UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended:
December 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 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes
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No
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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
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No
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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
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
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
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a 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 Act).
Yes
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No
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As of February 19, 2010, the registrant had 741,466,555 shares of common stock, $0.01 par value,
issued and 526,870,502 shares outstanding. The aggregate market value of voting stock held by
non-affiliates of the registrant as of June 30, 2009 was $6,370,482,000. This figure was based on
the closing price by the NASDAQ Global Market for a share of the registrants common stock, which
was $13.29 as reported by the NASDAQ Global Market on June 30, 2009.
Documents Incorporated by Reference:
1.
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Sections of Annual Report to Shareholders for the year ended December 31, 2009 are
incorporated by reference into Part II.
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2.
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Portions of the definitive Proxy Statement to be used in connection with the Annual Meeting
of Shareholders to be held on April 21, 2010 and any adjournment thereof which is expected to
be filed with the Securities and Exchange Commission no later than March 18, 2010, are
incorporated by reference into Part III.
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Hudson City Bancorp, Inc.
Form 10-K
Table of Contents
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains certain forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 which may be identified by the use
of such words as may, believe, expect, anticipate, should, plan, estimate, predict,
continue, and potential or the negative of these terms or other comparable terminology.
Examples of forward-looking statements include, but are not limited to, estimates with respect to
the financial condition, results of operations and business of Hudson City Bancorp, Inc. These
factors include, but are not limited to:
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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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there may be 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, including unemployment rates, 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 may adversely affect our business;
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applicable technological changes may be more difficult or expensive than we anticipate;
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success or consummation of new business initiatives 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, may delay the occurrence or non-occurrence of events longer than we anticipate;
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the risks associated with adverse changes to credit quality,
including changes in the level of loan delinquencies and
non-performing assets and charge-offs, the duration of our
non-performing assets remain in our portfolio and changes in estimates of the adequacy of the
allowance for loan losses;
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difficulties associated with achieving expected future financial results;
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our ability to diversity our funding sources and to continue
to access the wholesale borrowing market and the capital markets; and
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the risk of a continued 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-K or to conform these statements to
actual events.
As used in this Form 10-K, unless we specify otherwise, Hudson City Bancorp, Company, we,
us, and our refer to Hudson City Bancorp, Inc., a Delaware corporation. Hudson City Savings
and Bank refer to
Hudson City Savings Bank, a federal stock savings bank and the wholly-owned subsidiary of Hudson
City Bancorp. Hudson City, MHC refers to Hudson City, MHC, the former mutual holding company of
Hudson City Bancorp.
1
PART I
Item 1. Business
Hudson City Bancorp, Inc.
Hudson City Bancorp is a Delaware corporation organized in 1999
and serves as the holding company of its only subsidiary, Hudson City Savings Bank. The principal
asset of Hudson City Bancorp is its investment in Hudson City Savings Bank.
Hudson City Bancorps executive offices are located at West 80 Century Road, Paramus, New Jersey
07652 and our telephone number is (201) 967-1900.
Hudson City Savings.
Hudson City Savings is a federally chartered stock savings bank subject to
supervision and examination by the Office of Thrift Supervision (OTS). Hudson City Bancorp, as a
savings and loan holding company, is also subject to supervision and examination by the OTS. Our
deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Hudson City Savings
Bank has served its customers since 1868. We conduct our operations out of our corporate offices
in Paramus in Bergen County, New Jersey and through 131 branches in the New York metropolitan area.
We operate 95 branches located in 17 counties throughout the State of New Jersey. In New York
State, we operate 10 branch offices in Westchester County, 9 branch offices in Suffolk County, 1
branch office each in Putnam and Rockland Counties and 6 branch offices in Richmond County (Staten
Island). We also operate 9 branch offices in Fairfield County, Connecticut. In addition, we began
to open deposit accounts through our internet banking service in December 2008.
In July 2006, we completed the acquisition of Sound Federal Bancorp, Inc. (Sound Federal) for
approximately $265 million in cash (the Acquisition). The Acquisition was accounted for as a
purchase. Sound Federal operated 14 branches in the New York counties of Westchester, Putnam and
Rockland and in Fairfield County, Connecticut.
We are a community- and consumer-oriented retail savings bank offering traditional deposit
products, residential real estate mortgage loans and consumer loans. In addition, we purchase
mortgages and mortgage-backed securities and other securities issued by U.S. government-sponsored
enterprises (GSEs) as well as other investments permitted by applicable laws and regulations. We
retain substantially all of the loans we originate in our portfolio. We do not originate or
purchase sub-prime loans, negative amortization loans or option adjustable-rate mortgage loans.
Historically, we did not originate commercial mortgage loans or multi-family mortgage loans.
However, these loan products were offered by Sound Federal and, as a result, we have a small
portfolio of these loans.
Our business model and product offerings allow us to serve a broad range of customers with varying
demographic characteristics. Our traditional consumer products such as conforming one- to
four-family residential mortgages, time deposits, checking and savings accounts appeal to a broad
customer base. Our jumbo mortgage lending proficiency and our time deposit and money market
products allow us to target higher-income customers successfully.
Our revenues are derived principally from interest on our mortgage loans and mortgage-backed
securities and interest and dividends on our investment securities. Our primary sources of funds
are customer deposits, borrowings, scheduled amortization and prepayments of mortgage loans and
mortgage-backed securities, maturities and calls of investment securities and funds provided by
operations.
Available Information
Our periodic and current reports, proxy and information statements, and other information that we
file with the Securities and Exchange Commission (the SEC), are available free of charge through
our website,
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www.hcbk.com
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as soon as reasonably practicable after such reports are filed with, or furnished to,
the SEC. Unless specifically incorporated by reference, the information on our website is not part
of this annual report. Such reports are also available on the SECs website at www.sec.gov, or at
the SECs Public Reference Room at 100 F Street, NE, Washington, DC, 20549. Information may be
obtained on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Market Area
Through our branch offices, we have operations in 10 of the top 50 counties in the United States
ranked by median household income. Operating in high median household income counties fits well
with our jumbo mortgage loan and consumer deposit business model. We expect to open 6 additional
branches in 2010. We continually evaluate new locations in areas that present the greatest
opportunity to promote our deposit and mortgage products. We also purchase first mortgage loans in
states located in the Northeast quadrant of the country. 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. The wholesale loan purchase program complements our retail loan origination by enabling
us to diversify our assets outside of our local market area.
The northern New Jersey market represents the greatest concentration of population, deposits and
income in New Jersey. The combination of these counties represents more than half of the entire New
Jersey population and more than half of New Jersey households. The northern New Jersey market also
represents the greatest concentration of Hudson City Savings retail operations
both lending and
deposit gathering
and based on its high level of economic activity, we believe that the northern
New Jersey market provides significant opportunities for future growth. The New Jersey shore
market represents a strong concentration of population and income, and is a popular resort and
retirement market area, which provides healthy opportunities for deposit growth and residential
lending. The southwestern New Jersey market consists of communities adjacent to the Philadelphia
metropolitan area.
