UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended:
March 31, 2009
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
Commission File Number: 0-26001
Hudson City Bancorp, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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22-3640393
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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West 80 Century Road
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Paramus, New Jersey
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07652
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(Address of Principal Executive Offices)
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(Zip Code)
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(201) 967-1900
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
As of May 4, 2009, the registrant had 521,490,952 shares of common stock, $0.01 par value,
outstanding.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use
of such words as may, believe, expect, anticipate, should, plan, estimate, predict,
continue, and potential or the negative of these terms or other corresponding 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:
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the timing and occurrence or non-occurrence of events may be subject to circumstances
beyond our control;
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increases in competitive pressure among the financial institutions or from non-financial
institutions;
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changes in the interest rate environment may reduce interest margins or affect the value
of our investments;
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changes in deposit flows, loan demand or real estate values may adversely affect our
business;
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changes in accounting principles, policies or guidelines may cause our financial
condition to be perceived differently;
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general economic conditions, either nationally or locally in some or all of the areas in
which we do business, or conditions in the securities markets or the banking industry may
be less favorable than we currently anticipate;
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legislative or regulatory changes that may adversely affect our business;
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applicable technological changes that may be more difficult or expensive than we
anticipate;
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success or consummation of new business initiatives that may be more difficult or
expensive than we anticipate;
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litigation or matters before regulatory agencies, whether currently existing or
commencing in the future, that may delay the occurrence or non-occurrence of events longer
than we anticipate;
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the risks associated with continued diversification of assets and adverse changes to
credit quality;
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difficulties associated with achieving expected future financial results; and
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the risk of an economic slowdown that would adversely affect credit quality and loan
originations.
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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 this Form 10-Q or to conform these statements to
actual events.
Page 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
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March 31,
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December 31,
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2009
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2008
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(In thousands, except share and per share amounts)
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(unaudited)
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Assets:
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Cash and due from banks
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$
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230,123
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$
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184,915
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Federal funds sold
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118,019
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76,896
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Total cash and cash equivalents
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348,142
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261,811
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Securities available for sale:
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Mortgage-backed securities
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11,149,867
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9,915,554
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Investment securities
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3,532,186
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3,413,633
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Securities held to maturity:
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Mortgage-backed securities (fair value of $9,787,710 at March 31, 2009
and $9,695,445 at December 31, 2008)
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9,537,148
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9,572,257
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Investment securities (fair value of $447,156 at March 31, 2009
and $50,512 at December 31, 2008)
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450,140
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50,086
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Total securities
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24,669,341
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22,951,530
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Loans
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30,105,753
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29,418,888
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Deferred loan costs
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69,498
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71,670
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Allowance for loan losses
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(65,121
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(49,797
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Net loans
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30,110,130
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29,440,761
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Federal Home Loan Bank of New York stock
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867,820
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865,570
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Foreclosed real estate, net
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11,626
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15,532
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Accrued interest receivable
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299,952
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299,045
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Banking premises and equipment, net
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73,479
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73,502
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Goodwill
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152,109
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152,109
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Other assets
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37,159
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85,468
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Total Assets
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$
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56,569,758
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$
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54,145,328
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Liabilities and Shareholders Equity:
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Deposits:
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Interest-bearing
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$
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19,851,689
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$
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17,949,846
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Noninterest-bearing
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584,227
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514,196
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Total deposits
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20,435,916
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18,464,042
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Repurchase agreements
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15,100,000
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15,100,000
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Federal Home Loan Bank of New York advances
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15,175,000
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15,125,000
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Total borrowed funds
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30,275,000
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30,225,000
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Due to brokers
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446,969
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239,100
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Accrued expenses and other liabilities
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359,075
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278,390
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Total liabilities
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51,516,960
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49,206,532
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Common stock, $0.01 par value, 3,200,000,000 shares authorized;
741,466,555 shares issued; 521,260,395 shares outstanding
at March 31, 2009 and 523,770,617 shares outstanding
at December 31, 2008
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7,415
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7,415
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Additional paid-in capital
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4,642,552
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4,641,571
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Retained earnings
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2,253,361
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2,196,235
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Treasury stock, at cost; 220,206,160 shares at March 31, 2009 and
217,695,938 shares at December 31, 2008
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(1,768,615
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(1,737,838
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Unallocated common stock held by the employee stock ownership plan
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(214,742
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(216,244
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Accumulated other comprehensive income, net of tax
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132,827
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47,657
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Total shareholders equity
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5,052,798
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4,938,796
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Total Liabilities and Shareholders Equity
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$
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56,569,758
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$
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54,145,328
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See accompanying notes to unaudited consolidated financial statements.
Page 4
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
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For the Three Months
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Ended March 31,
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2009
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2008
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(In thousands, except per share data)
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Interest and Dividend Income:
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First mortgage loans
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$
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414,208
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$
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346,277
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Consumer and other loans
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5,990
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6,856
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Mortgage-backed securities held to maturity
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121,931
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124,845
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Mortgage-backed securities available for sale
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128,983
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69,510
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Investment securities held to maturity
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2,358
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10,946
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Investment securities available for sale
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43,303
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38,555
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Dividends on Federal Home Loan Bank of New York stock
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6,373
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14,226
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Federal funds sold
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176
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2,073
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Total interest and dividend income
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723,322
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613,288
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Interest Expense:
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Deposits
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138,824
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158,016
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Borrowed funds
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300,667
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261,957
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Total interest expense
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439,491
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419,973
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Net interest income
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283,831
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193,315
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Provision for Loan Losses
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20,000
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2,500
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Net interest income after provision for loan losses
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263,831
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190,815
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Non-Interest Income:
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Service charges and other income
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2,125
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2,221
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Gain on securities transactions, net
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148
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Total non-interest income
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2,273
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2,221
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Non-Interest Expense:
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Compensation and employee benefits
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32,731
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31,545
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Net occupancy expense
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8,480
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7,371
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Federal deposit insurance assessment
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2,616
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416
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Other expense
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10,967
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8,780
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Total non-interest expense
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54,794
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48,112
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Income before income tax expense
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211,310
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144,924
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Income tax expense
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83,647
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56,255
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Net income
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$
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127,663
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$
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88,669
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Basic earnings per share
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$
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0.26
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$
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0.18
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Diluted earnings per share
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$
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0.26
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$
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0.18
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Weighted Average Number of Common Shares Outstanding:
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Basic
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487,567,802
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483,092,588
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Diluted
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491,326,567
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494,384,738
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See accompanying notes to unaudited consolidated financial statements.
Page 5
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders Equity
(Unaudited
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For the Three Months
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Ended March 31,
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2009
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2008
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(In thousands, except per share data)
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Common Stock
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$
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7,415
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$
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7,415
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Additional paid-in capital:
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Balance at beginning of year
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4,641,571
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4,578,578
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Stock option plan expense
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3,736
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3,702
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Tax benefit from stock plans
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1,505
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1,722
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Allocation of ESOP stock
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1,332
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2,340
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RRP stock granted
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(6,771
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)
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Vesting of RRP stock
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1,179
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371
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Balance at end of period
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4,642,552
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4,586,713
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Retained Earnings:
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Balance at beginning of year
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2,196,235
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2,002,049
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Net Income
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127,663
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88,669
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Dividends paid on common stock ($0.14 and $0.09 per share, respectively)
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(68,328
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)
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(43,483
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)
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Exercise of stock options
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(2,209
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)
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(1,448
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)
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Balance at end of period
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2,253,361
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2,045,787
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Treasury Stock:
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Balance at beginning of year
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(1,737,838
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)
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(1,771,106
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)
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Purchase of common stock
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(40,695
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)
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(3,143
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)
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Exercise of stock options
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|
3,147
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3,889
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RRP stock granted
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6,771
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Balance at end of period
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(1,768,615
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)
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(1,770,360
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)
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Unallocated common stock held by the ESOP:
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Balance at beginning of year
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|
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(216,244
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)
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|
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(222,251
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)
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Allocation of ESOP stock
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1,502
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1,502
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Balance at end of period
|
|
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(214,742
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)
|
|
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(220,749
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)
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Accumulated other comprehensive income(loss):
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|
|
|
|
|
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Balance at beginning of year
|
|
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47,657
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|
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16,622
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|
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|
|
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Net unrealized holding gains on securities available for sale arising during period,
net of tax expense of $59,751 and $30,848 in 2009 and 2008, respectively
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|
|
86,605
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|
|
|
44,667
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|
Reclassification adjustment for gains in net income, net of tax of expense
$61 and $0 in 2009 and 2008, respectively
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|
|
(87
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)
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Pension and other postretirement benefits adjustment, net of tax benefit of
$930 and $4 for 2009 and 2008, respectively
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|
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(1,348
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)
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|
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(6
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)
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
|
85,170
|
|
|
|
44,661
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
132,827
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|
|
|
61,283
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|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
$
|
5,052,798
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|
|
$
|
4,710,089
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|
|
|
Summary of comprehensive income
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
127,663
|
|
|
$
|
88,669
|
|
Other comprehensive income, net of tax
|
|
|
85,170
|
|
|
|
44,661
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
212,833
|
|
|
$
|
133,330
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
Page 6
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited
)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
127,663
|
|
|
$
|
88,669
|
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, accretion and amortization expense
|
|
|
11,747
|
|
|
|
6,444
|
|
Provision for loan losses
|
|
|
20,000
|
|
|
|
2,500
|
|
Gain on securities transactions, net
|
|
|
(148
|
)
|
|
|
|
|
Share-based compensation, including committed ESOP shares
|
|
|
7,749
|
|
|
|
7,915
|
|
Deferred tax benefit
|
|
|
(7,184
|
)
|
|
|
(5,367
|
)
|
Increase in accrued interest receivable
|
|
|
(907
|
)
|
|
|
(19,115
|
)
|
(Increase) decrease in other assets
|
|
|
(4,750
|
)
|
|
|
467
|
|
Increase in accrued expenses and other liabilities
|
|
|
79,337
|
|
|
|
56,795
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
233,507
|
|
|
|
138,308
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Originations of loans
|
|
|
(1,315,546
|
)
|
|
|
(820,420
|
)
|
Purchases of loans
|
|
|
(723,293
|
)
|
|
|
(543,418
|
)
|
Principal payments on loans
|
|
|
1,345,615
|
|
|
|
655,923
|
|
Principal collection of mortgage-backed securities held to maturity
|
|
|
333,280
|
|
|
|
310,267
|
|
Purchases of mortgage-backed securities held to maturity
|
|
|
(300,000
|
)
|
|
|
(423,049
|
)
|
Principal collection of mortgage-backed securities available for sale
|
|
|
365,801
|
|
|
|
216,717
|
|
Purchases of mortgage-backed securities available for sale
|
|
|
(1,242,355
|
)
|
|
|
(1,717,950
|
)
|
Proceeds from maturities and calls of investment securities held to maturity
|
|
|
50,000
|
|
|
|
1,286,840
|
|
Purchases of investment securities held to maturity
|
|
|
(450,097
|
)
|
|
|
|
|
Proceeds from maturities and calls of investment securities available for sale
|
|
|
725,000
|
|
|
|
984,901
|
|
Proceeds from sales of investment securities available for sale
|
|
|
317
|
|
|
|
|
|
Purchases of investment securities available for sale
|
|
|
(849,450
|
)
|
|
|
(1,900,000
|
)
|
Purchases of Federal Home Loan Bank of New York stock
|
|
|
(29,250
|
)
|
|
|
(49,500
|
)
|
Redemption of Federal Home Loan Bank of New York stock
|
|
|
27,000
|
|
|
|
720
|
|
Purchases of premises and equipment, net
|
|
|
(2,525
|
)
|
|
|
(1,167
|
)
|
Net proceeds from sale of foreclosed real estate
|
|
|
3,033
|
|
|
|
1,651
|
|
|
|
|
|
|
|
|
Net Cash Used in Investment Activities
|
|
|
(2,062,470
|
)
|
|
|
(1,998,485
|
)
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
1,971,874
|
|
|
|
923,731
|
|
Proceeds from borrowed funds
|
|
|
650,000
|
|
|
|
1,100,000
|
|
Principal payments on borrowed funds
|
|
|
(600,000
|
)
|
|
|
(16,000
|
)
|
Dividends paid
|
|
|
(68,328
|
)
|
|
|
(43,483
|
)
|
Purchases of treasury stock
|
|
|
(40,695
|
)
|
|
|
(3,143
|
)
|
Exercise of stock options
|
|
|
938
|
|
|
|
2,441
|
|
Tax benefit from stock plans
|
|
|
1,505
|
|
|
|
1,722
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
1,915,294
|
|
|
|
1,965,268
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
86,331
|
|
|
|
105,091
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
261,811
|
|
|
|
217,544
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
348,142
|
|
|
$
|
322,635
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
441,684
|
|
|
$
|
415,872
|
|
|
|
|
|
|
|
|
Loans transferred to foreclosed real estate
|
|
$
|
1,302
|
|
|
$
|
2,703
|
|
|
|
|
|
|
|
|
Income tax payments
|
|
$
|
2,163
|
|
|
$
|
5,181
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
Page 7
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Organization
Hudson City Bancorp, Inc. (Hudson City Bancorp or the Company) is a Delaware corporation
organized in March 1999 by Hudson City Savings Bank (Hudson City Savings) in connection with the
conversion and reorganization of Hudson City Savings from a New Jersey mutual savings bank into a
two-tiered mutual savings bank holding company structure. Prior to June 7, 2005, a majority of
Hudson City Bancorps common stock was owned by Hudson City, MHC, a mutual holding company. On
June 7, 2005, Hudson City Bancorp, Hudson City Savings and Hudson City, MHC reorganized from a
two-tier mutual holding company structure to a stock holding company structure, and Hudson City MHC
was merged into Hudson City Bancorp.
