the existence or value, from time to time, of other items of compensation with retention features. As is the case with our employment agreements, change in control agreements do not provide payments unless the officer experiences a termination of employment.

 

Material Policies and Procedures

 

Benchmarking and Survey Data

 

The Compensation Committee requests and reviews survey data for information relating to compensation practices at other financial institutions of similar asset and business mix as well as general compensation trends in the private sector. For 2007, the Compensation Committee considered survey data for the following companies: Associated Banc-Corp; Astoria Financial Corp.; Comerica, Inc.; Commerce Bancorp, Inc. (New Jersey); Downey Financial Corp.; First Horizon National Corp.; Huntington Bancshares, Inc.; IndyMac Bancorp, Inc.; M & T Bank Corp.; New York Community Bancorp, Inc.; Sovereign Bancorp, Inc.; and Zions Bancorporation. M & T Bank Corp. and New York Community Bancorp, Inc. were added to this group in 2007 to replace Compass Bancshares, Inc. and Mercantile Bankshares, Inc., which were removed because they had been acquired. The committee, in consultation with its compensation consultant, selected these companies based on their asset size, market capitalization, headcount and business focus on deposit-taking and residential mortgage lending. The Compensation Committee does not seek to set compensation levels at prescribed percentile rankings within a peer group. It does use survey data to determine on a historical basis the degree of correlation between the base salary, annual incentive and equity compensation provided by us (expressed as a percentile ranking relative to our peers) and our percentile ranking among the same peer group for performance measures that include, but are not limited to, return on average assets, return on average equity, asset growth, total shareholder return, efficiency ratio and net income growth.

 

Impact of Accounting and Tax Treatment

 

Section 162(m).   Section 162(m) of the Internal Revenue Code of 1986 (the “Internal Revenue Code”) imposes a $1 million annual limit per executive officer, on our federal tax deduction for certain types of compensation paid to some of the named executive officers. It has been the Compensation Committee’s practice to structure the compensation and benefit programs offered to the named executive officers with a view to maximizing the tax deductibility for the Company of amounts paid. However, in structuring compensation programs and making compensation decisions, the Compensation Committee considers a variety of factors, including the materiality of the payments and tax deductions involved, the need for flexibility to address unforeseen circumstances and the need to attract and retain qualified

management. After considering these factors, the Compensation Committee may decide to authorize payments all or part of which would be nondeductible for federal tax purposes. We anticipate that certain restricted stock awards may be non-deductible, in whole or in part, as a result of section 162(m).

 

Sections 4999 and 280G.   Section 4999 of the Internal Revenue Code imposes a 20% excise tax on certain “excess parachute payments” made to “disqualified individuals.” Under section 280G of the Internal Revenue Code, such excess parachute payments are also nondeductible to Hudson City. If payments that are contingent on a change of control to a disqualified individual (which terms include the named executive officers) exceed three times the individual’s “base amount,” they constitute “excess parachute payments” to the extent they exceed one times the individual’s base amount.

 

We have entered into employment agreements with each of Messrs. Hermance, Salamone and Tassillo, pursuant to which we will make an indemnification payment to the executive officer so that, after payment of the initial excise tax and all additional income and excise taxes imposed on the indemnification payment, the executive officer would retain approximately the same net after-tax amounts under the employment agreement that he would have retained if there was no excise tax. We have done this so that, in general, whether or not we have experienced a change in control will not affect the net after-tax value to these individuals of termination benefits under their employment agreements. Messrs. Butkovich, Laird and Kranz are not entitled to such payments under their change in control agreements. Neither Hudson City Savings, nor Hudson City Bancorp, is permitted to claim a federal income tax deduction for the portion of the change of control payment that constitutes an “excess parachute payment,” or the indemnification payment.

 

Accounting Considerations.   The Compensation Committee is informed of the financial statement implications of the elements of the executive officer compensation program. However, a compensation element’s contribution to the objectives of our executive officer compensation program and its projected economic cost, which may or may not be reflected on our financial statements, are the primary drivers of executive officer compensation decisions.