The New York counties of Richmond, Westchester, Suffolk, Rockland and Putnam as well as Fairfield
County, Connecticut have similar demographic and economic characteristics to the northern New
Jersey market area. Our entry into these counties, which started in 2004, allows us to continue to
expand our retail operations and geographic footprint. We entered the Fairfield County market in
2006 with the acquisition of Sound Federal. Deposits in Fairfield County, Connecticut as of
December 31, 2006 amounted to $255.4 million in 4 branches and as of December 31, 2009, we have 9
branches and a total of $1.03 billion in deposits. This market also accounted for 28.2% of our
2009 mortgage originations.
In December 2008, we began to open deposit accounts through our internet banking service which
allows us to serve customers throughout the United States. As of December 31, 2009, we had $224.3
million of deposits that were opened through our internet banking service.
Our future growth opportunities will be influenced by the growth and stability of the regional
economy, other demographic population trends and the competitive environment in the New York
metropolitan area (which we define to include New York, New Jersey and Connecticut). The national
economy has been in a recessionary cycle for approximately two years with the housing and real
estate markets suffering significant losses in value. Housing market conditions in the Northeast
quadrant of the United States, where most of our lending activity occurs, deteriorated as evidenced
by reduced levels of sales, increasing inventories of houses on the market, declining house prices,
increasing home foreclosures and an increase in the length of time houses remain on the market.
House price declines slowed during the second half of 2009 with most markets experiencing slight
gains in prices during the 2009 fourth quarter as indicated by the S&P/Case-Shiller Home Price
Indices. Approximately 73.8% of our mortgage loans are located in the New York metropolitan area.
The Office of Federal Housing Enterprises Oversight (OFHEO), an independent entity within the
Department of Housing and Urban Development, publishes housing market data on a quarterly basis.
According to the data published by OFHEO for the third quarter of 2009, the most recent data
available, house prices in New Jersey decreased
3
4.93% from the third quarter of 2008. For New York and Connecticut, house prices decreased 2.81%
and 4.60%, respectively. Additionally, according to the OFHEO report, the states of Virginia,
Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania experienced decreases in
house prices of 3.67%, 4.14%, 5.43%, 1.46%, 4.16%, 4.21% and 2.33%, respectively for those same
periods. These seven states account for 19.4% of our total mortgage portfolio. While the
declines in economic and housing conditions in the New York metropolitan area have slowed, we can
give no assurance that the economic and housing market conditions will improve further or will not
continue to worsen in the near future.
We expect to continue to grow primarily through the origination and purchase of mortgage loans,
while purchasing mortgage-backed securities and investment securities as a supplement to our
mortgage loans. We believe that we have developed lending products and marketing strategies to
address the diverse credit-related needs of the residents in our market areas. We intend to fund
our growth primarily with customer deposits, using borrowed funds as a supplemental funding source
if deposit growth decreases. We intend to grow customer deposits by continuing to offer desirable
products at competitive rates and by opening new branch offices.
Competition
We face intense competition both in making loans and attracting deposits in the market areas we
serve. New Jersey and the New York metropolitan area have a high concentration of financial
institutions, many of which are branches of large money center and regional banks. Some of these
competitors have greater resources than we do and may offer services that we do not provide such as
trust services or investment services. Customers who seek one-stop shopping may be drawn to
these institutions.
Our competition for loans comes principally from commercial banks, savings institutions, mortgage
banking firms, credit unions, finance companies, insurance companies and brokerage firms. Our most
direct competition for deposits comes from commercial banks, savings banks, savings and loan
associations and credit unions. We face additional competition for deposits from short-term money
market funds and other corporate and government securities funds and from brokerage firms and
insurance companies.
Lending Activities
Loan Portfolio Composition.
Our loan portfolio primarily consists of one- to four-family
residential first mortgage loans. To a lesser degree, the loan portfolio includes multi-family and
commercial mortgage loans, construction loans and consumer loans, which primarily consist of
fixed-rate second mortgage loans and home equity credit lines.
At December 31, 2009, we had total loans of $31.78 billion, of which $31.43 billion, or 98.9%, were
first mortgage loans. Of the first mortgage loans outstanding at that date, 69.1% were fixed-rate
mortgage loans and 30.9% were adjustable-rate mortgage (ARM) loans. At December 31, 2009,
multi-family and commercial mortgage loans totaled $54.7 million, or 0.2% of the loan portfolio,
construction loans totaled $13.0 million, and consumer and other loans, primarily fixed-rate second
mortgage loans and home equity credit lines, amounted to $350.4 million, or 1.1%, of total loans.
We do not originate or purchase sub-prime loans, negative amortization loans or option ARM loans.
The market does not apply a uniform definition of what constitutes sub-prime lending. Our
reference to sub-prime lending relies upon the Statement on Subprime Mortgage Lending issued by
the OTS and the other federal bank regulatory agencies (the Agencies), on June 29, 2007, which
further references the Expanded Guidance for Subprime Lending Programs (the Expanded
Guidance), issued by the Agencies by press release dated January 31, 2001. In the
Expanded Guidance, the Agencies indicated that sub-prime lending does not refer to individual
sub-prime loans originated and managed, in the ordinary course of business, as exceptions to prime
risk selection standards. The Agencies recognize that many prime loan portfolios will
4
contain such loans. The Agencies also excluded prime loans that develop credit problems after
acquisition and community development loans from the sub-prime arena. According to the Expanded
Guidance, sub-prime loans are other loans to borrowers which display one or more characteristics of
reduced payment capacity. Five specific criteria, which are not intended to be exhaustive and are
not meant to define specific parameters for all sub-prime borrowers and may not match all markets
or institutions specific sub-prime definitions, are set forth, including having a Fair Isaac
Corporation (FICO) score of 660 or below. Based upon the definition and exclusions described
above, we are a prime lender. However, as we are a portfolio lender, we review all data contained
in borrower credit reports and do not base our underwriting decisions solely on FICO scores. We
believe our loans, when made, were amply collateralized and otherwise conformed to our prime
lending standards.
Our loans are subject to federal and state laws and regulations. The interest rates we charge on
loans are affected principally by the demand for loans, the supply of money available for lending
purposes and the interest rates offered by our competitors. These factors are, in turn, affected by
general and local economic conditions, monetary policies of the federal government, including the
Federal Reserve Board (FRB), legislative tax policies and governmental budgetary matters.
The following table presents the composition of our loan portfolio in dollar amounts and in
percentages of the total portfolio at the dates indicated.