2. Basis of Presentation
In our opinion, all the adjustments (consisting of normal and recurring adjustments) necessary for
a fair presentation of the consolidated financial condition and consolidated results of operations
for the unaudited periods presented have been included. The results of operations and other data
presented for the three-month period ended March 31, 2009 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31, 2009. In preparing the
consolidated financial statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the statements of financial
condition and the results of operations for the period. Actual results could differ from these
estimates. The allowance for loan losses is a material estimate that is particularly susceptible
to near-term change. The current economic environment has increased the degree of uncertainty
inherent in this material estimate.
Certain information and note disclosures usually included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for the
preparation of the Form 10-Q. The consolidated financial statements presented should be read in
conjunction with Hudson City Bancorps audited consolidated financial statements and notes to
consolidated financial statements included in Hudson City Bancorps December 31, 2008 Annual Report
on Form 10-K.
3. Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to
diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
Average
|
|
|
Share
|
|
|
|
|
|
|
Average
|
|
|
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(In thousands, except per share data)
|
|
Net income
|
|
$
|
127,663
|
|
|
|
|
|
|
|
|
|
|
$
|
88,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common stockholders
|
|
$
|
127,663
|
|
|
|
487,568
|
|
|
$
|
0.26
|
|
|
$
|
88,669
|
|
|
|
483,093
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common
stock equivalents
|
|
|
|
|
|
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
11,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common stockholders
|
|
$
|
127,663
|
|
|
|
491,327
|
|
|
$
|
0.26
|
|
|
$
|
88,669
|
|
|
|
494,385
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 8
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
4. Stock Repurchase Programs
Under our previously announced stock repurchase programs, shares of Hudson City Bancorp common
stock may be purchased in the open market and through other privately negotiated transactions,
depending on market conditions. The repurchased shares are held as treasury stock, which may be
reissued for general corporate use. During the three months ended March 31, 2009, we purchased 3.8
million shares of our common stock at an aggregate cost of $40.7 million. As of March 31, 2009,
there remained 50,323,550 shares to be purchased under the existing stock repurchase programs.
5. Fair Value Measurements
SFAS No. 157, Fair Value Measurements, defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. SFAS No. 157 applies only to fair
value measurements already required or permitted by other accounting standards and does not impose
requirements for additional fair value measures. SFAS No. 157 was issued to increase consistency
and comparability in reporting fair values.
We use fair value measurements to record fair value adjustments to certain assets and to determine
fair value disclosures. We did not have any liabilities that were measured at fair value at March
31, 2009. Our securities available-for-sale are recorded at fair value on a recurring basis.
Additionally, from time to time, we may be required to record at fair value other assets or
liabilities on a non-recurring basis, such as foreclosed real estate owned, certain impaired loans
and goodwill. These non-recurring fair value adjustments generally involve the write-down of
individual assets due to impairment losses.
In accordance with SFAS No. 157, we group our assets at fair value in three levels, based on the
markets in which the assets are traded and the reliability of the assumptions used to determine
fair value. These levels are:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active
markets.
Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active and model-based
valuation techniques for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions reflect our own estimates of assumptions
that market participants would use in pricing the asset or liability. Valuation techniques include
the use of option pricing models, discounted cash flow models and similar techniques. The results
cannot be determined with precision and may not be realized in an actual sale or immediate
settlement of the asset or liability.
We base our fair values on the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date. SFAS No. 157 requires us to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value.
Assets that we measure on a recurring basis are limited to our available-for-sale securities
portfolio. Our available-for-sale portfolio is carried at estimated fair value with any unrealized
gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in
shareholders equity. Substantially
Page 9
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
all of our available-for-sale portfolio consists of
mortgage-backed securities and investment securities issued by government-sponsored enterprises.
The fair values for substantially all of these securities are obtained from an independent
nationally recognized pricing service. Based on the nature of our securities, our independent
pricing service provides us with prices which are categorized as Level 2 since quoted prices in
active markets for identical assets are generally not available for the majority of securities in
our portfolio. Various modeling techniques are used to determine pricing for our mortgage-backed
securities, including option pricing and discounted cash flow models. The inputs to these models
include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets,
benchmark securities, bids, offers and reference data. We also own equity securities with a
carrying value of $7.1 million for which fair values are obtained from quoted market prices in
active markets and, as such, are classified as Level 1.
The following table provides the level of valuation assumptions used to determine the carrying
value of our assets measured at fair value on a recurring basis at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2009
|
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Carrying
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
Value
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
(In thousands)
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
11,149,867
|
|
|
$
|
|
|
|
$
|
11,149,867
|
|
|
$
|
|
|
Investment securities
|
|
|
3,532,186
|
|
|
|
7,088
|
|
|
|
3,525,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
14,682,053
|
|
|
$
|
7,088
|
|
|
$
|
14,674,965
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets that were measured at fair value on a non-recurring basis at March 31, 2009 were limited to
non-performing commercial and construction loans that are collateral dependent and foreclosed real
estate. Collateral dependent loans evaluated for impairment amounted to $10.5 million at March 31,
2009. Based on this evaluation, we established an allowance for loan losses of $940,000 for such
impaired loans. The provision for loan losses related to these loans amounted to $122,000 for the
first quarter of 2009. These impaired loans are individually assessed to determine that the loans
carrying value is not in excess of the fair value of the collateral, less estimated selling costs.
Since all of our impaired loans at March 31, 2009 are secured by real estate, fair value is
estimated through current appraisals, where practical, or an inspection and a comparison of the
property securing the loan with similar properties in the area by either a licensed appraiser or
real estate broker and, as such, are classified as Level 3.
Foreclosed real estate represents real estate acquired as a result of foreclosure or by deed in
lieu of foreclosure and is carried, net of an allowance for losses, at the lower of cost or fair
value less estimated selling costs. Fair value is estimated through current appraisals, where
practical, or an inspection and a comparison of the property securing the loan with similar
properties in the area by either a licensed appraiser or real estate broker and, as such,
foreclosed real estate properties are classified as Level 3. Foreclosed real estate at March 31,
2009 amounted to $11.6 million. During the first quarter of 2009, charge-offs to the allowance for
loan losses related to loans that were transferred to foreclosed real estate amounted to $1.2
million. Write downs related to foreclosed real estate that were charged to non-interest expense
amounted to $1.2 million for that same period.
Page 10
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
The following table provides the level of valuation assumptions used to determine the carrying
value of our assets measured at fair value on a non-recurring basis at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2009
|
|
|
Quoted Prices in Active
|
|
Significant Other
|
|
Significant
|
|
|
Markets for Identical
|
|
Observable Inputs
|
|
Unobservable Inputs
|
Description
|
|
Assets (Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In thousands)
|
Impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,513
|
|
Foreclosed real estate
|
|
|
|
|
|
|
|
|
|
|
11,626
|
|
6. Postretirement Benefit Plans
We maintain non-contributory retirement and post-retirement plans to cover employees hired prior to
August 1, 2005, including retired employees, who have met the eligibility requirements of the
plans. Benefits under the qualified and non-qualified defined benefit retirement plans are based
primarily on years of service and compensation. Funding of the qualified retirement plan is
actuarially determined on an annual basis. It is our policy to fund the qualified retirement plan
sufficiently to meet the minimum requirements set forth in the Employee Retirement Income Security
Act of 1974. The non-qualified retirement plan, which is maintained for certain employees, is
unfunded.
In 2005, we limited participation in the non-contributory retirement plan and the post-retirement
benefit plan to those employees hired on or before July 31, 2005. We also placed a cap on paid
medical expenses at the 2007 rate, beginning in 2008, for those eligible employees who retire after
December 31, 2005. As part of our acquisition of Sound Federal Bancorp (Sound Federal) in 2006,
participation in the Sound Federal retirement plans and the accrual of benefits for such plans were
frozen as of the acquisition date.
The components of the net periodic expense for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
Retirement Plans
|
|
|
Other Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Service cost
|
|
$
|
1,003
|
|
|
$
|
881
|
|
|
$
|
234
|
|
|
$
|
253
|
|
Interest cost
|
|
|
1,863
|
|
|
|
1,682
|
|
|
|
529
|
|
|
|
544
|
|
Expected return on assets
|
|
|
(1,939
|
)
|
|
|
(2,135
|
)
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
824
|
|
|
|
81
|
|
|
|
128
|
|
|
|
141
|
|
Unrecognized prior service cost
|
|
|
85
|
|
|
|
82
|
|
|
|
(391
|
)
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,836
|
|
|
$
|
591
|
|
|
$
|
500
|
|
|
$
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We made no contributions to the pension plans during the first quarter of 2009 or 2008.
Page 11
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
7. Stock-Based Compensation
Stock Option Plans
A summary of the changes in outstanding stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2009
|
|
2008
|
|
|
Number of
|
|
Weighted
|
|
Number of
|
|
Weighted
|
|
|
Stock
|
|
Average
|
|
Stock
|
|
Average
|
|
|
Options
|
|
Exercise Price
|
|
Options
|
|
Exercise Price
|
Outstanding at beginning of period
|
|
|
26,728,119
|
|
|
$
|
10.35
|
|
|
|
29,080,114
|
|
|
$
|
7.91
|
|
Granted
|
|
|
3,025,000
|
|
|
|
12.03
|
|
|
|
3,675,000
|
|
|
|
15.69
|
|
Exercised
|
|
|
(392,028
|
)
|
|
|
2.23
|
|
|
|
(489,072
|
)
|
|
|
4.99
|
|
Forfeited
|
|
|
(10,859
|
)
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
29,350,232
|
|
|
|
10.62
|
|
|
|
32,266,042
|
|
|
|
8.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2006, our shareholders approved the Hudson City Bancorp, Inc. 2006 Stock Incentive Plan
(the SIP Plan) authorizing us to grant up to 30,000,000 shares of common stock. In July 2006, the
Compensation Committee of the Board of Directors of Hudson City Bancorp (the Committee),
authorized grants to each non-employee director, executive officers and other employees to purchase
shares of the Companys common stock, pursuant to the SIP Plan. Grants were made in 2006, 2007 and
2008 pursuant to the SIP Plan for 7,960,000, 3,527,500 and 4,025,000 options, respectively, at an
exercise price equal to the fair value of our common stock on the grant date, based on quoted
market prices. Of these options, 5,035,000 have vesting periods ranging from one to five years and
an expiration period of ten years. The remaining 10,477,500 shares have vesting periods ranging
from two to three years if certain financial performance measures are met. Subject to review and
verification by the Committee, we believe we attained these performance measures and have therefore
recorded compensation expense for the 2006, 2007 and 2008 grants.
During 2009, the Committee authorized stock option grants (the 2009 grants) pursuant to the SIP
Plan for 3,025,000 options at an exercise price equal to the fair value of our common stock on the
grant date, based on quoted market prices. Of these options, 2,875,000 will vest in January 2012 if certain financial performance measures
are met and employment continues through the vesting date.
The remaining 150,000 options
will vest in January 2010. The 2009 grants have an expiration period of ten years. We have
determined it is probable these performance measures will be met and have therefore recorded
compensation expense for the 2009 grants.
The fair value of the 2009 grants was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions. The per share
weighted-average fair value of the options granted during the three months ended March 31, 2009 was
$1.93.
|
|
|
|
|
|
|
2009
|
Expected dividend yield
|
|
|
4.80
|
%
|
Expected volatility
|
|
|
29.30
|
%
|
Risk-free interest rate
|
|
|
1.73
|
%
|
Expected option life
|
|
5.5 years
|
Compensation expense related to our outstanding stock options amounted to $3.7 million for each of
the quarters ended March 31, 2009 and 2008.
Page 12
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
Stock Awards
During 2009, the Committee authorized performance-based stock awards (the 2009 stock awards)
pursuant to the SIP Plan for 847,750 shares of our common stock. These shares were issued from
Treasury Stock and will vest in annual installments over a three-year period if certain performance measures are met and employment continues through the vesting date.
None of these shares may be sold or transferred before the January 2012 vesting date. We have
determined that it is probable these performance measures will be met and have therefore recorded
compensation expense for the 2009 stock awards. Expense for the 2009 stock awards is recognized
over the vesting period and is based on the fair value of the shares on the grant date which was
$12.03. In addition to the 2009 stock awards, we have 112,245 shares of unvested stock awards that
were granted in prior years. Total compensation expense for stock awards amounted to $1.2 million
and $371,000 for the quarters ended March 31, 2009 and 2008, respectively.
8. Recent Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued Staff Position, or FSP, FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP provides
additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair
Value Measurements, when the volume and level of activity for the asset or liability have
significantly decreased. This FSP notes that a reporting entity should evaluate various factors to
determine whether there has been a significant decrease in the volume and activity for the asset or
liability when compared with normal activity for the asset or liability. These factors include, but
are not limited to: few recent transactions (based on volume and level of activity in the market),
price quotations are not based on current information, price quotations vary substantially over
time or among market makers, indexes that previously were highly correlated with the fair values of
the asset are demonstrably uncorrelated with recent fair values, abnormal liquidity risk premiums
or implied yields for quoted prices when compared with reasonable estimates of credit and other
non-performance risk for the asset class, abnormally wide bid-ask spread or significant increases
in the bid-ask spread, and little information is released publicly. If the reporting entity
concludes there has been a significant decrease in the volume or activity for the asset or
liability in relation to normal market activity, then further analysis of the transactions or
quoted prices is
needed. This would include a change in valuation technique or the use of multiple valuation
techniques to assist in the determination of a fair value of the asset or liability. This FSP is
effective for interim and annual periods ending after June 15, 2009 and is to be applied
prospectively. Early adoption is permitted for periods ending after (but not before) March 15,
2009. We did not elect to early adopt the FSP in the first quarter of 2009. We do not expect that
our adoption of FSP FAS 157-4 effective April 1, 2009, will have a material impact on our financial
condition, results of operations or financial statement disclosures.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments. This FSP amends the disclosure requirements in SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial statements. This FSP
also amends APB No. 28, Interim Financial Reporting, to require such disclosures in all interim
financial statements. This FSP requires an entity to disclose in the body or in the accompanying
notes of its interim financial statements and its annual financial statements the fair value of all
financial instruments, whether recognized or not recognized in the statements of financial
position, as required by SFAS No. 107. Fair value information
Page 13
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
disclosed in the interim period
notes will be presented together with the related carrying amount in a form that makes it clear
whether the fair value and carrying amount represent assets or liabilities and how the carrying
amount relates to what is reported in the statements of financial position. An entity will also
disclose the methods and significant assumptions used to estimate the fair value of financial
instruments. This FSP is effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. We did not elect to early adopt
this FSP in the first quarter of 2009. The required interim period disclosures will be provided
beginning with our June 30, 2009 consolidated financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the other-than-temporary impairment guidance in
U.S. generally accepted accounting principles for debt securities to make the guidance more
operational and to improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities in the financial statements. This FSP requires that an entity assess
whether an impairment of a debt security is other-than-temporary and, as part of that assessment,
determine its intent and ability to hold the security. If the entity intends to sell the debt
security, an other-than-temporary impairment shall be considered to have occurred. In addition, an
other-than-temporary impairment shall be considered to have occurred if it is more likely than not
that it will be required to sell the security before recovery of its amortized cost.