 

Personal Income Tax Considerations.   Federal and state income tax laws do not apply uniformly to all items of compensation, with the result that certain items of compensation are more valuable, on a net after-tax basis, to our named executives, or less costly, on a net after-tax basis, to us. We take the federal and state personal income tax treatment of various items of compensation into account to the extent consistent with the corporate goals and objectives of our executive compensation program.

 

Stock Ownership Policy

 

In February of 2005, we set stock ownership targets for our directors and officers with a title of Executive Vice President or higher. The purpose of these guidelines is to promote director and officer stock ownership that will cause our directors and officers to share, with other stockholders, a financial interest in the performance of our stock. Pursuant to these stock ownership targets, we expect each outside director to own an amount of our common stock equal to ten times the annual cash retainer for such director’s service. In addition, we expect each officer to own an amount of our common stock equal to three times the senior executive officer’s base salary. The board has authorized the Nominating and Governance Committee to adopt stock ownership guidelines for our other officers as it deems necessary or appropriate. Current stock ownership by our directors and named executive officers meets or exceeds the target levels.

 

Role of CEO in Determining the Compensation of Other Named Executive Officers

 

We believe that compensation policy is an important tool that should be available to the Chief Executive Officer in setting and executing corporate strategy. Our Compensation Committee, alone or in consultation with the other independent members of our Board of Directors, determines the compensation of each executive officer but considers the views of the Chief Executive Officer and Chief Operating Officer in setting the compensation of the more junior executive officers.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

 

Executive Officer Compensation

 

The following table provides information about the compensation of our named executive officers for fiscal years 2006 through 2007.

 

 

 

 

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Salary and bonus (Columns (C) and (D)) as a percentage of total compensation (Column (J)) in 2007 ranged from approximately 14.69% for Mr. Hermance to 29.26% for Mr. Kranz. These percentages are significantly influenced by the inclusion of restricted stock and stock option awards in the Summary Compensation Table at times and in amounts tied to the recognition of compensation expense for such awards under generally accepted accounting principles. Total cash compensation (Columns (C), (D) and (G)) as a percentage of total compensation (Column (J)) ranged from approximately 36.17% for Mr. Butkovich to 54.91% for Mr. Tassillo. Total performance-based compensation (Columns (E) (F) and (G)) as a percentage of total compensation (Column (J)) ranged from approximately 38.68% for Mr. Kranz to approximately 69.77% for Mr. Hermance.

 

Employment Agreements

 

Hudson City Bancorp and Hudson City Savings have each entered into employment agreements dated as of June 7, 2005 with Messrs. Hermance, Salamone and Tassillo to secure their services as officers. These employment agreements amend and restate prior agreements among Hudson City Bancorp, Hudson City Savings and each of Messrs. Hermance, Salamone and Tassillo. Other than as noted in this summary or any other discussion of the employment agreements in this annual proxy statement, the terms and conditions of the employment agreements between the executives and Hudson City Bancorp are substantially similar in all material respects to the terms and conditions of the employment agreements between the executives and Hudson City Savings.

 

The employment agreements between Hudson City Bancorp and each of Messrs. Hermance, Salamone and Tassillo have rolling three-year terms, until the executive or Hudson City Bancorp gives notice of non-extension, at which time the terms are fixed for three years. The employment agreements between Hudson City Savings and each of Messrs. Hermance, Salamone and Tassillo have an initial three-year term, subject to annual extensions based on a review by the Board of Directors of Hudson

City Savings of the executive’s performance. The executives’ current annual salary rates payable pursuant to these agreements are $1,350,000 for Mr. Hermance, $825,000 for Mr. Salamone and $460,000 for Mr. Tassillo. The agreements also provide for discretionary cash bonuses, participation on generally applicable terms and conditions in compensation and fringe benefit plans and customary corporate indemnification and errors and omissions insurance coverage throughout the employment term and for six years after termination. The employment agreements with Hudson City Bancorp also provide for the use of an automobile owned or leased by Hudson City Bancorp and reimbursement for memberships in mutually agreed upon clubs and organizations. See “Executive Officer Compensation — Termination and Change of Control Benefits” for a description of the severance provisions contained in the employment agreements. In connection with his resignation as an executive officer, we have discontinued extensions of Mr. Tassillo’s agreements as of June 4, 2007.