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At December 31,
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2009
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2008
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2007
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2006
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2005
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Percent
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Percent
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Percent
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Percent
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Percent
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Amount
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of Total
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Amount
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of Total
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Amount
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of Total
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Amount
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of Total
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Amount
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of Total
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(Dollars in thousands)
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First mortgage loans:
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One- to four-family
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$
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31,076,829
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97.79
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%
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$
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28,931,237
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98.34
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%
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$
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23,671,712
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97.86
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%
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$
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18,561,467
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97.27
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%
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$
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14,780,819
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98.13
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%
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FHA/VA
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285,003
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0.90
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20,197
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0.07
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22,940
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0.09
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29,573
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0.15
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43,672
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0.29
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Multi-family and
commercial
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54,694
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0.17
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57,829
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0.20
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58,874
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0.24
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69,322
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0.36
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2,320
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0.02
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Construction
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13,030
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0.04
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24,830
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0.08
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34,064
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0.14
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41,150
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0.22
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Total first
mortgage loans
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31,429,556
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98.90
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29,034,093
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98.69
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23,787,590
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98.33
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18,701,512
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98.00
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14,826,811
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98.44
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Consumer
and other loans:
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Fixed-rate second
mortgages
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201,375
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0.63
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262,538
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0.89
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284,406
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1.18
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274,028
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1.44
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205,826
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1.37
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Home equity credit lines
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127,987
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0.40
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101,751
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0.35
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104,567
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0.43
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97,644
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0.51
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29,150
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0.19
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Other
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21,003
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0.07
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20,506
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0.07
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15,718
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0.06
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10,433
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0.05
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662
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Total consumer and
other loans
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350,365
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1.10
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384,795
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1.31
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404,691
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1.67
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382,105
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2.00
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235,638
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1.56
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Total loans
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31,779,921
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100.00
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%
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29,418,888
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100.00
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%
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24,192,281
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100.00
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%
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19,083,617
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100.00
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%
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15,062,449
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100.00
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%
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Deferred loan
costs
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81,307
|
|
|
|
|
|
|
|
71,670
|
|
|
|
|
|
|
|
40,598
|
|
|
|
|
|
|
|
16,159
|
|
|
|
|
|
|
|
1,653
|
|
|
|
|
|
Allowance for
loan losses
|
|
|
(140,074
|
)
|
|
|
|
|
|
|
(49,797
|
)
|
|
|
|
|
|
|
(34,741
|
)
|
|
|
|
|
|
|
(30,625
|
)
|
|
|
|
|
|
|
(27,393
|
)
|
|
|
|
|
|
Net Loans
|
|
$
|
31,721,154
|
|
|
|
|
|
|
$
|
29,440,761
|
|
|
|
|
|
|
$
|
24,198,138
|
|
|
|
|
|
|
$
|
19,069,151
|
|
|
|
|
|
|
$
|
15,036,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
The following table presents the geographic distribution of loans in our portfolio:
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
At December 31, 2008
|
|
|
Percenatge of Loans by
|
|
Percenatge of Loans by
|
|
|
State to Total loans
|
|
State to Total loans
|
New Jersey
|
|
|
43.0
|
%
|
|
|
44.8
|
%
|
New York
|
|
|
18.2
|
|
|
|
15.6
|
|
Connecticut
|
|
|
12.6
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
Total New York
metropolitan area
|
|
|
73.8
|
|
|
|
69.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia
|
|
|
4.6
|
|
|
|
5.5
|
|
Illinois
|
|
|
3.9
|
|
|
|
4.3
|
|
Maryland
|
|
|
3.5
|
|
|
|
4.2
|
|
Massachusetts
|
|
|
2.7
|
|
|
|
3.0
|
|
Pennsylvania
|
|
|
2.0
|
|
|
|
1.5
|
|
Minnesota
|
|
|
1.4
|
|
|
|
1.8
|
|
Michigan
|
|
|
1.3
|
|
|
|
1.7
|
|
All others
|
|
|
6.8
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
Total outside the New York
metropolitan area
|
|
|
26.2
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Loan Maturity
.
The following table presents the contractual maturity of our loans at
December 31, 2009. The table does not include the effect of prepayments or scheduled principal
amortization. Prepayments and scheduled principal amortization on first mortgage loans totaled
$6.67 billion for 2009, $2.76 billion for 2008 and $2.10 billion for 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Mortgage
|
|
|
and Commercial
|
|
|
|
|
|
|
Consumer and
|
|
|
|
|
|
|
Loans
|
|
|
Mortgages
|
|
|
Construction
|
|
|
Other Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Amounts Due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
5,595
|
|
|
$
|
4,056
|
|
|
$
|
13,030
|
|
|
$
|
3,765
|
|
|
$
|
26,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to three years
|
|
|
9,247
|
|
|
|
4,956
|
|
|
|
|
|
|
|
16,708
|
|
|
|
30,911
|
|
Three to five years
|
|
|
55,328
|
|
|
|
22,190
|
|
|
|
|
|
|
|
12,791
|
|
|
|
90,309
|
|
Five to ten years
|
|
|
771,277
|
|
|
|
13,433
|
|
|
|
|
|
|
|
49,555
|
|
|
|
834,265
|
|
Ten to twenty years
|
|
|
1,895,733
|
|
|
|
8,390
|
|
|
|
|
|
|
|
261,102
|
|
|
|
2,165,225
|
|
Over twenty years
|
|
|
28,624,652
|
|
|
|
1,669
|
|
|
|
|
|
|
|
6,444
|
|
|
|
28,632,765
|
|
|
Total due after one year
|
|
|
31,356,237
|
|
|
|
50,638
|
|
|
|
|
|
|
|
346,600
|
|
|
|
31,753,475
|
|
|
Total loans
|
|
$
|
31,361,832
|
|
|
$
|
54,694
|
|
|
$
|
13,030
|
|
|
$
|
350,365
|
|
|
|
31,779,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,307
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,721,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
The following table presents, as of December 31, 2009, the dollar amounts of all fixed-rate
and adjustable-rate loans that are contractually due after December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After December 31, 2010
|
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
(In thousands)
|
|
First mortgage loans
|
|
$
|
21,659,496
|
|
|
$
|
9,696,741
|
|
|
$
|
31,356,237
|
|
Multi-family and commercial mortgages
|
|
|
48,691
|
|
|
|
1,947
|
|
|
|
50,638
|
|
Consumer and other loans
|
|
|
210,321
|
|
|
|
136,279
|
|
|
|
346,600
|
|
|
|
|
|
|
|
|
|
|
|
Total loans due after one year
|
|
$
|
21,918,508
|
|
|
$
|
9,834,967
|
|
|
$
|
31,753,475
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents our loan originations, purchases, sales and principal payments
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at beginning of period
|
|
$
|
29,418,888
|
|
|
$
|
24,192,281
|
|
|
$
|
19,083,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family first mortgage loans
|
|
|
5,963,365
|
|
|
|
4,949,024
|
|
|
|
3,206,695
|
|
Multi-family and commercial mortgage loans
|
|
|
|
|
|
|
250
|
|
|
|
4,125
|
|
Construction loans
|
|
|
950
|
|
|
|
9,038
|
|
|
|
8,593
|
|
Consumer and other loans
|
|
|
99,555
|
|
|
|
81,909
|
|
|
|
133,098
|
|
|
Total originations
|
|
|
6,063,870
|
|
|
|
5,040,221
|
|
|
|
3,352,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family first mortgage loans
|
|
|
3,161,401
|
|
|
|
3,061,859
|
|
|
|
3,971,273
|
|
|
Total purchases
|
|
|
3,161,401
|
|
|
|
3,061,859
|
|
|
|
3,971,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans
|
|
|
(6,665,162
|
)
|
|
|
(2,754,973
|
)
|
|
|
(2,103,814
|
)
|
Consumer and other loans
|
|
|
(134,015
|
)
|
|
|
(101,744
|
)
|
|
|
(110,455
|
)
|
|
Total principal payments
|
|
|
(6,799,177
|
)
|
|
|
(2,856,717
|
)
|
|
|
(2,214,269
|
)
|
|
Premium amortization and discount accretion, net
|
|
|
8,743
|
|
|
|
4,580
|
|
|
|
1,585
|
|
Transfers to foreclosed real estate
|
|
|
(26,581
|
)
|
|
|
(18,892
|
)
|
|
|
(1,752
|
)
|
Net charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans
|
|
|
(47,253
|
)
|
|
|
(4,383
|
)
|
|
|
(629
|
)
|
Consumer and other loans
|
|
|
30
|
|
|
|
(61
|
)
|
|
|
(55
|
)
|
|
Balance outstanding at end of period
|
|
$
|
31,779,921
|
|
|
$
|
29,418,888
|
|
|
$
|
24,192,281
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage Lending
.