Other-than-temporary impairments that are attributable to credit losses are to be recognized in
income with the remaining decline in the fair value of a security recognized in other comprehensive
income. This FSP is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after (but not before) March 15, 2009. We
did not elect to early adopt the FSP in the first quarter of 2009. We do not expect that our
adoption of FSP FAS 115-2 and FAS 124-2 effective April 1, 2009 will have a material impact on our
financial condition, results of operations or financial statement disclosures.
In January 2009, the FASB issued FSP No. EITF 99-20-1 which amends the guidance in Issue No. 99-20
Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve
more consistent determination of whether an other-than-temporary impairment has occurred. This FSP
retains and emphasizes the other-than-temporary impairment assessment guidance and required
disclosures in SFAS No. 115, FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, SEC Staff Accounting Bulletin Topic 5M,
Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, and other
related literature. This FSP was effective for interim and annual reporting periods ending after
December 15, 2008. FSP No. EITF 99-
20-1 did not have any effect on our financial condition, results of operations or financial
statement disclosures.
In June 2008, FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities, which addresses whether such
instruments are participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (EPS) under the two-class method
described in SFAS No. 128, Earnings per Share. The FSP concluded that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend equivalents are
participating securities and shall be included in the computation of EPS pursuant to the two-class
method. Our restricted stock awards are considered participating securities. FSP No. EITF 03-6-1
is effective for fiscal years beginning after December 15, 2008 and interim periods within those
years. All prior-period EPS data presented shall be adjusted retrospectively to conform with the
provisions of the FSP. FSP No. EITF 03-6-1 did not have a material impact on our computation of
EPS.
Page 14
Hudson City Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated
Financial Statements an amendment of ARB No. 51, which establishes accounting and reporting
standards for the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. A parent deconsolidates a subsidiary as of the date the parent ceases
to have a controlling financial interest in the subsidiary. If a parent retains a non-controlling
equity investment in the former subsidiary, that investment is measured at its fair value. The gain
or loss on the deconsolidation of the subsidiary is measured using the fair value of the
non-controlling equity investment. SFAS No. 160 requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the interests of the controlling
(parent) and the non-controlling owners of a subsidiary. This includes a reconciliation of the beginning
and ending balances of the equity attributable to the parent and the non-controlling owners and a
schedule showing the effects of changes in a parents ownership interest in a subsidiary on the
equity attributable to the parent. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for
Hudson City Bancorp). The adoption of SFAS No. 160 did not have any impact on our financial
condition or results of operations.
Page 15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
We continue to focus on our traditional thrift business model by growing our franchise through the
origination and purchase of one- to four-family mortgage loans and funding this loan production
with borrowings and growth in deposit accounts. During the first quarter of 2009, we were able to
fund our loan production with deposit growth.
Our results of operations depend primarily on net interest income, which, in part, is a direct
result of the market interest rate environment. Net interest income is the difference between the
interest income we earn on our interest-earning assets, primarily mortgage loans, mortgage-backed
securities and investment securities, and the interest we pay on our interest-bearing liabilities,
primarily time deposits, interest-bearing transaction accounts and borrowed funds. Net interest
income is affected by the shape of the market yield curve, the timing of the placement and
repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, the
prepayment rate on our mortgage-related assets and the calls of our borrowings. Our results of
operations may also be affected significantly by national and local economic and competitive
conditions, particularly those with respect to changes in market interest rates, credit quality,
government policies and actions of regulatory authorities. Our results are also affected by the
market price of our stock, as the expense of our employee stock ownership plan is related to the
current price of our common stock.
The national economy has continued to contract, evidenced by increasing job losses, declining
household wealth, and tight credit conditions. The national unemployment rate rose to 8.5% in
March 2009 from 7.2% in December 2008 and averaged 5.8% for the calendar year 2008. The
unemployment rate in the New York metropolitan area, where most of our lending activity occurs and
where all of our branches are located, averaged 8.1% in March 2009. The S&P/Case-Shiller Home
Price Index for the New York area declined by approximately 3.0% in the first quarter of 2009 and
by 9.15% for 2008. The S&P/Case-Shiller U.S. National Home Price Index decreased by 18.2% in 2008.
As a result of the economic conditions, the Federal Open Market Committee of the Federal Reserve
Bank (FOMC) maintained the overnight lending rate at 0.00% to 0.25% during the first quarter. In
addition, the FOMC plans to increase the Federal Reserves balance sheet with $750 billion and $100
billion in additional purchases of agency mortgage-backed securities and debt, respectively. The
FOMC has also decided to purchase up to $300 billion of longer-term Treasury securities during the
next six months. These measures are aimed at providing additional support to the mortgage and
lending markets as well as improve conditions in private credit markets. As a result of these
measures, short-term market interest rates have remained at low levels during the first quarter of
2009. This allowed us to re-price our short-term deposits and significantly reduce our cost of
funds at a faster pace than the re-pricing of our interest-earning assets. As a result, our net
interest rate spread and net interest margin increased from the fourth quarter of 2008 as well as
from the first quarter of 2008.
Net income increased 44.0% for the first quarter of 2009 to $127.7 million as compared to $88.7
million for the first quarter of 2008.
Net interest income increased $90.5 million, or 46.8%, to $283.8 million for the first quarter 2009
as compared to $193.3 million for the first quarter of 2008. During the first quarter of 2009, our
net interest rate spread increased 48 basis points to 1.75% and our net interest margin increased
34 basis points to 2.06% as compared to the first quarter in 2008. The increases in our net
interest rate spread and net
interest margin were due to a steeper yield curve which allowed us to reduce deposit costs at a
faster pace than the decrease in our mortgage yields.
Page 16
The provision for loan losses amounted to $20.0 million for the first quarter of 2009 as compared
to $2.5 million for the first quarter of 2008. The increase in the provision for loan losses
reflects the risks inherent in our loan portfolio due to decreases in real estate values in our
lending markets, the increase in non-performing loans, the increase in loan charge-offs and
worsening economic conditions, particularly increasing levels of unemployment. Non-performing
loans were $320.2 million or 1.06% of total loans at March 31, 2009 as compared to $217.6 million
or 0.74% of total loans at December 31, 2008. The increase in non-performing loans reflects the
current economic recession coupled with the continued deterioration of the housing market. Net
charge-offs amounted to $4.7 million for the first quarter of 2009 as compared to $469,000 for the
first quarter of 2008. The conditions in the housing market are evidenced by declining house
prices, reduced levels of home sales, increasing inventories of houses on the market, and an
increase in the length of time houses remain on the market.
Total non-interest expense increased $6.7 million, or 13.9%, to $54.8 million for the first quarter
of 2009 from $48.1 million for the first quarter of 2008. The increase is primarily due to a $1.2
million increase in compensation and employee benefits expense, a $1.1 million increase in net
occupancy expense, a $2.2 million increase in Federal deposit insurance expense and a $2.2 increase
in other non-interest expense.
We grew our assets by 4.5% to $56.57 billion at March 31, 2009 from $54.15 billion at December 31,
2008. Loans increased $669.4 million to $30.11 billion at March 31, 2009 from $29.44 billion at
December 31, 2008. While the residential real estate markets have weakened considerably during
the past year, low market interest rates, decreased lending competition and an increase in mortgage
refinancing caused by market interest rates that are at near historic lows have resulted in
increased loan production. The increase in refinancing activity has also caused an increase in
principal repayments.
Total securities increased $1.72 billion to $24.67 billion at March 31, 2009 from $22.95 billion at
December 31, 2008. The increase in securities was primarily due to purchases (including purchases
recorded in the first quarter of 2009 with settlement dates after March 31, 2009) of
mortgage-backed and investment securities of $1.75 billion and $1.30 billion, respectively,
partially offset by principal collections on mortgage-backed securities of $699.1 million and calls
of investment securities of $775.0 million.
The increase in our total assets during the first quarter of 2009 was funded primarily by an
increase in customer deposits. Deposits increased $1.98 billion to $20.44 billion at March 31,
2009 from $18.46 billion at December 31, 2008. The increase in deposits was attributable to growth
in our time deposits and money market accounts. The increase in these accounts was a result of our
competitive pricing strategies that focused on attracting these types of deposits as well as
customer preferences for time deposits rather than other types of deposit accounts. In addition,
we believe the turmoil in the credit and equity markets has made deposit products in strong
financial institutions desirable for many customers. Borrowed funds increased $50.0 million to
$30.28 billion at March 31, 2009 from $30.23 billion at December 31, 2008. The additional borrowed
funds were used primarily to supplement our deposit growth.
Page 17
Comparison of Financial Condition at March 31, 2009 and December 31, 2008
Total assets increased $2.42 billion, or 4.5%, to $56.57 billion at March 31, 2009 from $54.15
billion at December 31, 2008.
Loans increased $669.4 million, or 2.3%, to $30.11 billion at March 31, 2009 from $29.44 billion at
December 31, 2008 due primarily to the origination of residential first mortgage loans in New
Jersey, New York and Connecticut and our continued loan purchase activity. For the first quarter
of 2009, we originated $1.32 billion and purchased $723.3 million of loans, compared to
originations of $820.4 million and purchases of $543.4 million for the first quarter of 2008. The
origination and purchases of loans were partially offset by principal repayments of $1.35 billion
for the first quarter of 2009 as compared to $655.9 million for the first quarter of 2008. Loan
originations have increased due primarily to our competitive rates and an increase in mortgage
refinancing caused by market interest rates that are at near-historic lows. Our loan production
has also benefited from decreased lending competition resulting from the absence of historically
significant competitors that have not survived the current financial crisis. The increase in
refinancing activity occurring in the marketplace has also caused an increase in principal
repayments in the first quarter of 2009.
Our first mortgage loan originations and purchases during the first quarter of 2009 were
substantially all in one-to four-family mortgage loans. Approximately 47.0% of mortgage loan
originations for the first quarter of 2009 were variable-rate loans as compared to approximately
48.0% for the first quarter of 2008. Substantially all purchased mortgage loans during the quarter
ended March 31, 2009 were fixed-rate loans since variable-rate loans available for purchase are
typically outside of our defined geographic parameters and include features, such as option ARMs,
that do not meet our underwriting standards. Fixed-rate mortgage loans accounted for 75.0% of our
first mortgage loan portfolio at March 31, 2009 and 75.7% at December 31, 2008.
The following table presents the geographic distribution of our loan portfolio and our
non-performing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009
|
|
At December 31, 2008
|
|
|
Total loans
|
|
Non-performing loans
|
|
Total loans
|
|
Non-performing loans
|
New Jersey
|
|
|
44.5
|
%
|
|
|
42.5
|
%
|
|
|
44.8
|
%
|
|
|
40.4
|
%
|
New York
|
|
|
16.3
|
%
|
|
|
20.1
|
%
|
|
|
15.6
|
%
|
|
|
22.6
|
%
|
Connecticut
|
|
|
9.9
|
%
|
|
|
3.7
|
%
|
|
|
9.3
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total New York
metropolitan area
|
|
|
70.7
|
%
|
|
|
66.3
|
%
|
|
|
69.7
|
%
|
|
|
65.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia
|
|
|
5.3
|
%
|
|
|
3.3
|
%
|
|
|
5.5
|
%
|
|
|
4.2
|
%
|
Illinois
|
|
|
4.1
|
%
|
|
|
3.6
|
%
|
|
|
4.3
|
%
|
|
|
3.5
|
%
|
Maryland
|
|
|
4.1
|
%
|
|
|
4.3
|
%
|
|
|
4.2
|
%
|
|
|
5.4
|
%
|
Massachusetts
|
|
|
2.9
|
%
|
|
|
2.5
|
%
|
|
|
3.0
|
%
|
|
|
2.7
|
%
|
Minnesota
|
|
|
1.7
|
%
|
|
|
3.6
|
%
|
|
|
1.8
|
%
|
|
|
3.8
|
%
|
Michigan
|
|
|
1.6
|
%
|
|
|
4.4
|
%
|
|
|
1.7
|
%
|
|
|
3.7
|
%
|
Pennsylvania
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
All others
|
|
|
8.1
|
%
|
|
|
10.4
|
%
|
|
|
8.3
|
%
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.3
|
%
|
|
|
33.7
|
%
|
|
|
30.3
|
%
|
|
|
34.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 18
Total mortgage-backed securities increased $1.20 billion to $20.69 billion at March 31, 2009 from
$19.49 billion at December 31, 2008. This increase in total mortgage-backed securities resulted
from the purchase of $1.54 billion of mortgage-backed securities, all of which were issued by U.S.
government-sponsored enterprises. The increase was partially offset by repayments of $699.1
million. At March 31, 2009, variable-rate mortgage-backed securities accounted for 80.4% of our
portfolio compared with 83.5% at December 31, 2008. The purchase of variable-rate mortgage-backed
securities is a component of our interest rate risk management strategy. Since our loan production
includes a concentration of fixed-rate mortgage loans, the purchase of variable-rate
mortgage-backed securities provides us with an asset that reduces our exposure to interest rate
fluctuations.