 

Compensation Plans

 

Incentive Plans

 

Executive Officer Annual Incentive Plan.   Officers at and above the level of Senior Vice President are eligible to earn cash incentives each year under the Executive Officer Annual Incentive Plan upon achievement of pre-determined corporate and individual performance goals. We intend bonuses payable under the Executive Officer Annual Incentive Plan to constitute qualified performance-based compensation under section 162(m) of the Internal Revenue Code.

 

In order to be eligible for incentive payments under the Executive Officer Annual Incentive Plan for a given year, participants must (with certain exceptions for death, disability, retirement or a change in control) be employed on the last day of the plan year. The amount of the incentive payable to each participant is either a fixed dollar amount or a percentage of his or her annual rate of base salary. The committee administering the plan determines the incentive payments after the end of the year based on the achievement of pre-established corporate performance goals and a subjective review of individual performance in the context of pre-established subjective performance factors. Generally no incentives are payable if corporate and individual performance are below minimum thresholds. We generally pay incentives under the Executive Officer Annual Incentive Plan on or before March 15 of the year following the plan year in which they are earned, following determination of the level of achievement of corporate and individual performance goals. In the event that a deferred compensation plan for officers is in effect, participants may elect to defer payment of their bonus until a later date.

 

The Compensation Committee of our Board of Directors has been appointed to be the administrative committee of the Executive Officer Annual Incentive Plan at all times during that plan’s existence.

 

Annual Bonus Plan.   Each of our named executive officers other than Messrs. Hermance, Salamone and Tassillo participated in our annual bonus program for 2007. This program covers substantially all of our salaried employees. This program has been discontinued for executive officers beginning in 2008.

 

2000 Stock Option Plan and 2000 Restricted Stock Plan.   Our Board of Directors adopted the 2000 Stock Option Plan and 2000 Restricted Stock Plan in 1999 and our shareholders approved the plans in 2000. We have not made any awards under these plans since 2005 and will not make any more in the future. Awards made to our named executive officers under these plans after 2000 and prior to 2006 vest in 20% increments over a five year period beginning at the date of grant and continued to vest during 2007. The vesting of all awards made under these plans accelerates upon the named executive officer’s death, disability or retirement or in the event of a change in control. The Compensation Committee of our Board of Directors has been appointed to be the administrative committee of the 2000 Stock Option Plan and 2000 Restricted Stock Plan at all times during those plans’ existence.

2006 Stock Incentive Plan.   Our Board of Directors adopted the 2006 Stock Incentive Plan in 2006. Our shareholders approved the plan in same year. Subject to the terms of the 2006 Stock Incentive Plan, employees, directors and officers of Hudson City Bancorp and Hudson City Savings and any other subsidiary are eligible to participate. Hudson City Bancorp reserved 30,000,000 shares of common stock for issuance under the 2006 Stock Incentive Plan.

 

The committee administering the 2006 Stock Incentive Plan may, in its discretion, grant any or all of nine types of equity-linked awards to eligible individuals: stock options, stock appreciation rights, restricted stock (both time-based and performance-based), performance shares, performance units, deferred stock, phantom stock and other stock-based awards. The administrative committee will, in its discretion, determine the type of awards made and establish other terms and conditions applicable to the award. The Compensation Committee of our Board of Directors has been appointed to be the administrative committee of the 2006 Stock Incentive Plan at all times during that plan’s existence.

The following table sets forth information regarding plan-based awards granted to the named executive officers of Hudson City Bancorp during the last fiscal year.

 

 

(Notes on following page)

 

 

 

Stock Awards and Stock Option Grants Outstanding

 

The following tables set forth information regarding stock awards, stock options and similar equity compensation outstanding at December 31, 2007, whether granted in 2007 or earlier, including awards that have been transferred other than for value.

 

 

(Notes on following page)

 

 

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