Our primary lending emphasis is the origination and
purchase of first mortgage loans secured by one- to four-family properties that serve as the
primary or secondary residence of the owner. We do not offer loans secured by cooperative
apartment units or interests therein. We originate and
purchase substantially all of our one- to four-family first mortgage loans for retention in our
portfolio. We
7
specialize in residential mortgage loans with principal balances in excess of the
current FannieMae, single-family limit which has typically been $417,000 (non-conforming or
jumbo loans). Beginning in 2008, FannieMae instituted two sets of loan limits a general loan
limit at $417,000 and high-cost loan limit at $729,750. Thereafter, the Housing and Economic
Recovery Act of 2008 permanently changed FannieMaes charter to expand the definition of a
conforming loan to include high-cost loans originated on or after January 1, 2009. Pursuant to
the American Recovery and Reinvestment Act of 2009, FannieMae may purchase loans up to $729,750
for a one-unit dwelling in designated high-cost areas. However, since we do not generally sell
loans in the secondary markets, we continue to use $417,000 as our conforming loan limit for all
loans. We believe that our retention and servicing of the residential mortgage loans that we
originate allows us to maintain higher levels of customer service and satisfaction than originators
who sell loans to third parties.
Our wholesale loan purchase program is an important component of our strategy to grow our
residential loan portfolio, and complements our retail loan origination production by enabling us
to diversify assets outside our local market area, thus providing a safeguard against economic
trends that might affect one particular area of the nation. Through this program, we have obtained
assets at a relatively low overhead cost and have minimized related servicing costs. At December
31, 2009, $14.19 billion, or 45.1%, of our first mortgage loans were purchased loans.
We have developed written standard operating guidelines relating to the purchase of these assets.
These guidelines include an evaluation and approval process for the various sellers from whom we
choose to buy whole loans, the types of whole loans and acceptable property locations. The
purchase agreements, as established with each seller/servicer, contain parameters of the loan
characteristics that can be included in each package. These parameters, such as maximum loan size
and maximum weighted average loan-to-value ratio, generally conform to parameters utilized by us to originate
mortgage loans. All loans are reviewed for compliance with the agreed upon parameters. All
purchased loan packages are subject to internal due diligence procedures including review of a
sampling of individual loan files. We generally perform full credit reviews of 10% to 20% of the
mortgage loans in each package purchased. Our due diligence procedures include a review of the
legal documents, including the note, the mortgage and the title policy, review of the credit file,
evaluating debt service ratios, review of the appraisal and verifying loan-to-value ratios and
evaluating the completeness of the loan package. This review subjects the loan file to
substantially the same underwriting standards used in our own loan origination process.
The loan purchase agreements recognize that the time frame to complete our due diligence reviews
may not be sufficient prior to the completion of the purchase and afford us a limited period of
time after closing to complete our review and return, or request substitution of, any loan for any
legitimate underwriting concern. After the review period, we are still provided recourse against
the seller for any breach of a representation or warranty with respect to the loans purchased.
Among these representations and warranties are attestations of the legality and enforceability of
the legal documentation, adequacy of insurance on the collateral real estate, and compliance with
regulations and certifications that all loans are current as to principal and interest at the time
of purchase.
In general, the seller of a purchased loan continues to service the loan after we purchase it.
However, we maintain custody of the legal documents. The servicing of purchased loans is governed
by the servicing agreement entered into with each servicer. These servicing agreements are
structured to ensure that we have ongoing involvement with collection and loss mitigation
procedures. Oversight of the servicer is maintained by us through review of all reports,
remittances and non-performing loan ratios with appropriate further action, such as contacting the
servicers by phone, in writing or through on-site visits to clarify or correct our concerns, taken
as required. We also require that all servicers provide end-of-year financial statements and must
deliver industry certifications substantiating that they have in place appropriate controls to
ensure their mode of administration is in accordance with regulatory standards. These operating
guidelines provide a means of evaluating and monitoring the quality of mortgage loan purchases and
the servicing abilities of the loan
servicers. We typically purchase loans from six to eight of the largest nationwide mortgage
producers. We
8
purchased first mortgage loans of $3.16 billion in 2009, $3.06 billion in 2008 and
$3.97 billion in 2007
.
The average size of our one-to four-family mortgage loans purchased during
2009 was approximately $504,000.
Most of our retail loan originations are from licensed mortgage bankers or brokers, existing or
past customers, members of our local communities or referrals from local real estate agents,
attorneys and builders. Our extensive branch network is also a source of new loan generation. We
also employ a staff of representatives who call on real estate professionals to disseminate
information regarding our loan programs and take applications directly from their clients. These
representatives are paid for each origination.
We currently offer loans that generally conform to underwriting standards specified by FannieMae
(conforming loans), non-conforming loans, loans processed as limited documentation loans and, to
a limited extent, no income verification loans, as described below. These loans may be fixed-rate
one- to four-family mortgage loans or adjustable-rate one- to four-family mortgage loans with
maturities of up to 30 years. The non-conforming loans generally follow FannieMae guidelines,
except for the loan amount. FannieMae guidelines, for the most part, limit the principal amount of
single-family loans to $417,000; our non-conforming loans generally exceed such limits. The average
size of our one- to four-family mortgage loans originated in 2009 was approximately $539,000. The
overall average size of our one- to four-family first mortgage loans held in portfolio was
approximately $416,000 and $401,000 at December 31, 2009 and 2008, respectively. We are an approved
seller/servicer for FannieMae and an approved servicer for FreddieMac. We generally hold loans for
our portfolio but have, from time to time, sold loans in the secondary market. We sold no loans in
2009, 2008 or 2007 and had no loans classified as held for sale at December 31, 2009.