Total investment securities increased $518.6 million to $3.98 billion at March 31, 2009 as compared
to $3.46 billion at December 31, 2008. The increase in investment securities is primarily due to
purchases of $1.30 billion. The increase was partially offset by calls of investment securities of
$775.0 million.
Total cash and cash equivalents increased $86.3 million to $348.1 million at March 31, 2009 as
compared to $261.8 million at December 31, 2008. Other assets decreased $48.3 million, primarily
due to a decrease in deferred tax assets of $49.7 million.
Total liabilities increased $2.31 billion, or 4.7%, to $51.52 billion at March 31, 2009 from $49.21
billion at December 31, 2008. The increase in total liabilities primarily reflected a $1.98
billion increase in deposits, a $207.9 million increase in due to brokers and a $50.0 million
increase in borrowed funds.
Total deposits amounted to $20.44 billion at March 31, 2009 as compared to $18.46 billion at
December 31, 2008. The increase in total deposits reflected a $1.35 billion increase in our time
deposits, a $418.3 million increase in our money market checking accounts and a $136.3 million
increase in our interest-bearing transaction accounts and savings accounts. The increase in our
deposit accounts reflects our competitive pricing, our strategy to grow deposits and customer
preference for these types of deposits. At March 31, 2009 we had 129 branches as compared to 127
at December 31, 2008 and 119 at March 31, 2008. In addition, we believe that the turmoil in the
credit and equity markets has made deposit products in strong financial institutions desirable for
many customers.
Borrowings amounted to $30.28 billion at March 31, 2009 as compared to $30.23 billion at December
31, 2008. The increase in borrowed funds was the result of $650.0 million of new borrowings at a
weighted-average rate of 1.62%, largely offset by repayments of $600.0 million with a weighted
average rate of 1.52%. Borrowed funds at March 31, 2009 were comprised of $15.18 billion of
Federal Home Loan Bank of New York (FHLB) advances and $15.10 billion of securities sold under
agreements to repurchase.
Substantially all of our borrowed funds are callable at the discretion of the issuer after an
initial non-call period. As a result, if interest rates were to decrease, or remain consistent
with current rates, these borrowings would probably not be called and our average cost of existing
borrowings would not decrease even as market interest rates decrease. Conversely, if interest
rates increase above the market interest rate for similar borrowings, these borrowings would likely
be called at their next call date and our cost to replace these borrowings would increase. These
call features are generally quarterly, after an initial non-call period of one to five years from
the date of borrowing.
Our callable borrowings typically have a final maturity of ten years and may not be called for an
initial period of one to five years. We have used this type of borrowing primarily to fund our
loan growth
because they have a longer duration than shorter-term non-callable borrowings and have a lower cost
than
Page 19
a non-callable borrowing with a maturity date similar to the first call date of the callable
borrowing. During the current period of credit instability we may not be able to continue to
borrow in this manner. We believe that we will continue to be able to borrow from the same
institutions as in the past, but structured callable borrowings may not be available. In order to
fund our growth and provide for our liquidity we may need to borrow a combination of short-term
borrowings with maturities of three to six months and longer term fixed-maturity borrowings with
terms of two to five years. Our new borrowings in the first quarter of 2009 consisted of
non-callable borrowings of $400.0 million with maturities of one to three months and $250.0 million
of non-callable borrowings with maturities of two to three years.
The Company has two collateralized borrowings in the form of repurchase agreements totaling $100.0
million with Lehman Brothers, Inc. Lehman Brothers, Inc. is currently in liquidation under the
Securities Industry Protection Act. Mortgage-backed securities with an amortized cost of
approximately $114.5 million are pledged as collateral for these borrowings. We intend to pursue
full recovery of the pledged collateral in accordance with the contractual terms of the repurchase
agreements. If full recovery of the collateral does not occur, we will be pursuing a customer
claim against the Lehman Brothers, Inc. estate for the $14.5 million difference between the
amortized cost of the securities and the amount of the underlying borrowings. There can be no
assurances that the final settlement of this transaction will result in the full recovery of the
collateral or the full amount of the claim. We have not recognized a loss in our financial
statements related to these repurchase agreements.
Due to brokers amounted to $447.0 million at March 31, 2009 as compared to $239.1 million at
December 31, 2008. Due to brokers at March 31, 2009 represents securities purchased in the first
quarter of 2009 with settlement dates after March 31, 2009. Other liabilities increased to $359.1
million at March 31, 2009 as compared to $278.4 million at December 31, 2008. The increase is
primarily the result of an increase in accrued taxes payable of $89.1 million.
Total shareholders equity increased $114.0 million to $5.05 billion at March 31, 2009 from $4.94
billion at December 31, 2008. The increase was primarily due to net income of $127.7 million for
the quarter ended March 31, 2009 and an $85.2 million increase in accumulated other comprehensive
income. These increases to shareholders equity were partially offset by cash dividends paid to
common shareholders of $68.3 million and repurchases of our common stock of $40.7 million.
As of March 31, 2009, 50,323,550 shares were available for repurchase under our existing stock
repurchase programs. During the first three months of 2009, we repurchased 3.8 million shares of
our outstanding common stock at a total cost of $40.7 million. The repurchase of shares during the
first quarter of 2009 offered us an effective use of capital as strong deposit growth provided
liquidity and market conditions were favorable. The average price of shares repurchased in the
first quarter was $10.85. Our capital ratios remain in excess of the regulatory requirements for a
well-capitalized bank. See Liquidity and Capital Resources.
The accumulated other comprehensive income of $132.8 million at March 31, 2009 includes a $161.1
million after-tax net unrealized gain on securities available for sale ($272.4 million pre-tax)
partially offset by a $28.3 million after-tax accumulated other comprehensive loss related to the
funded status of our employee benefit plans. We invest primarily in mortgage-backed securities
issued by Ginnie Mae, Fannie Mae and Freddie Mac, as well as other securities issued by U.S.
governmentsponsored enterprises. We do not purchase unrated or private label mortgage-backed
securities or other higher risk securities such as those backed by sub-prime loans. There were no
debt securities past due or securities
for which the Company currently believes it is not probable that it will collect all amounts due
according to the contractual terms of the security.
Page 20
At March 31, 2009, our shareholders equity to asset ratio was 8.93% compared with 9.12% at
December 31, 2008. For the first quarter of 2009, the ratio of average shareholders equity to
average assets was 9.08% compared with 10.35% for the first quarter of 2008. The lower
equity-to-assets ratios reflect our strategy to grow assets and pay dividends. Our book value per
share, using the period-end number of outstanding shares, less purchased but unallocated employee
stock ownership plan shares and less purchased but unvested recognition and retention plan shares,
was $10.40 at March 31, 2009 and $10.10 at December 31, 2008. Our tangible book value per share,
calculated by deducting goodwill and the core deposit intangible from shareholders equity, was
$10.07 as of March 31, 2009 and $9.77 at December 31, 2008.
Page 21
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2009 and 2008
Average Balance Sheet.
The following table presents the average balance sheets, average yields
and costs and certain other information for the three months ended March 31, 2009 and 2008. The
table presents the annualized average yield on interest-earning assets and the annualized average
cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized
income or expense by the average balance of interest-earning assets and interest-bearing
liabilities, respectively, for the periods shown. We derived average balances from daily balances
over the periods indicated. Interest income includes fees that we considered to be adjustments to
yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Nonaccrual
loans were included in the computation of average balances and therefore have a zero yield. The
yields set forth below include the effect of deferred loan origination fees and costs, and purchase
discounts and premiums that are amortized or accreted to interest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earnings assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans, net (1)
|
|
$
|
29,346,715
|
|
|
$
|
414,208
|
|
|
|
5.65
|
%
|
|
$
|
24,050,648
|
|
|
$
|
346,277
|
|
|
|
5.76
|
%
|
Consumer and other loans
|
|
|
402,059
|
|
|
|
5,990
|
|
|
|
5.96
|
|
|
|
435,627
|
|
|
|
6,856
|
|
|
|
6.30
|
|
Federal funds sold
|
|
|
146,751
|
|
|
|
176
|
|
|
|
0.49
|
|
|
|
277,400
|
|
|
|
2,073
|
|
|
|
3.01
|
|
Mortgage-backed securities at amortized cost
|
|
|
19,435,625
|
|
|
|
250,914
|
|
|
|
5.16
|
|
|
|
14,690,323
|
|
|
|
194,355
|
|
|
|
5.29
|
|
Federal Home Loan Bank stock
|
|
|
872,095
|
|
|
|
6,373
|
|
|
|
2.92
|
|
|
|
721,542
|
|
|
|
14,226
|
|
|
|
7.89
|
|
Investment securities, at amortized cost
|
|
|
3,692,237
|
|
|
|
45,661
|
|
|
|
4.95
|
|
|
|
4,190,796
|
|
|
|
49,501
|
|
|
|
4.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
53,895,482
|
|
|
|
723,322
|
|
|
|
5.37
|
|
|
|
44,366,336
|
|
|
|
613,288
|
|
|
|
5.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earnings assets
|
|
|
1,209,460
|
|
|
|
|
|
|
|
|
|
|
|
749,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
55,104,942
|
|
|
|
|
|
|
|
|
|
|
$
|
45,115,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
718,720
|
|
|
|
1,348
|
|
|
|
0.76
|
|
|
$
|
731,766
|
|
|
|
1,372
|
|
|
|
0.75
|
|
Interest-bearing transaction accounts
|
|
|
1,624,474
|
|
|
|
9,068
|
|
|
|
2.26
|
|
|
|
1,565,329
|
|
|
|
12,901
|
|
|
|
3.31
|
|
Money market accounts
|
|
|
2,918,741
|
|
|
|
16,705
|
|
|
|
2.32
|
|
|
|
1,682,795
|
|
|
|
15,897
|
|
|
|
3.80
|
|
Time deposits
|
|
|
13,602,195
|
|
|
|
111,703
|
|
|
|
3.33
|
|
|
|
10,952,763
|
|
|
|
127,846
|
|
|
|
4.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
18,864,130
|
|
|
|
138,824
|
|
|
|
2.98
|
|
|
|
14,932,653
|
|
|
|
158,016
|
|
|
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements
|
|
|
15,099,951
|
|
|
|
151,052
|
|
|
|
4.06
|
|
|
|
12,006,644
|
|
|
|
128,407
|
|
|
|
4.30
|
|
Federal Home Loan Bank of New York advances
|
|
|
15,266,667
|
|
|
|
149,615
|
|
|
|
3.97
|
|
|
|
12,716,379
|
|
|
|
133,550
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
30,366,618
|
|
|
|
300,667
|
|
|
|
4.02
|
|
|
|
24,723,023
|
|
|
|
261,957
|
|
|
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
49,230,748
|
|
|
|
439,491
|
|
|
|
3.62
|
|
|
|
39,655,676
|
|
|
|
419,973
|
|
|
|
4.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
563,360
|
|
|
|
|
|
|
|
|
|
|
|
509,924
|
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities
|
|
|
310,286
|
|
|
|
|
|
|
|
|
|
|
|
280,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
|
|
873,646
|
|
|
|
|
|
|
|
|
|
|
|
790,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
50,104,394
|
|
|
|
|
|
|
|
|
|
|
|
40,446,169
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
5,000,548
|
|
|
|
|
|
|
|
|
|
|
|
4,669,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
55,104,942
|
|
|
|
|
|
|
|
|
|
|
$
|
45,115,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest rate spread (2)
|
|
|
|
|
|
$
|
283,831
|
|
|
|
1.75
|
|
|
|
|
|
|
$
|
193,315
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets/net interest margin (3)
|
|
$
|
4,664,734
|
|
|
|
|
|
|
|
2.06
|
%
|
|
$
|
4,710,660
|
|
|
|
|
|
|
|
1.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
1.09
|
x
|
|
|
|
|
|
|
|
|
|
|
1.12
|
x
|
|
|
|
(1)
|
|
Amount includes deferred loan costs and non-performing loans and is net of the allowance for
loan losses.
|
|
(2)
|
|
Determined by subtracting the annualized weighted average cost of total interest-bearing
liabilities from the annualized weighted average yield on total interest-earning assets.
|
|
(3)
|
|
Determined by dividing annualized net interest income by total average interest-earning assets.
|
Page 22
General.
Net income was $127.7 million for the first quarter of 2009, an increase of $39.0
million, or 44.0%, compared with net income of $88.7 million for the first quarter of 2008. Basic
and diluted earnings per common share were both $0.26 for the first quarter of 2009 as compared to
$0.18 for both basic and diluted earnings per share for the first quarter of 2008. For the three
months ended March 31, 2009, our annualized return on average shareholders equity was 10.21%,
compared with 7.60% for the corresponding period in 2008. Our annualized return on average assets
for the first quarter of 2009 was 0.93% as compared to 0.79% for the first quarter of 2008. The
increase in the annualized return on average equity and assets is primarily due to the increase in
net income during the first three months of 2009.
Interest and Dividend Income.
Total interest and dividend income for the first quarter of 2009
increased $110.0 million, or 17.9%, to $723.3 million as compared to $613.3 million for the first
quarter of 2008. The increase in total interest and dividend income was primarily due to a $9.53
billion, or 21.5%, increase in the average balance of total interest-earning assets to $53.90
billion for the first quarter of 2009 as compared to $44.37 billion for the first quarter of 2008.