Our originations of first mortgage loans amounted to $5.96 billion in 2009, $4.96 billion in 2008
and $3.22 billion in 2007. Included in these totals are refinancings of our existing first
mortgage loans as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
First Mortgage
|
|
|
Amount
|
|
Loan Originations
|
|
|
(In thousands)
|
|
|
|
|
2009
|
|
$
|
553,026
|
|
|
|
9.5
|
%
|
2008
|
|
|
197,266
|
|
|
|
4.1
|
|
2007
|
|
|
107,481
|
|
|
|
3.3
|
|
We also allow certain existing customers to modify their mortgage loans, for a fee, with the
intent of maintaining our customer relationship in periods of extensive refinancing due to a low
interest rate environment. The modification changes the existing interest rate to the market rate
for a product currently offered by us with a similar or reduced term. We generally do not extend
the maturity date of the loan. To qualify for a modification, the loan should be current and our
review of past payment performance should indicate that no payments were past due in any of the 12
preceding months. In general, all other terms and conditions of the existing mortgage remain the
same. Modifications of existing mortgage loans were as follows:
|
|
|
|
|
|
|
Mortgage Loans
|
|
|
Modified
|
|
|
(In thousands)
|
2009
|
|
$
|
2,245,498
|
|
2008
|
|
|
88,702
|
|
2007
|
|
|
15,272
|
|
9
We offer a variety of adjustable-rate and fixed-rate one- to four-family mortgage loans with
maximum loan-to-value ratios that depend on the type of property and the size of loan involved. The
loan-to-value ratio is the loan amount divided by the appraised value of the property. The
loan-to-value ratio is a measure commonly used by financial institutions to determine exposure to
risk. Loans on owner-occupied one- to four-family homes of up to $1.0 million are generally subject
to a maximum loan-to-value ratio of 80%. Loan-to-value ratios of 75% or less are generally
required for one- to four-family loans in excess of $1.0 million and less than $1.5 million. Loans
in excess of $1.5 million and less than $2.0 million are generally subject to a maximum
loan-to-value ratio of 70%. Loans in excess of $2.0 million and up to $2.5 million are generally
subject to a maximum loan-to-value ratio of 65%. Loans in excess of $2.5 million and up to $3.0
million are generally subject to a maximum loan-to-value ratio of 60%. We typically do not
originate mortgage loans in excess of $3.0 million.
We also offer a variety of ARM loans secured by one- to four-family residential properties with a
fixed rate for initial terms of three years, five years, seven years or ten years. After the
initial adjustment period, ARM loans adjust on an annual basis. These loans are originated in
amounts generally up to $3.0 million. The ARM loans that we currently originate have a maximum
30-year amortization period and are generally subject to the loan-to-value ratios described above.
The interest rates on ARM loans fluctuate based upon a fixed spread above the monthly average yield
on United States Treasury securities adjusted to a constant maturity of one year and generally are
subject to a maximum increase or decrease of 2% per adjustment period and a limitation on the aggregate
adjustment of 5% over the life of the loan. Generally, the ARM loans that we offer have initial
interest rates below the fully indexed rate. However, as a result of generally low market interest
rates for ARM loans, the initial offered rate on these loans was 125 to 225 basis points above the
current fully indexed rate at December 31, 2009. We originated $2.77 billion of one- to
four-family ARM loans in 2009. At December 31, 2009, 30.9% of our one- to four-family mortgage
loans consisted of ARM loans.
The origination and retention of ARM loans helps reduce exposure to increases in interest rates.
However, ARM loans can pose credit risks different from the risks inherent in fixed-rate loans,
primarily because as interest rates rise, the underlying payments of the borrower may rise, which
increases the potential for default. The marketability of the underlying property also may be
adversely affected by higher interest rates. In order to minimize risks, we evaluate borrowers of
ARM loans based on their ability to repay the loans at the higher of the initial interest rate or
the fully indexed rate. In an effort to further reduce risk, we have not in the past, nor do we
currently, originate ARM loans that provide for negative amortization of principal.
We also purchase and originate interest-only mortgage loans. These loans are designed for customers
who desire flexible amortization schedules. These loans are originated as 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. These loans are
underwritten using fully amortizing payment amounts, more restrictive standards and generally are
made with lower loan-to-value limitations imposed to help minimize any potential credit risk. These
loans may involve higher risks compared to standard loan products since there is the potential for
higher payments once the interest rate resets and the principal begins to amortize and they rely on
a stable or rising housing market to maintain an acceptable loan-to-value ratio. However, we do not
believe these programs will have a material adverse impact on our asset quality based on our
underwriting criteria and the average loan-to-value ratios on the loans originated in this program.
During 2009, we originated $1.32 billion of interest-only loans with an average loan-to-value
ratio of 57.4% based on the appraised value at the time of origination. The outstanding principal
balance of interest-only loans in our portfolio was approximately $4.59 billion as of December 31,
2009 with an average loan-to-value ratio of approximately 62.5% using the appraised value at time
of origination. We have not in the past, nor do we currently,
originate or purchase option ARM loans, where
the borrower is given various payment options that could change payment flows to the Bank. For a
description of recent guidance on high risk loans, See Regulation of Hudson City Savings Bank
and Hudson City Bancorp.
10
In addition to our full documentation loan program, we process loans to certain eligible borrowers
as limited documentation loans. We have originated these types of loans for over 15 years. Loans
eligible for limited documentation processing are ARM loans, interest-only first mortgage loans and
10-, 15-, 20-, and 30-year fixed-rate loans to owner-occupied primary and second home applicants.
These loans are available in amounts up to 70% of the lower of the appraised value or purchase
price of the property. Generally the maximum loan amount for limited documentation loans is
$750,000 and these loans are subject to higher interest rates than our full documentation loan
products. We require applicants for limited documentation loans to complete a FreddieMac/FannieMae
loan application and request income, assets and credit history information from the borrower.
Additionally, we verify asset holdings and obtain credit reports from outside vendors on all
borrowers to ascertain the credit history of the borrower. Applicants with delinquent credit
histories usually do not qualify for the limited documentation processing, although
delinquencies that are adequately explained will not prohibit processing as a limited
documentation loan. We reserve the right to verify income and do require asset verification but we
may elect not to verify or corroborate certain income information where we believe circumstances
warrant. We also allow certain borrowers to obtain mortgage loans without disclosing income levels
and without any verification of income. In these cases, we require verification of the borrowers
assets. Similar to the limited documentation loan product listed earlier, these loans are also
subject to somewhat higher interest rates than our regular products, and are generally limited to a
maximum loan-to-value ratio of 60%. We originated approximately $1.09 billion of limited and no
income documentation loans during 2009. These loans had an average loan-to-value ratio of 56%.
Limited documentation and no verification loans may involve higher risks compared to loans with
full documentation, as there is a greater opportunity for borrowers to falsify their income and
ability to service their debt.
We offer mortgage programs designed to address the credit needs of low- and moderate-income home
mortgage applicants and low- and moderate-income home improvement loan applicants. We define low-
and moderate-income applicants as borrowers residing in low- and moderate-income census tracts or
households with income not greater than 80% of the median income of the Metropolitan Statistical
Area in the county where the subject property is located. Among the features of the low- and
moderate-income home mortgage programs are reduced rates, lower down payments, reduced fees and
closing costs, and generally less restrictive requirements for qualification compared with our
traditional one- to four-family mortgage loans. For example, these
programs have generally provided for
loans with up to 80% loan-to-value ratios and rates which are 25 to 50 basis points lower than our
traditional mortgage loans. In 2009, we originated $24.5 million in mortgage loans under these
programs
.
Multi-family and Commercial Mortgage Loans.
At December 31, 2009, $54.7 million, or 0.17%, of
the total loan portfolio consisted of multi-family and commercial mortgage loans. Commercial
mortgage loans are secured by office buildings, religious facilities and other commercial
properties. Multi-family mortgage loans generally are secured by multi-family rental properties
(including mixed-use buildings and walk-up apartments). Substantially all of these loans were
acquired in the Acquisition. Since our primary lending product is one-to four-family mortgage
loans, we have not actively pursued the origination of commercial and multi-family mortgage loans.
We did not originate any multi-family or commercial mortgage loans in 2009. At December 31, 2009,
the largest commercial mortgage loan had a principal balance of $6.0 million and was adequately
secured by a storage unit facility. This borrower also had an additional $2.1 million of
commercial mortgage loans outstanding with us at December 31, 2009. These loans are current as of
December 31, 2009.
Loans secured by multi-family and commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk. Commercial mortgage
loans can involve large loan balances to single borrowers or groups of related borrowers. Payments
on these loans depend to a large degree on the results of operations and management of the
properties or underlying businesses, and may be affected to
a greater extent by adverse conditions in the real estate market or in the economy in general.
Accordingly, the nature of commercial real estate loans makes them more difficult to monitor and
evaluate.
11
Construction Lending
.
Substantially all of our construction loans were acquired in the
Acquisition. Since our primary lending product is one-to four-family mortgage loans, we have not
actively pursued the origination of construction loans and have removed them from our product
offerings. While we did not originate any construction loans in 2009, there were principal
advances on existing construction loans of $950,000 during 2009. Our construction loans are secured
by residential and commercial properties located in our market area. At December 31, 2009, we had
9 construction loans totaling $13.0 million, or 0.04% of total loans. Our largest construction
loan is a participation loan for a 90 unit condominium project. Our outstanding portion of the
loan amounted to $3.1 million at December 31, 2009. This loan is included in our loans that are
past due 90 days or more as of December 31, 2009 and has a specific reserve associated with it.
Our construction loans to home builders generally have fixed interest rates, are typically for a
term of up to 18 months and have a maximum loan to value ratio of 80%. Loans to builders were made
on either a pre-sold or speculative (unsold) basis. We generally allow the borrower to extend the
term of the loan if the project is not yet complete or, in the case of a speculative construction
loan, if the borrower has not yet sold the property. To extend the maturity of the loan, the loan
generally must be current and we assess if the project is being adequately managed and the
borrowers ability to continue to keep the loan current. Construction loans to individuals were
generally originated pursuant to the same policy guidelines regarding loan-to-value ratios and
interest rates that are used in connection with loans secured by one-to four-family residential
real estate. Construction loans to individuals who intend to occupy the completed dwelling may be
converted to permanent financing after the construction phase is completed. Construction loans are
disbursed as certain portions of the project are completed.
Construction loans are generally considered to involve a higher degree of risk than permanent
mortgage loans because of the inherent difficulty in estimating both a propertys value at
completion of the project and the estimated cost of the project. If the estimate of construction
costs is inaccurate, we may be required to advance funds beyond the amount originally committed to
permit completion of the project. If the estimate of value upon completion is inaccurate, the value
of the property may be insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to pay subcontractors.
Loans to builders to construct residential properties for which no purchaser has been identified
carry more risk because the repayment of the loan depends on the builders ability to sell the
property prior to the time that the construction loan is due. We attempted to minimize the
foregoing risks by, among other things, generally requiring personal guarantees from the principals
of our corporate borrowers.
Consumer Loans
.
At December 31, 2009, $350.4 million, or 1.10%, of our total loans consisted of
consumer and other loans, primarily fixed-rate second mortgage loans and home equity credit lines.
Consumer loans generally have shorter terms to maturity, relative to our mortgage portfolio, which
reduces our exposure to changes in interest rates. Consumer loans generally carry higher rates of
interest than do one- to four-family residential mortgage loans. In addition, we believe that
offering consumer loan products helps to expand and create stronger ties to our existing customer
base by increasing the number of customer relationships and providing cross-marketing
opportunities.
We offer fixed-rate second mortgage loans generally in amounts up to $250,000 secured by
owner-occupied one- to four-family residences located in the State of New Jersey, and the portions
of New York and Connecticut served by our first mortgage loan products, for terms of up to 20
years. At December 31, 2009 these loans totaled $201.4 million, or 0.63% of total loans. The
underwriting standards applicable to these loans generally are the same as one- to four-family
first mortgage loans, except that the combined loan-to-value ratio, including the balance of the
first mortgage, generally cannot exceed 80% of the appraised value of the property at time of
origination.
Our home equity credit line loans totaled $128.0 million or 0.40% of total loans at December 31,
2009. These loans are either fixed-rate or adjustable-rate loans secured by a second mortgage on
owner-occupied one- to
12
four-family residences located in our market area. The interest rates on
adjustable-rate home equity credit lines are based on the prime rate as published in The Wall
Street Journal (the Index) subject to certain interest rate limitations. Interest rates on home
equity credit lines are adjusted monthly based upon changes in the Index. Minimum monthly principal
payments on currently offered home equity lines of credit are based on 1/240th of the outstanding
principal balance or $100, whichever is greater. The maximum credit line available is $250,000.
The underwriting terms and procedures applicable to these loans are substantially the same as for
our fixed-rate second mortgage loans.
Other loans totaled $21.0 million at December 31, 2009 and consisted of collateralized passbook
loans, overdraft protection loans, automobile loans, unsecured personal loans, and secured and
unsecured commercial lines of credit. We no longer originate unsecured personal loans and
automobile loans.
Loan Approval Procedures and Authority
.