The increase in the average balance of total interest-earning assets was partially offset by a
decrease of 16 basis points in the annualized weighted-average yield on total interest-earning
assets to 5.37% for the quarter ended March 31, 2009 from 5.53% for the same quarter in 2008.
Interest on first mortgage loans increased $67.9 million to $414.2 million for the first quarter of
2009 as compared to $346.3 million for the same quarter in 2008. This was primarily due to a $5.30
billion increase in the average balance of first mortgage loans, which reflected our continued
emphasis on the growth of our mortgage loan portfolio and an increase in mortgage refinancing
caused by market interest rates that are at near-historic lows. The increase in first mortgage loan
income was partially offset by an 11 basis point decrease in the weighted-average yield to 5.65%.
Market interest rates decreased in the second half of 2008 and during the first quarter of 2009,
resulting in a decrease in the weighted-average yield of our mortgage portfolio.
Interest on consumer and other loans decreased $866,000 to $6.0 million for the first quarter of
2009 from $6.9 million for the first quarter of 2008. The average balance of consumer and other
loans decreased $33.5 million to $402.1 million for the first quarter of 2009 as compared to $435.6
million for the first quarter of 2008 and the average yield earned decreased 34 basis points to
5.96% as compared to 6.30% for the same respective periods.
Interest on mortgage-backed securities increased $56.5 million to $250.9 million for the first
quarter of 2009 as compared to $194.4 million for the first quarter of 2008. This increase was due
primarily to a $4.75 billion increase in the average balance of mortgage-backed securities to
$19.44 billion during the first quarter of 2009 as compared to $14.69 billion the first quarter of
2008, partially offset by a 13 basis point decrease in the weighted-average yield to 5.16%.
The increases in the average balances of mortgage-backed securities were due to purchases of
variable-rate mortgage-backed securities as part of our interest rate risk management strategy.
Since our loan production includes a concentration of fixed-rate mortgage loans, the purchase of
variable-rate mortgage-backed securities provides us with an asset that reduces our exposure to
interest rate fluctuations while providing a source of cash flow from monthly principal and
interest payments. The decrease in the weighted average yield on mortgage-backed securities is a
result of lower yields on securities purchased during the second half of 2008 and the first three
months of 2009 when market interest rates were lower than the yield earned on the existing
portfolio.
Page 23
Interest on investment securities decreased $3.8 million to $45.7 million during the first quarter
of 2009 as compared to $49.5 million for the first quarter of 2008. This decrease was due
primarily to a $498.6 million decrease in the average balance of investment securities to $3.69
billion for the first quarter of 2009 from $4.19 billion for the first quarter of 2008. The
decrease in the average balance of investment securities was due to call activity. The proceeds
from the calls of investment securities were used in part to fund our loan production and the
purchase of mortgage-backed securities during 2008. During the first quarter of 2009, proceeds from the calls of investment securities were primarily reinvested
in investment securities. The impact on
interest income from the decrease in the average balance of investment securities was partially
offset by an increase in the average yield of investment securities which increased 23 basis points
to 4.95%. The average yield increased due to higher yields on securities purchased during 2008 and
the first quarter of 2009.
Dividends on FHLB stock decreased $7.8 million or 54.9% to $6.4 million for the first quarter of
2009 as compared to $14.2 million for the first quarter of 2008. The decrease was due to a 497
basis point decrease in the average yield to 2.92% as compared to 7.89% for the first quarter of
2008. This decrease was partially offset by a $150.6 million increase in the average balance to
$872.1 million for the first quarter of 2009 as compared to $721.5 million for the same quarter in
2008. We cannot predict the future amount of dividends that the FHLB may pay or the timing and
extent of any changes in the dividend yield.
Interest Expense.
Total interest expense for the quarter ended March 31, 2009 increased $19.5
million, or 4.6%, to $439.5 million as compared to $420.0 million for the quarter ended March 31,
2008. This increase was primarily due to a $9.57 billion, or 24.1%, increase in the average
balance of total interest-bearing liabilities to $49.23 billion for the first quarter of 2009
compared with $39.66 billion for the first quarter of 2008. This increase in interest-bearing
liabilities was primarily used to fund asset growth. The increase in the average balance of total
interest-bearing liabilities was partially offset by a 64 basis point decrease in the
weighted-average cost of total interest-bearing liabilities to 3.62% for the quarter ended March
31, 2009 compared with 4.26% for the quarter ended March 31, 2008.
Interest expense on our time deposit accounts decreased $16.1 million to $111.7 million for the
first quarter of 2009 as compared to $127.8 million for the first quarter of 2008. This decrease
was due to a decrease in the annualized weighted-average cost of 136 basis points to 3.33% for the
first quarter of 2009 from 4.69% for the first quarter of 2008. This decrease was partially offset
by a $2.65 billion increase in the average balance of time deposit accounts to $13.60 billion for
the first quarter of 2009 from $10.95 billion for the first quarter of 2008. Interest expense on
money market accounts increased $808,000 to
$16.7 million for the first quarter of 2009 as compared to $15.9 million for the same quarter in
2008. This increase was due to a $1.24 billion increase in the average balance to $2.92 billion,
partially offset by a 148 basis point decrease in the annualized weighted-average cost to 2.32%.
Interest expense on our interest-bearing transaction accounts decreased $3.8 million to $9.1
million for the first quarter of 2009. The decrease is due to a 105 basis point decrease in the
annualized weighted-average cost to 2.26%, partially offset by a $59.1 million increase in the
average balance to $1.62 billion.
The increases in the average balances of interest-bearing deposits reflect our strategy to expand
our branch network and to grow our existing branches by offering competitive rates. In addition,
we believe the turmoil in the credit and equity markets have made deposit products in strong
financial institutions desirable for many customers. The decrease in the average cost of deposits
for the 2009 quarter reflected lower market interest rates. At March 31, 2009, time deposits
scheduled to mature within one year totaled
Page 24
$13.70 billion with an average cost of 3.11%. These
time deposits are scheduled to mature as follows: $8.22 billion with an average cost of 3.31% in
the second quarter of 2009, $3.04 billion with an average cost of 2.68% in the third quarter of
2009, $475.9 million with an average cost of 3.37% in the fourth quarter of 2009 and $1.95 billion
with an average cost of 2.87% in the first quarter of 2010. Based on our deposit retention
experience and current pricing strategy, we anticipate that a significant portion of these time
deposits will remain with us as renewed time deposits or as transfers to other deposit products at
the prevailing rate.
Interest expense on borrowed funds increased $38.7 million to $300.7 million as compared to $262.0
million for the first quarter of 2009 primarily due to a $5.64 billion increase in the average
balance of borrowed funds to $30.37 billion, partially offset by a 24 basis point decrease in the
annualized weighted-average cost of borrowed funds to 4.02%.
Borrowed funds were used to supplement deposit growth to fund a significant portion of the growth
in interest-earning assets during 2008. We have been able to fund substantially all of our 2009
growth with deposit growth. The decrease in the average cost of borrowings for the first quarter
of 2009 reflected new borrowings in 2009 and 2008, when market interest rates were lower than
existing borrowings and borrowings that matured. Substantially all of our borrowings are callable
quarterly at the discretion of the lender after an initial non-call period of one to five years
with a final maturity of ten years. We anticipate that none of the borrowings will be called in
2009 assuming that market interest rates remain at current levels.
Net Interest Income.
Net interest income increased $90.5 million, or 46.8%, to $283.8 million
for the first quarter of 2009 compared with $193.3 million for the first quarter of 2008. Our net
interest rate spread increased 48 basis points to 1.75% for the first quarter of 2009 from 1.27%
for the same quarter in 2008. Our net interest margin increased 34 basis points to 2.06% for the
first quarter of 2009 from 1.72% for the same quarter in 2008.
The increase in our net interest margin and net interest rate spread was primarily due to the
decrease in the weighted-average cost of interest-bearing liabilities
.
The increases in our net
interest rate spread and net interest margin were due to a steeper yield curve which allowed us to
reduce deposit costs at a faster pace than the decrease in our mortgage yields.
Provision for Loan Losses.
The provision for loan losses amounted to $20.0 million for the
quarter ended March 31, 2009 as compared to $2.5 million for the quarter ended March 31, 2008. The
allowance for loan losses amounted to $65.1 million and $49.8 million at March 31, 2009 and
December 31, 2008, respectively. We recorded our provision for loan losses during the first three
months of 2009 based on
our allowance for loan losses methodology that considers a number of quantitative and qualitative
factors, including the amount of non-performing loans, which increased to $320.2 million at March
31, 2009 from $217.6 million at December 31, 2008, conditions in the real estate and housing
markets, current economic conditions, particularly increasing levels of unemployment, and growth in
the loan portfolio. See Critical Accounting Policies Allowance for Loan Losses.
Our primary lending emphasis is the origination and purchase of one- to four-family first mortgage
loans on residential properties and, to a lesser extent, second mortgage loans on one- to
four-family residential properties. Our loan growth was primarily concentrated in one- to
four-family mortgage loans with original loan-to-value ratios of less than 80%. The average
loan-to-value ratio of our first quarter 2009 first mortgage loan originations and our total first
mortgage loan portfolio was 59% and 61%, respectively using the appraised value at the time of
origination. The value of the property used as collateral for our
Page 25
loans is dependent upon local
market conditions. As part of our estimation of the allowance for loan losses, we monitor changes
in the values of homes in each market using indices published by various organizations. Based on
our analysis of the data for the first quarter of 2009, we concluded that home values in the
Northeast quadrant of the United States, where most of our lending activity occurs, have continued
to deteriorate from 2008 levels, as evidenced by reduced levels of sales, increasing inventories of
houses on the market, declining house prices and an increase in the length of time houses remain on
the market. In addition, general economic conditions in the United States have also worsened,
particularly with respect to rising levels of unemployment during the first quarter of 2009. We
considered these trends in economic and market conditions in determining the provision for loan
losses also taking into account the continued growth of our loan portfolio.
We define the Northeast quadrant of the country generally as those states that are east of the
Mississippi River and as far south as South Carolina. At March 31, 2009, approximately 70.7% of
our total loans are in the New York metropolitan area. Additionally, the states of Virginia,
Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania accounted for 5.3%, 4.1%,
4.1%, 2.9%, 1.7%, 1.6% and 1.5%, respectively of total loans. The remaining 8.1% of the loan
portfolio is secured by real estate primarily in the remainder of the Northeast quadrant of the
United States. With respect to our non-performing loans, approximately 66.3% are in the New York
metropolitan area and 3.3%, 3.6%, 4.3%, 2.5%, 3.6%, 4.4% and 1.6% are located in the states of
Virginia, Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania, respectively.
The remaining 10.4% of our non-performing loans are secured by real estate primarily in the
remainder of the Northeast quadrant of the United States.
The national economy has been in a recessionary cycle for approximately 18 months with the housing
and real estate markets suffering significant losses in value. The faltering economy has been
marked by contractions in the availability of business and consumer credit, increases in corporate
borrowing rates, falling home prices, increasing home foreclosures and rising levels of
unemployment. As a result, the financial, capital and credit markets are experiencing significant
adverse conditions. These conditions have caused significant deterioration in the activity of the
secondary residential mortgage market and a lack of available liquidity. The disruptions have been
exacerbated by the acceleration of the decline of the real estate and housing market. There have
not been any significant signs of improvement in these conditions during the first quarter of 2009
as unemployment rates continue to increase and household wealth continues to decline. We continue
to closely monitor the local and national real estate markets and other factors related to risks
inherent in our loan portfolio. We determined the provision for loan losses for the first quarter
of 2009 based on our evaluation of the foregoing factors, the growth of the loan portfolio, the
recent increases in non-performing loans and net loan charge-offs, and the increasing trend in the
unemployment rate.
At March 31, 2009, first mortgage loans secured by one-to four-family properties accounted for
98.5% of total loans. Fixed-rate mortgage loans represent 75.0% of our first mortgage loans.
Compared to adjustable-rate loans, fixed-rate loans possess less inherent credit risk since loan
payments do not change in response to changes in interest rates. In addition, we do not originate
or purchase loans with payment options, negative amortization loans or sub-prime loans.
Included in our loan portfolio at March 31, 2009 and December 31, 2008 are interest-only loans of
approximately $3.60 billion and $3.47 billion, respectively. These loans are originated as
adjustable-rate mortgage (ARM) loans with initial terms of five, seven or ten years with the
interest-only portion of the payment based upon the initial loan term, or offered on a 30-year
fixed-rate loan, with interest-only payments for the first 10 years of the obligation. At the end
of the initial 5-, 7- or 10-year interest-only period, the loan payment will adjust to include both
principal and interest and will amortize over the
remaining term so the loan will be repaid at the
end of its original life. We had $25.9 million and $16.6 million of non-performing interest-only
loans at March 31, 2009 and December 31, 2008, respectively.
Page 26
Non-performing loans amounted to $320.2 million at March 31, 2009 as compared to $217.6 million at
December 31, 2008. Non-performing loans at March 31, 2009 included $308.7 million of one- to
four-family first mortgage loans as compared to $207.0 million at December 31, 2008. The ratio of
non-performing loans to total loans was 1.06% at March 31, 2009 compared with 0.74% at December 31,
2008. The allowance for loan losses as a percent of total loans was 0.22% at March 31, 2009 as
compared to 0.17% at December 31, 2008, and for non-performing loans was 20.34% at March 31, 2009
as compared to 22.89% at December 31, 2008. Loans delinquent 60 to 89 days amounted to $124.2
million at March 31, 2009 as compared to $104.7 million at December 31, 2008. Foreclosed real
estate amounted to $11.6 million at March 31, 2009 as compared to $15.5 million at December 31,
2008. As a result of our underwriting policies, our borrowers typically have a significant amount
of equity, at the time of origination, in the underlying real estate that we use as collateral for
our loans. At March 31, 2009, our non-performing mortgage loans had an average loan-to-value ratio
of approximately 67.9% based on the appraised value at the time of origination. Due to the steady
deterioration of real estate values, the loan-to-value ratios based on appraisals obtained at time
of origination do not necessarily indicate the extent to which we may incur a loss on any given
loan that may go into foreclosure.