All first mortgage loans up to $600,000 must be approved
by two officers in our Mortgage Origination Department. Loans in excess of $600,000 and up to $1.0
million require that one of the two officers approving the loan bear the title of First Vice
President Mortgage Officer, Executive Vice President Lending, Chief Operating Officer or Chief
Executive Officer. Loans in excess of $1.0 million up to $3.0 million require that two of the
officers approving the loan bear the title of the First Vice President, Mortgage Officer, Executive
Vice President, Lending, Chief Operating Officer or Chief Executive Officer prior to issuance of a
commitment letter. Loans in excess of $3.0 million up to $5.0 million require that two of the
officers approving the loan bear the title of the Executive Vice President, Lending, Chief
Operating Officer or Chief Executive Officer prior to issuance of a commitment letter. The
aggregate of all residential loans, existing and/or committed to any one borrower, generally shall
not exceed $5.0 million. Aggregate loan balances exceeding this limit must be approved by at least
two of the following senior officers; Executive Vice President, Lending, Chief Operating Officer or
Chief Executive Officer and will be reported to the Board of Directors at the next regularly
scheduled Board meeting.
Home equity credit lines and fixed-rate second mortgage loans in principal amounts of $50,000 or
less require approval by one of our designated Consumer Loan Department underwriters. Home equity
credit lines and fixed-rate second mortgages in excess of $50,000, up to the $250,000 maximum,
require approval by an underwriter and either our Consumer Loan Officer, Executive Vice
President-Lending, Chief Executive Officer or Chief Operating Officer. Home equity credit lines
and fixed-rate second mortgages involving mortgage liens where the combined first and second
mortgage principal balances exceed $750,000 require approval by an underwriter, our Consumer Loan
Officer and either our Executive Vice President-Lending, Chief Executive Officer or Chief Operating
Officer.
Upon receipt of a completed loan application from a prospective borrower, we order a credit report
and, except for loans originated as limited documentation, stated income, or no income verification
loans, we verify certain other information. If necessary, we obtain additional financial or
credit-related information. We require an appraisal for all mortgage loans, except for some loans
made to refinance existing mortgage loans. Appraisals may be performed by our in-house Appraisal
Department or by licensed or certified third-party appraisal firms. Currently most appraisals are
performed by third-party appraisers and are reviewed by our in-house Appraisal Department.
We require title insurance on all mortgage loans, except for home equity credit lines and
fixed-rate second mortgage loans. For these loans, we require a property search detailing the
current chain of title. We require borrowers to obtain hazard insurance and we require borrowers to
obtain flood insurance prior to closing, if appropriate. We require most borrowers to advance
funds on a monthly basis together with each payment of principal and interest to a mortgage escrow
account from which we make disbursements for items such as real estate taxes, flood insurance and
private mortgage insurance premiums, if required. Presently, we do not escrow for real estate
taxes on properties located in the states of New York, Pennsylvania and Connecticut.
13
Asset Quality
One of our key operating objectives has been, and continues to be, to maintain a high level of
asset quality. Through a variety of strategies we have been proactive in addressing problem loans
and non-performing assets. These strategies, as well as our concentration on one- to four-family
mortgage lending and our maintenance of sound credit standards for new loan originations have
resulted in relatively low levels of charge-offs. Charge-offs, net of recoveries amounted to $47.2
million in 2009 and $4.4 million in 2008.
The national economy has been in a recessionary cycle for approximately two years.
The
faltering economy has been marked by contractions in the availability of business and consumer
credit, falling home prices, increasing home foreclosures and rising unemployment levels. As a
result, the financial, capital and credit markets experienced significant adverse conditions.
These conditions caused significant deterioration in the activity of the secondary residential
mortgage market and a lack of available liquidity. The disruptions were exacerbated by the
acceleration of the decline of the real estate and housing markets. By the fourth quarter of
2009, house prices appear to have stabilized. We continue to closely monitor the local and national real
estate markets and other factors related to risks inherent in our loan portfolio. We do not
participate in sub-prime mortgage lending which has been the riskiest sector of the residential
housing market.
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 loan-to-value ratios of less than 80%. 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. The average
loan-to-value (LTV) ratio of our 2009 one- to four-family first mortgage loan originations and
our total one- to four-family first mortgage loan portfolio were 60.5% and 60.8%, respectively
using the appraised value at the time of origination. It has been our experience that when a loan
became delinquent, the borrower would attempt to sell the property to satisfy the loan rather than
go to foreclosure or, if another bank held a second mortgage on the property, there was likelihood
they would purchase the property to protect their interest thereby resulting in full payment of
principal and interest to Hudson City Savings. However, current conditions in the housing market
have made it more difficult for borrowers to sell homes to satisfy the mortgage. In addition,
second lien holders are less likely to repay our loan if the value of the property is not enough to
satisfy their loan. The value of the property used as collateral for our loans is dependent upon
local market conditions. 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 2009, we concluded that
home values in the Northeast quadrant of the United States, where most of our lending activity
occurs, have deteriorated since the beginning of 2007 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 continued to worsen as the recession continued during 2009.
14
The following table presents the geographic distribution of our loan portfolio as a percentage of
total loans and of our non-performing loans as a percentage of total non-performing loans. The LTV
ratio is for non-performing first mortgage loans and is based on appraised value at the time of
origination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Average LTV ratio
|
|
|
|
|
|
|
Non-performing
|
|
of non-performing
|
|
|
Total loans
|
|
loans
|
|
mortgage loans
|
New Jersey
|
|
|
43.0
|
%
|
|
|
41.6
|
%
|
|
|
69
|
%
|
New York
|
|
|
18.2
|
|
|
|
18.0
|
|
|
|
70
|
|
Connecticut
|
|
|
12.6
|
|
|
|
4.2
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total New York
metropolitan area
|
|
|
73.8
|
|
|
|
63.8
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia
|
|
|
4.6
|
|
|
|
6.2
|
|
|
|
78
|
|
Illinois
|
|
|
3.9
|
|
|
|
5.6
|
|
|
|
78
|
|
Maryland
|
|
|
3.5
|
|
|
|
5.1
|
|
|
|
76
|
|
Massachusetts
|
|
|
2.7
|
|
|
|
2.3
|
|
|
|
75
|
|
Pennsylvania
|
|
|
2.0
|
|
|
|
1.9
|
|
|
|
75
|
|
Minnesota
|
|
|
1.4
|
|
|
|
1.8
|
|
|
|
82
|
|
Michigan
|
|
|
1.3
|
|
|
|
4.2
|
|
|
|
75
|
|
All others
|
|
|
6.8
|
|
|
|
9.1
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outside the New York
metropolitan area
|
|
|
26.2
|
|
|
|
36.2
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the recent 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.
Delinquent Loans and Foreclosed Assets
.
When a borrower fails to make required payments on a
loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan
to a current status. In the case of originated mortgage loans, our Mortgage Servicing department is
responsible for collection procedures from the 15th day up to the 90th day of delinquency. Specific
procedures include a late charge notice being sent at the time a payment is over 15 days past due.
Telephone contact is attempted on approximately the 20th day of the month to avoid a 30-day
delinquency. A second written notice is sent at the time the payment becomes 30 days past due.