Net charge-offs amounted to $4.7 million for the first three months of 2009 as compared to net
charge-offs of $469,000 for the corresponding period in 2008. Our charge-offs on non-performing
loans have historically been low due to the amount of underlying equity in the properties
collateralizing our first mortgage loans. Until this current recessionary cycle, it was our
experience that as a non-performing loan approached foreclosure, the borrower sold the underlying
property or, if there was a second mortgage or other subordinated lien, the subordinated lien
holder would purchase the property to protect its interest thereby resulting in the full payment of
principal and interest to Hudson City Savings. This process normally took approximately 12 months.
However, due to the unprecedented level of foreclosures and the desire by most states to slow the
foreclosure process, we are now experiencing a time frame to repayment or foreclosure ranging from
24 to 30 months from the initial non-performing period. As real estate prices continue to decline,
this extended time may result in further charge-offs. In addition, current conditions in the
housing market have made it more difficult for borrowers to sell homes to satisfy the mortgage and
second lien holders are less likely to repay our loan if the value of the property is not enough to
satisfy their loan. We continue to monitor closely the property values underlying our
non-performing loans during this timeframe and take appropriate charge-offs when the loan balances
exceed the underlying property values.
At March 31, 2009 and December 31, 2008, commercial and construction loans evaluated for impairment
in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan amounted to
$10.5 million and $9.5 million, respectively. Based on this evaluation, we established an
allowance for loan losses of $940,000 for loans classified as impaired at March 31, 2009 compared
to $818,000 at December 31, 2008.
Although we believe that we have established and maintained the allowance for loan losses at
adequate levels, additions may be necessary if future economic and other conditions differ
substantially from the current operating environment. However, the markets in which we lend have
experienced significant declines in real estate values which we have taken into account in
evaluating our allowance for loan losses. No assurance can be given in any particular case that our
loan-to-value ratios will provide full protection in the event of borrower default. Although we use
the best information available, the level of the allowance for loan losses remains an estimate that
is subject to significant judgment and short-term change. See Critical Accounting Policies.
Page 27
Non-Interest Income.
Total non-interest income was $2.3 million for the first quarter 2009 as
compared to $2.2 million for the same quarter in 2008. Non-interest income primarily consists of
service charges on loans and deposits.
Non-Interest Expense.
Total non-interest expense increased $6.7 million, or 13.9%, to $54.8
million for the first quarter of 2009 from $48.1 million for the first quarter of 2008. The
increase is primarily due to a $1.2 million increase in compensation and employee benefits expense,
a $1.1 million increase in net occupancy expense, a $2.2 million increase in Federal deposit
insurance expense and a $2.2 million increase in other non-interest expense. The increase in
compensation and employee benefits expense included a $1.6 million increase in compensation costs,
due primarily to normal increases in salary as well as additional full time employees for our new
branches, a $1.4 million increase in pension costs and an $842,000 increase in costs related to our
health plan. These increases were partially offset by a $2.5 million decrease in expense related
to our stock benefit plans. This decrease was due primarily to a decrease in ESOP expense as a
result of a decline in the price of our common stock. At March 31, 2009, we had 1,458 full-time
equivalent employees as compared to 1,355 at March 31, 2008. The increase in net occupancy expense
and other non-interest expense is primarily the result of our branch expansion as well as growth in
the existing franchise. The increase in the Federal deposit insurance expense is primarily the
result of an assessment credit that was used to offset a substantial portion of our first quarter
2008 deposit insurance assessment. This assessment was fully utilized in 2008. Included in other
non-interest expense for the first quarter of 2009 were write downs on foreclosed real estate and
net losses from the sale of foreclosed real estate of $1.2 million as compared to $156,000 for the
first quarter of 2008.
The FDIC adopted a final rule increasing risk-based assessment rates uniformly by 7 basis points
(annualized) during the first quarter of 2009. The FDIC has also revised the assessment rates
effective for the 2009 second quarter with adjustments resulting in increased assessment rates for
institutions with a significant reliance on secured liabilities and brokered deposits and has
adopted an interim rule, which remains subject to comment, imposing a 20 basis point emergency
special assessment on the banking industry on June 30, 2009, which is to be collected on September
30, 2009. However, the FDIC may decrease the emergency special assessment from 20 basis points to 10 basis points if legislation passes that allows the FDIC to borrow more funds from the Treasury.
The interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary, to maintain public confidence in federal deposit insurance.
For Hudson City Savings, our total assessment rate would be 18 basis points. The
increased deposit insurance premiums will result in a significant increase in our non-interest
expense.
Our efficiency ratio was 19.15% for the three months ended March 31, 2009 as compared to 24.66% for
the three months ended March 31, 2008. Our annualized ratio of non-interest expense to average
total assets for the first quarter of 2009 was 0.40% as compared to 0.43% for the first quarter of
2008.
Income Taxes.
Income tax expense amounted to $83.6 million for the three months ended March 31,
2009 compared with $56.3 million for the corresponding period in 2008. Our effective tax rate for
the first quarter of 2009 was 39.58% compared with 38.82% for the first quarter of 2008.
Liquidity and Capital Resources
The term liquidity refers to our ability to generate adequate amounts of cash to fund loan
originations, loan and security purchases, deposit withdrawals, repayment of borrowings and
operating expenses. Our primary sources of funds are deposits, borrowings, the proceeds from
principal and interest payments on loans and mortgage-backed securities, the maturities and calls
of investment securities and funds provided
Page 28
by our operations. Deposit flows, calls of investment
securities and borrowed funds, and prepayments of loans and mortgage-backed securities are strongly
influenced by interest rates, general and local economic conditions and competition in the
marketplace. These factors reduce the predictability of the receipt of these sources of funds. Our
membership in the FHLB provides us access to additional sources of borrowed funds, which is
generally limited to approximately twenty times the amount of FHLB stock owned. We also have the
ability to access the capital markets from time to time, depending on market conditions.
Our primary investing activities are the origination and purchase of one-to four-family real estate
loans and consumer and other loans, the purchase of mortgage-backed securities, and the purchase of
investment securities. These activities are funded primarily by borrowings, deposit growth and
principal and interest payments on loans, mortgage-backed securities and investment securities. We
originated $1.32 billion and purchased $723.3 million of loans during the first quarter of 2009 as
compared to $820.4 million and $543.4 million during the first quarter of 2008. While the
residential real estate markets have slowed during the past year, our competitive rates, decreased
mortgage lending competition and an increase in mortgage refinancing have resulted in increased
origination production for the first three months of 2009. The increase in refinancing activity
occurring in the marketplace has also caused an increase in principal repayments during the first
quarter of 2009. At March 31, 2009, commitments to originate and purchase mortgage loans amounted
to $595.5 million and $143.6 million, respectively as compared to $575.1 million and $1.12 billion,
respectively at March 31, 2008. Conditions in the secondary mortgage market have made it more
difficult for us to purchase loans that meet our underwriting standards. We expect that the amount
of loan purchases may be at reduced levels for the near-term.
Purchases of mortgage-backed securities during the first quarter of 2009 were $1.54 billion as
compared to $2.14 billion during the first quarter of 2008. The decrease in the purchases of
mortgage-backed securities was due to our ability to utilize our deposit and borrowed fund growth
for increased mortgage loan production during the first three months of 2009. In addition,
proceeds from the calls of investment securities, which were used to fund the purchase of
mortgage-backed securities during the first quarter of 2008, decreased in the first quarter of
2009. We purchased $1.30 billion of investment securities during the first quarter of 2009 as
compared to $1.90 billion during the first quarter of 2008. Proceeds from the calls of investment
securities amounted to $775.0 million during the first quarter of 2009 as compared to $2.27 billion
for the corresponding period in 2008.
During the first quarter of 2009, principal repayments on loans totaled $1.35 billion as compared
to $655.9 million for the first quarter of 2008. Principal payments on mortgage-backed securities
amounted to $699.1 million and $527.0 million for those same respective periods. These increases
in principal repayments were due primarily to the refinancing activity caused by market interest
rates that are at near-historic lows.
As part of the membership requirements of the FHLB, we are required to hold a certain dollar amount
of FHLB common stock based on our mortgage-related assets and borrowings from the FHLB. During the
first quarter of 2009, we purchased a net additional $2.3 million of FHLB common stock compared
with net purchases of $48.8 million during the first quarter of 2008.
Our primary financing activities consist of gathering deposits, engaging in wholesale borrowings,
repurchases of our common stock and the payment of dividends.
Page 29
Total deposits increased $1.98 billion during the first quarter of 2009 as compared to an increase
of $923.7 million for the first three months of 2008. These increases reflect our growth strategy
and competitive pricing. Deposit flows are typically affected by the level of market interest
rates, the interest rates and products offered by competitors, the volatility of equity markets,
and other factors. We believe the turmoil in the credit and equity markets have made deposit
products in strong financial institutions desirable for many customers. Time deposits scheduled to
mature within one year were $13.70 billion at March 31, 2009. These time deposits have a weighted
average rate of 3.11%. We anticipate that we will have sufficient resources to meet this current
funding commitment. Based on our deposit retention experience and current pricing strategy, we
anticipate that a significant portion of these time deposits will remain with us as renewed time
deposits or as transfers to other deposit products at the prevailing interest rate.
We also used wholesale borrowings to fund our investing and financing activities. New borrowings
totaled $650.0 million, largely offset by $600.0 million in principal repayments of borrowed funds.
At March 31, 2009, we had $21.53 billion of borrowed funds with a weighted-average rate of 4.18%
and with call dates within one year. We anticipate that none of these borrowings will be called
assuming current market interest rates remain stable. However, in the event borrowings are
called, we anticipate that we will have sufficient resources to meet this funding commitment by
borrowing new funds at the prevailing market interest rate, or using funds generated by deposit
growth. In addition, we had $400.0 million of borrowings with a weighted average rate of 1.77%
that are scheduled to mature within one year.
Our borrowings have traditionally consisted of structured callable borrowings with ten year final
maturities and initial non-call periods of one to five years. We have used this type of borrowing
primarily to fund our loan growth because they have a longer duration than shorter-term
non-callable borrowings and have a slightly lower cost than a non-callable borrowing with a
maturity date similar to the first call date of the callable borrowing. During the current period
of credit instability we may not be able to continue to borrow in this manner. We believe that we
will continue to be able to borrow from the same institutions as in the past, but structured
callable borrowings may not be available. In order to fund our growth and provide for our liquidity
we may need to borrow a combination of short-term borrowings with maturities of three to six months
and longer term fixed-maturity borrowings with terms of two to five years. Our new borrowings in
the first quarter of 2009 consisted of non-callable borrowings of $400.0 million with maturities of
one to three months and $250.0 million of non-callable borrowings with maturities of two to three
years.
Cash dividends paid during the first quarter of 2009 were $68.3 million. During the first quarter
of 2009, we purchased 3.8 million shares of our common stock at an aggregate cost of $40.7 million.
At March 31, 2009, there remained 50,323,550 shares available for purchase under existing stock
repurchase programs.
The primary source of liquidity for Hudson City Bancorp, the holding company of Hudson City
Savings, is capital distributions from Hudson City Savings. During the first quarter of 2009,
Hudson City Bancorp received $74.0 million in dividend payments from Hudson City Savings. The
primary use of these funds is the payment of dividends to our shareholders and, when appropriate as
part of our capital management strategy, the repurchase of our outstanding common stock. Hudson
City Bancorps ability to continue these activities is dependent upon capital distributions from
Hudson City Savings. Applicable federal law may limit the amount of capital distributions Hudson
City Savings may make. At March 31, 2009, Hudson City Bancorp had total cash and due from banks of
$176.9 million.
Page 30
At March 31, 2009, Hudson City Savings exceeded all regulatory capital requirements. Hudson City
Savings tangible capital ratio, leverage (core) capital ratio and total risk-based capital ratio
were 7.79%, 7.79% and 21.20%, respectively.
Off-Balance Sheet Arrangements and Contractual Obligations
We are a party to certain off-balance sheet arrangements, which occur in the normal course of our
business, to meet the credit needs of our customers and the growth initiatives of Hudson City
Savings. These arrangements are primarily commitments to originate and purchase mortgage loans, and
to purchase securities. We are also obligated under a number of non-cancelable operating leases.
The following table reports the amounts of our contractual obligations as of March 31, 2009.
|
|
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|
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|
|
|
|
|
|
|
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|
|
Payments Due By Period
|
|
|
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|
|
|
|
Less Than
|
|
|
1 Year to
|
|
|
3 Years to
|
|
|
More Than
|
|
Contractual Obligation
|
|
Total
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
First mortgage loan originations
|
|
$
|
595,466
|
|
|
$
|
595,466
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Mortgage loan purchases
|
|
|
143,579
|
|
|
|
143,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
149,746
|
|
|
|
8,534
|
|
|
|
17,490
|
|
|
|
17,023
|
|
|
|
106,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
888,791
|
|
|
$
|
747,579
|
|
|
$
|
17,490
|
|
|
$
|
17,023
|
|
|
$
|
106,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend money to a customer as long as there is no
violation of any condition established in the contract. Commitments to fund first mortgage loans
generally have fixed expiration dates of approximately 90 days and other termination clauses. Since
some commitments are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Hudson City Savings evaluates each customers
credit-worthiness on a case-by-case basis. Additionally, we have available home equity, commercial
lines of credit, and overdraft lines of credit, which do not have fixed expiration dates, of
approximately $160.2 million. We are not obligated to advance further amounts on credit lines if
the customer is delinquent, or otherwise in violation of the agreement. The commitments to purchase
first mortgage loans and mortgage-backed securities had a normal period from trade date to
settlement date of approximately 90 days and 60 days, respectively.
Critical Accounting Policies
Note 2 to our Audited Consolidated Financial Statements of our Annual Report on Form 10-K for the
year ended December 31, 2008, contains a summary of our significant accounting policies. We believe
our policies with respect to the methodology for our determination of the allowance for loan
losses, the measurement of stock-based compensation expense and the measurement of the funded
status and cost of our pension and other post-retirement benefit plans involve a higher degree of
complexity and require management to make difficult and subjective judgments which often require
assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions
or estimates could cause reported results to differ materially. These critical policies and their
application are continually reviewed by management, and are periodically reviewed with the Audit
Committee and our Board of Directors.
Allowance for Loan Losses
The allowance for loan losses has been determined in accordance with GAAP, under which we are
required to maintain an adequate allowance for loan losses at March 31, 2009. We are responsible
for the timely and periodic determination of the amount of the allowance required. We believe that
our allowance for loan losses is adequate to cover specifically identifiable loan losses, as well
as estimated losses inherent in our portfolio for which certain losses are probable but not
specifically identifiable.
Page 31
Our primary lending emphasis is the origination and purchase of one- to four-family first mortgage
loans on residential properties and, to a lesser extent, second mortgage loans on one- to
four-family residential properties resulting in a loan concentration in residential first mortgage
loans at March 31, 2009. As a result of our lending practices, we also have a concentration of
loans secured by real property located primarily in New Jersey, New York and Connecticut. At March
31, 2009, approximately 70.7% of our total loans are in the New York metropolitan area.
Additionally, the states of Virginia, Illinois, Maryland, Massachusetts, Minnesota, Michigan and
Pennsylvania accounted for 5.3%, 4.1%, 4.1%, 2.9%, 1.7%, 1.6% and 1.5%, respectively of total
loans. The remaining 8.1% of the loan portfolio is secured by real estate primarily in the
remainder of the Northeast quadrant of the United States. Based on the composition of our loan
portfolio and the growth in our loan portfolio, we believe the primary risks inherent in our
portfolio are the depth of the U.S. recession, unemployment, interest rates in the markets we lend
and a continuing decline in real estate market values. Any one or a combination of these events may
adversely affect our loan portfolio resulting in increased delinquencies, non-performing assets,
loan losses and future levels of loan loss provisions. We consider these trends in market
conditions in determining the allowance for loan losses.
Due to the nature of our loan portfolio, our evaluation of the adequacy of our allowance for loan
losses is performed primarily on a pooled basis. Each month we prepare an analysis which
categorizes the entire loan portfolio by certain risk characteristics such as loan type (one- to
four-family, multi-family, commercial, construction, etc.), loan source (originated or purchased)
and payment status (i.e., current or number of days delinquent). Loans with known potential losses
are categorized separately. We assign potential loss factors to the payment status categories on
the basis of our assessment of the potential risk inherent in each loan type. These factors are
periodically reviewed for appropriateness giving consideration to charge-off history, delinquency
trends, portfolio growth and the status of the regional economy and housing market, in order to
ascertain that the loss factors cover probable and estimable losses inherent in the portfolio. We
use this analysis, as a tool, together with principal balances and delinquency reports, to evaluate
the adequacy of the allowance for loan losses. Other key factors we consider in this process are
current real estate market conditions in geographic areas where our loans are located, changes in
the trend of non-performing loans, the results of our foreclosed property transactions,
the current state of the local and national economy, changes in interest rates and loan portfolio
growth. Any one or a combination of these events may adversely affect our loan portfolio resulting
in increased delinquencies, loan losses and future levels of provisions.
We maintain the allowance for loan losses through provisions for loan losses that we charge to
income. We charge losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely. We establish the provision for loan losses after
considering the results of our review as described above. We apply this process and methodology in
a consistent manner and we reassess and modify the estimation methods and assumptions used in
response to changing conditions. Such changes, if any, are approved by our Asset Quality Committee
each quarter.
Hudson City Savings defines the population of potential impaired loans to be all non-accrual
construction, commercial real estate and multi-family loans. Impaired loans are individually
assessed to determine that the loans carrying value is not in excess of the fair value of the
collateral or the present value of the loans expected future cash flows. Smaller balance
homogeneous loans that are collectively evaluated for impairment, such as residential mortgage
loans and consumer loans, are specifically excluded from the impaired loan analysis.
Page 32
We believe that we have established and maintained the allowance for loan losses at adequate
levels. Additions may be necessary if future economic and other conditions differ substantially
from the current operating environment. Although management uses the best information available,
the level of the allowance for loan losses remains an estimate that is subject to significant
judgment and short-term change.
Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value for all awards granted, modified, repurchased or cancelled after
January 1, 2006 and for the portion of outstanding awards for which the requisite service was not
rendered as of January 1, 2006, in accordance with SFAS No. 123(R). We granted performance-based
stock options in 2006, 2007, 2008 and 2009 that vest if certain financial performance measures are
met. In accordance with SFAS No. 123(R), we assess the probability of achieving these financial
performance measures and recognize the cost of these performance-based grants if it is probable
that the financial performance measures will be met. This probability assessment is subjective in
nature and may change over the assessment period for the performance measures.
We estimate the per share fair value of option grants on the date of grant using the Black-Scholes
option pricing model using assumptions for the expected dividend yield, expected stock price
volatility, risk-free interest rate and expected option term. These assumptions are based on our
analysis of our historical option exercise experience and our judgments regarding future option
exercise experience and market conditions. These assumptions are subjective in nature, involve
uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing
model also contains certain inherent limitations when applied to options that are not traded on
public markets.
The per share fair value of options is highly sensitive to changes in assumptions. In general, the
per share fair value of options will move in the same direction as changes in the expected stock
price volatility, risk-free interest rate and expected option term, and in the opposite direction
of changes in the expected dividend yield. For example, the per share fair value of options will
generally increase as expected stock price volatility increases, risk-free interest rate increases,
expected option term increases and expected
dividend yield decreases. The use of different assumptions or different option pricing models could
result in materially different per share fair values of options.
Pension and Other Post-retirement Benefit Assumptions
Non-contributory retirement and post-retirement defined benefit plans are maintained for certain
employees, including retired employees hired on or before July 31, 2005 who have met other
eligibility requirements of the plans. We adopted SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Post-retirement Plans An Amendment of FASB Statements Nos. 87, 88,
106, and 132R as of December 31, 2006. This statement requires an employer to: (a) recognize in
its statement of financial condition an asset for a plans overfunded status or a liability for a
plans underfunded status; (b) measure a plans assets and its obligations that determine its
funded status as of the end of the employers fiscal year; and (c) recognize, in comprehensive
income, changes in the funded status of a defined benefit post-retirement plan in the year in which
the changes occur. The requirement to measure plan assets and benefit obligations as of the date
of the employers fiscal year-end statement of financial condition
Page 33
became effective for the Company
on December 31, 2008. We have historically used our fiscal year-end as the measurement date for
plan assets and benefit obligations and therefore the measurement date provisions of SFAS No. 158
did not affect us.
We provide our actuary with certain rate assumptions used in measuring our benefit obligation. We
monitor these rates in relation to the current market interest rate environment and update our
actuarial analysis accordingly. The most significant of these is the discount rate used to
calculate the period-end present value of the benefit obligations, and the expense to be included
in the following years financial statements. A lower discount rate will result in a higher benefit
obligation and expense, while a higher discount rate will result in a lower benefit obligation and
expense. The discount rate assumption was determined based on a cash flow-yield curve model
specific to our pension and post-retirement plans. We compare this rate to certain market indices,
such as long-term treasury bonds, or the Moodys bond indices, for reasonableness. A discount rate
of 5.75% was selected for the December 31, 2008 measurement date and the 2009 expense calculation.
For our pension plan, we also assumed a rate of salary increase of 4.00% for future periods. This
rate is corresponding to actual salary increases experienced over prior years. We assumed a return
on plan assets of 8.25% for future periods. We actuarially determine the return on plan assets
based on actual plan experience over the previous ten years. The actual return on plan assets was a
net loss of 28.2% for 2008. The assumed return on plan assets of 8.25% is based on expected
returns in future periods. Our net loss on plan assets during 2008 is a result of the current
economic recession and conditions in the equity and credit markets. There can be no assurances
with respect to actual return on plan assets in the future. We continually review and evaluate all
actuarial assumptions affecting the pension plan, including assumed return on assets.
For our post-retirement benefit plan, the assumed health care cost trend rate used to measure the
expected cost of other benefits for 2008 was 9.00%. The rate was assumed to decrease gradually to
4.75% for 2016 and remain at that level thereafter. Changes to the assumed health care cost trend
rate are expected to have an immaterial impact as we capped our obligations to contribute to the
premium cost of coverage to the post-retirement health benefit plan at the 2007 premium level.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosure about market risk is presented as of December 31, 2008 in
Hudson City Bancorps Annual Report on Form 10-K. The following is an update of the discussion
provided therein.
General
As a financial institution, our primary component of market risk is interest rate volatility. Our
net income is primarily based on net interest income, and fluctuations in interest rates will
ultimately impact the level of both income and expense recorded on a large portion of our assets
and liabilities. Fluctuations in interest rates will also affect the market value of all
interest-earning assets, other than those that possess a short term to maturity.
The difference between rates on the yield curve, or the shape of the yield curve, impacts our net
interest income. The national economy has continued to contract, evidenced by increasing job
losses, declining household wealth, and tight credit conditions. As a result of these issues, the
FOMC maintained the overnight lending rate at 0.00% to 0.25% during the first quarter. In addition,
the FOMC plans to increase the Federal Reserves balance sheet with $750 billion and $100 billion
in additional purchases of agency
Page 34
mortgage-backed securities and debt, respectively. The FOMC has
also decided to purchase up to $300 billion of longer-term Treasury securities during the next six
months. These measures are aimed at providing additional support to the mortgage and lending
markets as well as improve conditions in private credit markets.
As a result of these measures, both short- and long-term market interest rates have remained at low
levels during the first quarter of 2009, increasing slightly from their prior year-end levels but
maintaining a positive slope to the yield curve. Due to our investment and financing decisions, the
more positive the slope of the yield curve the more favorable the environment is for our ability to
generate net interest income. Our interest-bearing liabilities generally reflect movements in
short- and intermediate-term rates, while our interest-earning assets, a majority of which have
initial terms to maturity or repricing greater than one year, generally reflect movements in
intermediate- and long-term interest rates. A positive slope of the yield curve allows us to invest
in interest-earning assets at a wider spread to the cost of interest-bearing liabilities.
The impact of interest rate changes on our interest income is generally felt in later periods than
the impact on our interest expense due to differences in the timing of the recognition of items on
our balance sheet. The timing of the recognition of interest-earning assets on our balance sheet
generally lags the current market rates by 60 to 90 days due to the normal time period between
commitment and settlement dates. In contrast, the recognition of interest-bearing liabilities on
our balance sheet generally reflects current market interest rates as we generally fund purchases
at the time of settlement. During a period of decreasing short-term interest rates, as was
experienced during these past 12 months, this timing difference had a positive impact on our net
interest income as our interest-bearing liabilities reset to the current lower interest rates. If
short-term interest rates were to increase, the cost of our interest-bearing liabilities would also
increase and have an adverse impact on our net interest income.
Our borrowings have traditionally consisted of structured callable borrowings with ten year final
maturities and initial non-call periods of one to five years. During the current period of credit
instability we have not been able to continue to borrow in this manner. We have been able to
borrow from the same institutions as in the past, but structured callable borrowings have not been
available as a funding source. In order to fund our growth and provide for our liquidity we may
need to borrow a combination of short-term borrowings with maturities of three to six months and
longer term fixed-maturity borrowings with terms of two to five years.
Also impacting our net interest income and net interest rate spread is the level of prepayment
activity on our interest-sensitive assets. The actual amount of time before mortgage loans and
mortgage-backed securities are repaid can be significantly impacted by changes in market interest
rates and mortgage prepayment rates. Mortgage prepayment rates will vary due to a number of
factors, including the regional economy in the area where the underlying mortgages were originated,
availability of credit, seasonal factors and demographic variables. However, the major factors
affecting prepayment rates are prevailing interest rates, related mortgage refinancing
opportunities and competition. Generally, the level of prepayment activity directly affects the
yield earned on those assets, as the payments received on the interest-earning assets will be
reinvested at the prevailing lower market interest rate. Prepayment rates are generally inversely
related to the prevailing market interest rate, thus, as market interest rates increase, prepayment
rates tend to decrease. Prepayment rates on our mortgage-related assets have increased during the
first three months of 2009, due to the current low market interest rate environment. We believe the
higher level of prepayment activity may continue as market interest rates are expected to remain at
the current low levels for several quarters.
Page 35
Calls of investment securities and borrowed funds are also impacted by the level of market interest
rates. The level of calls of investment securities are generally inversely related to the
prevailing market interest rate, meaning as rates decrease the likelihood of a security being
called would increase. The level of call activity generally affects the yield earned on these
assets, as the payment received on the security would be reinvested at the prevailing lower market
interest rate. During the first three months of 2009 we saw an increase in call activity on our
investment securities as market interest rates remained at these historic lows. We anticipate a
higher level of calls of investment securities due to the anticipated continuation of the low
current market interest rate environment.
The likelihood of a borrowing being called is directly related to the current market interest
rates, meaning the higher that interest rates move, the more likely the borrowing would be called.
The level of call activity generally affects the cost of our borrowed funds, as the call of a
borrowing would generally necessitate the re-borrowing of the funds at the higher current market
interest rate. During the first three months of 2009 we experienced no call activity on our
borrowed funds due to the continued low levels of market interest rates.
Simulation Model.
Hudson City Bancorp continues to monitor the impact of interest rate
volatility in the same manner as at December 31, 2008, utilizing simulation models as a means of
analyzing the impact of interest rate changes on our net interest income and net present value of
equity. We have not reported the minus 100 or 200 basis point interest rate shock scenarios in
either of our simulation model analyses, as we believe, given the current interest rate environment
and historical interest rate levels, the resulting information would not be meaningful.
As a primary means of managing interest rate risk, we monitor the impact of interest rate changes
on our net interest income over the next twelve-month period assuming a simultaneous and parallel
shift in the yield curve. This model does not purport to provide estimates of net interest income
over the next twelve-month period, but attempts to assess the impact of a simultaneous and parallel
interest rate change on our net interest income.
The following table reports the changes to our net interest income over various interest rate
change scenarios.
|
|
|
|
|
Change in
|
|
Percent Change in
|
|
Interest Rates
|
|
Net Interest Income
|
|
(Basis points)
|
|
|
|
|
|
200
|
|
|
(5.94
|
)%
|
100
|
|
|
(1.46
|
)
|
50
|
|
|
(0.62
|
)
|
(50)
|
|
|
(4.59
|
)
|
|
The preceding table indicates that at March 31, 2009, in the event of a 200 basis point increase in
interest rates, we would expect to experience a 5.94% decrease in net interest income as compared
to a 2.83% decrease at December 31, 2008. The negative change to net interest income in the
increasing interest rate scenarios was primarily due to the anticipated calls of borrowed funds and
the increased expense of our short-term time deposits. The increase in the negative change from
December 31, 2008 reflects the slightly higher interest rate environment that currently exists.
We also monitor our interest rate risk by modeling changes in the present value of equity in the
different rate environments. The present value of equity is the difference between the estimated
fair value of
interest rate-sensitive assets and liabilities. The changes in market value of assets and
liabilities, due to
Page 36
changes in interest rates, reflect the interest sensitivity of those assets and
liabilities as their values are derived from the characteristics of the asset or liability (i.e.,
fixed-rate, adjustable-rate, rate caps, rate floors) relative to the current interest rate
environment. For example, in a rising interest rate environment the fair market value of a
fixed-rate asset will decline, whereas the fair market value of an adjustable-rate asset, depending
on its repricing characteristics, may not decline. Increases in the market value of assets will
increase the present value of equity whereas decreases in the market value of assets will decrease
the present value of equity. Conversely, increases in the market value of liabilities will decrease
the present value of equity whereas decreases in the market value of liabilities will increase the
present value of equity.
The following table presents the estimated present value of equity over a range of interest rate
change scenarios at March 31, 2009. The present value ratio shown in the table is the present value
of equity as a percent of the present value of total assets in each of the different rate
environments.
|
|
|
|
|
|
|
|
|
Present Value of Equity
|
As Percent of Present
|
Value of Assets
|
Change in
|
|
Present
|
|
Basis Point
|
Interest Rates
|
|
Value Ratio
|
|
Change
|
(Basis points)
|
|
|
|
|
|
|
|
|
200
|
|
|
4.96
|
%
|
|
|
(102
|
)
|
100
|
|
|
6.34
|
|
|
|
36
|
|
50
|
|
|
6.40
|
|
|
|
42
|
|
0
|
|
|
5.98
|
|
|
|
|
|
(50)
|
|
|
5.15
|
|
|
|
(83
|
)
|
In the 200 basis point increase scenario, the present value ratio was 4.96% at March 31, 2009 as
compared to 3.84% at December 31, 2008. The change in the present value ratio was negative 102
basis points at March 31, 2009 as compared to positive 8 basis points at December 31, 2008. The
decreases in both the present value ratio and the sensitivity measure in the 200 basis point shock
scenario reflect the anticipated calls of borrowed funds. The increase in the present value ratio
in the 200 basis point shock scenario from December 31, 2008 reflects the higher long-term market
interest rates that affect the pricing of our borrowed funds and mortgage-related assets.
The methods we used in simulation modeling are inherently imprecise. This type of modeling requires
that we make assumptions that may not reflect the manner in which actual yields and costs respond
to changes in market interest rates. For example, we assume the composition of the interest
rate-sensitive assets and liabilities will remain constant over the period being measured and that
all interest rate shocks will be uniformly reflected across the yield curve, regardless of the
duration to maturity or repricing. The table assumes that we will take no action in response to the
changes in interest rates. In addition, prepayment estimates and other assumptions within the model
are subjective in nature, involve uncertainties, and, therefore, cannot be determined with
precision. Accordingly, although the previous two tables may provide an estimate of our interest
rate risk at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the effect of changes in
interest rates on our net interest income or present value of equity.
GAP Analysis.
The following table presents the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at March 31, 2009, which we anticipate to reprice or
mature in each of the future time periods shown. Except for prepayment or call activity and
non-maturity deposit decay rates, we determined the amounts of assets and liabilities that reprice
or mature during a particular period in
Page 37
accordance with the earlier of the term to rate reset or
the contractual maturity of the asset or liability. Assumptions used for decay rates are the same
as those used in the preparation of our December 31, 2008 model. Prepayment speeds on our
mortgage-related assets have increased to reflect actual prepayment speeds for these items.
Callable investment securities and borrowed funds are reported at the anticipated call date, for
those that are callable within one year, or at their contractual maturity date. Investment
securities with step-up features, totaling $2.85 billion, are reported at the earlier of their next
step-up date or anticipated call date. We reported $950.0 million of investment securities at their
anticipated call date. We have reported no borrowings at their anticipated call date due to the low
interest rate environment. We have excluded non-accrual mortgage loans of $310.1 million and
non-accrual other loans of $1.0 million from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
two years
|
|
|
three years
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
six months
|
|
|
one year to
|
|
|
to three
|
|
|
to five
|
|
|
More than
|
|
|
|
|
|
|
or less
|
|
|
to one year
|
|
|
two years
|
|
|
years
|
|
|
years
|
|
|
five years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans
|
|
$
|
3,091,137
|
|
|
$
|
3,250,696
|
|
|
$
|
5,184,752
|
|
|
$
|
3,916,799
|
|
|
$
|
4,643,219
|
|
|
$
|
9,336,748
|
|
|
$
|
29,423,351
|
|
Consumer and other loans
|
|
|
105,599
|
|
|
|
2,318
|
|
|
|
19,521
|
|
|
|
3,230
|
|
|
|
12,878
|
|
|
|
227,783
|
|
|
|
371,329
|
|
Federal funds sold
|
|
|
118,019
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
118,019
|
|
Mortgage-backed securities
|
|
|
2,969,234
|
|
|
|
2,166,123
|
|
|
|
4,687,668
|
|
|
|
5,021,196
|
|
|
|
3,754,530
|
|
|
|
2,088,264
|
|
|
|
20,687,015
|
|
FHLB stock
|
|
|
867,820
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
867,820
|
|
Investment securities
|
|
|
957,089
|
|
|
|
700,000
|
|
|
|
100,105
|
|
|
|
100,000
|
|
|
|
1,072,722
|
|
|
|
1,052,410
|
|
|
|
3,982,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
8,108,898
|
|
|
|
6,119,137
|
|
|
|
9,992,046
|
|
|
|
9,041,225
|
|
|
|
9,483,349
|
|
|
|
12,705,205
|
|
|
|
55,449,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
54,748
|
|
|
|
54,748
|
|
|
|
72,998
|
|
|
|
72,998
|
|
|
|
182,494
|
|
|
|
291,991
|
|
|
|
729,977
|
|
Interest-bearing demand accounts
|
|
|
165,141
|
|
|
|
165,142
|
|
|
|
245,657
|
|
|
|
245,657
|
|
|
|
423,127
|
|
|
|
447,781
|
|
|
|
1,692,505
|
|
Money market accounts
|
|
|
313,469
|
|
|
|
313,469
|
|
|
|
626,938
|
|
|
|
626,938
|
|
|
|
1,097,142
|
|
|
|
156,734
|
|
|
|
3,134,690
|
|
Time deposits
|
|
|
11,271,198
|
|
|
|
2,428,621
|
|
|
|
533,412
|
|
|
|
22,481
|
|
|
|
38,805
|
|
|
|
|
|
|
|
14,294,517
|
|
Borrowed funds
|
|
|
400,000
|
|
|
|
|
|
|
|
450,000
|
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
28,725,000
|
|
|
|
30,275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
12,204,556
|
|
|
|
2,961,980
|
|
|
|
1,929,005
|
|
|
|
1,318,074
|
|
|
|
2,091,568
|
|
|
|
29,621,506
|
|
|
|
50,126,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity gap
|
|
$
|
(4,095,658
|
)
|
|
$
|
3,157,157
|
|
|
$
|
8,063,041
|
|
|
$
|
7,723,151
|
|
|
$
|
7,391,781
|
|
|
$
|
(16,916,301
|
)
|
|
$
|
5,323,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate sensitivity gap
|
|
$
|
(4,095,658
|
)
|
|
$
|
(938,501
|
)
|
|
$
|
7,124,540
|
|
|
$
|
14,847,691
|
|
|
$
|
22,239,472
|
|
|
$
|
5,323,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate sensitivity gap
as a percent of total assets
|
|
|
(7.24
|
)%
|
|
|
(1.66
|
)%
|
|
|
12.59
|
%
|
|
|
26.25
|
%
|
|
|
39.31
|
%
|
|
|
9.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-earning assets
as a percent of interest-bearing
liabilities
|
|
|
66.44
|
%
|
|
|
93.81
|
%
|
|
|
141.67
|
%
|
|
|
180.63
|
%
|
|
|
208.46
|
%
|
|
|
110.62
|
%
|
|
|
|
|
The cumulative one-year gap as a percent of total assets was negative 1.66% at March 31, 2009
compared with negative 7.09% at December 31, 2008. The decline in the negative cumulative one-year
gap primarily reflects the increase in anticipated prepayment activity on our mortgage-related
assets.
Page 38
Item 4. Controls and Procedures
Ronald E. Hermance, Jr., our Chairman, President and Chief Executive Officer, and James C. Kranz,
our Executive Vice President and Chief Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of March 31, 2009. Based upon their
evaluation, they each found that our disclosure controls and procedures were effective to ensure
that information required to be disclosed in the reports that we file and submit under the Exchange
Act was recorded, processed, summarized and reported as and when required and that such information
was accumulated and communicated to our management as appropriate to allow timely decisions
regarding required disclosures.
There was no change in our internal control over financial reporting that occurred during the
period covered by this report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are not involved in any pending legal proceedings other than routine legal proceedings occurring
in the ordinary course of business. We believe that these routine legal proceedings, in the
aggregate, are immaterial to our financial condition and results of operations.
Item 1A. Risk Factors
For a summary of risk factors relevant to our operations, please see Part I, Item 1A in our 2008
Annual Report on Form 10-K. There has been no material change in risk factors since December 31,
2008, except as described below.
The
FDICs proposed special assessment on the banking industry to
recapitalize the Deposit Insurance Fund is expected to cause a
significant increase in our non-interest expense during the period it
is imposed.
On February 27, 2009, the FDIC adopted an interim rule imposing a 20 basis point emergency special assessment on the banking industry on June 30, 2009. The assessment is to be collected on September 30, 2009. However, the FDIC may decrease by one half such special emergency fee charged on second-quarter domestic deposits from 20 basis points to 10 basis points if legislation passes that allows the FDIC to borrow more funds from the Treasury. The interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary, to maintain public confidence in federal deposit insurance. The FDIC has not published a final rule regarding the special assessment and it is not known what the final level of the assessment will be. We expect the special assessment will result in a significant increase in our non-interest expense for the quarter in which it is incurred.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table reports information regarding repurchases of our common stock during the first
quarter of 2009 and the stock repurchase plans approved by our Board of Directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Number of Shares
|
|
|
|
Total
|
|
|
|
|
|
|
Shares Purchased
|
|
|
that May Yet Be
|
|
|
|
Number of
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
Purchased Under
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
the Plans or
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs (1)
|
|
|
January 1-January 31, 2009
|
|
|
900,000
|
|
|
$
|
12.18
|
|
|
|
900,000
|
|
|
|
53,173,550
|
|
February 1-February 28, 2009
|
|
|
1,450,000
|
|
|
|
11.21
|
|
|
|
1,450,000
|
|
|
|
51,723,550
|
|
March 1-March 31, 2009
|
|
|
1,400,000
|
|
|
|
9.62
|
|
|
|
1,400,000
|
|
|
|
50,323,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,750,000
|
|
|
|
10.85
|
|
|
|
3,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On July 25, 2007, Hudson City Bancorp announced the adoption of its eighth Stock
Repurchase Program, which authorized the repurchase
of up to 51,400,000 shares of common stock. This program has no expiration date.
|
Page 39
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter ended March 31, 2009 to a vote of security holders of
Hudson City Bancorp through the solicitation of proxies or otherwise.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
|
|
|
Exhibit Number
|
|
Exhibit
|
10.33
|
|
Form of Hudson City Bancorp, Inc. 2006 Stock
Incentive Plan Performance-Based Stock Award
Notice
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer
|
|
|
|
32.1
|
|
Written Statement of Chief Executive Officer and
Chief Financial Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350. *
|
|
|
|
*
|
|
Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18
of the Exchange Act or otherwise subject to the liability of that section.
|
Page 40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
Hudson City Bancorp, Inc.
|
Date: May 8, 2009
|
By:
|
/s/ Ronald E. Hermance, Jr.
|
|
|
|
Ronald E. Hermance, Jr.
|
|
|
|
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
Date: May 8, 2009
|
By:
|
/s/ James C. Kranz
|
|
|
|
James C. Kranz
|
|
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
|
Page 41
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