We send additional letters if no contact is established by approximately the 45th day of
delinquency. On the 60th day of delinquency, we send another letter followed by continued telephone
contact. Between the 30th and the 60th day of delinquency, if telephone contact has not been
established, an independent contractor may be sent to make a physical inspection of the property.
When contact is made with the borrower at any time prior to foreclosure, we attempt to obtain full
payment or work out a repayment schedule with the borrower in order to avoid foreclosure.
We send foreclosure notices when a loan is 90 days delinquent. The accrual of income on loans that
do not carry private mortgage insurance or are not guaranteed by a federal agency is generally
discontinued when interest or principal payments are 90 days in arrears and any accrued interest is
reversed. We commence
foreclosure proceedings if the loan is not brought current between the 90th and 120th day of
delinquency unless specific limited circumstances warrant an exception. The collection procedures
for mortgage loans guaranteed by federal agencies follow the collection guidelines outlined by
those agencies.
15
We monitor delinquencies on our serviced loan portfolio from reports sent to us by the servicers.
Once all past due reports are received, we examine the delinquencies and contact appropriate
servicer personnel to determine the collectability of the loans. We also use these reports to
prepare our own monthly reports for management review. These summaries break down, by servicer,
total principal and interest due, length of delinquency, as well as accounts in foreclosure and
bankruptcy. We monitor, on a case-by-case basis, all accounts in foreclosure to confirm that the
servicer has taken all proper steps to foreclose promptly if there is no other recourse. We also
monitor whether mortgagors who filed bankruptcy are meeting their obligation to pay the mortgage
debt in accordance with the terms of the bankruptcy petition.
The collection procedures for other loans include sending periodic late notices to a borrower once
a loan is past due. We attempt to make direct contact with a borrower once a loan becomes 30 days
past due. Supervisory personnel in our Consumer Loan department review the delinquent loans and
collection efforts on a regular basis. If collection activity is unsuccessful after 90 days, we may
refer the matter to our legal counsel for further collection effort or charge-off the loan. Loans
we deem to be uncollectible are proposed for charge-off. Charge-offs of consumer loans require the
approval of our Consumer Loan Officer and either the Executive Vice President-Lending, our Chief
Executive Officer or Chief Operating Officer.
Foreclosed real estate is property acquired through foreclosure or deed in lieu of foreclosure.
Write-downs to fair value (net of estimated costs to sell) at the time of acquisition are charged
to the allowance for loan losses. After acquisition, foreclosed properties are held for sale and
carried at the lower of fair value minus estimated cost to sell, or at cost. If a foreclosure
action is commenced and the loan is not brought current, paid in full or refinanced before the
foreclosure sale, the real property securing the loan is either sold at the foreclosure sale, or we
or our servicer sells the property as soon thereafter as practicable.
Management continuously monitors the status of the loan portfolio and reports to the Board of
Directors on a monthly basis. Our Asset Quality Committee (AQC) is responsible for monitoring
our loan portfolio, delinquencies and foreclosed real estate. This committee includes members of
senior management from the loan origination, loan servicing, appraisal and finance departments.
Loans delinquent 60 days to 89 days and 90 days or more were as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
60-89 Days
|
|
90 Days or More
|
|
60-89 Days
|
|
90 Days or More
|
|
60-89 Days
|
|
90 Days or More
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
No. of
|
|
Balance
|
|
No. of
|
|
Balance
|
|
No. of
|
|
Balance
|
|
No. of
|
|
Balance
|
|
No. of
|
|
Balance
|
|
No. of
|
|
Balance
|
|
|
Loans
|
|
of Loans
|
|
Loans
|
|
of Loans
|
|
Loans
|
|
of Loans
|
|
Loans
|
|
of Loans
|
|
Loans
|
|
of Loans
|
|
Loans
|
|
of Loans
|
|
|
(Dollars in thousands)
|
One- to four-family
first mortgages
|
|
|
408
|
|
|
$
|
171,913
|
|
|
|
1,480
|
|
|
$
|
581,786
|
|
|
|
265
|
|
|
$
|
100,604
|
|
|
|
527
|
|
|
$
|
200,642
|
|
|
|
103
|
|
|
$
|
32,448
|
|
|
|
198
|
|
|
$
|
71,614
|
|
FHA/VA first mortgages
|
|
|
35
|
|
|
|
8,650
|
|
|
|
115
|
|
|
|
31,855
|
|
|
|
5
|
|
|
|
874
|
|
|
|
30
|
|
|
|
6,407
|
|
|
|
12
|
|
|
|
1,995
|
|
|
|
21
|
|
|
|
4,157
|
|
Multi-family and
commercial mortgages
|
|
|
2
|
|
|
|
1,088
|
|
|
|
1
|
|
|
|
1,414
|
|
|
|
1
|
|
|
|
1,417
|
|
|
|
4
|
|
|
|
1,854
|
|
|
|
3
|
|
|
|
1,393
|
|
|
|
2
|
|
|
|
2,028
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
9,764
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
7,610
|
|
|
|
3
|
|
|
|
4,457
|
|
|
|
1
|
|
|
|
647
|
|
Consumer and other loans
|
|
|
14
|
|
|
|
882
|
|
|
|
34
|
|
|
|
2,876
|
|
|
|
11
|
|
|
|
1,850
|
|
|
|
14
|
|
|
|
1,061
|
|
|
|
7
|
|
|
|
329
|
|
|
|
12
|
|
|
|
956
|
|
|
Total delinquent loans
(60 days and over)
|
|
|
459
|
|
|
$
|
182,533
|
|
|
|
1,636
|
|
|
$
|
627,695
|
|
|
|
282
|
|
|
$
|
104,745
|
|
|
|
580
|
|
|
$
|
217,574
|
|
|
|
128
|
|
|
$
|
40,622
|
|
|
|
234
|
|
|
$
|
79,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent loans
(60 days and over)
to total loans
|
|
|
|
|
|
|
0.57
|
%
|
|
|
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
0.36
|
%
|
|
|
|
|
|
|
0.74
|
%
|
|
|
|
|
|
|
0.17
|
%
|
|
|
|
|
|
|
0.33
|
%
|
16
Non-performing loans amounted to $627.7 million at December 31, 2009 as compared to $217.6 million
at December 31, 2008. Non-performing loans at December 31, 2009 included $613.6 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 1.98% at December 31, 2009 compared with 0.74% at December
31, 2008.
At December 31, 2009 and 2008, commercial and construction loans evaluated for impairment in
accordance with Financial Accounting Standards Board (FASB) guidance amounted to $11.2 million
and $9.5 million, respectively. Based on this evaluation, we established an allowance for loan
losses of $2.1 million and $818,000 for loans classified as impaired at December 31, 2009 and 2008,
respectively.
We continue to closely monitor the local and national real estate markets and other factors related
to risks inherent in our loan portfolio. Current economic conditions have been exacerbated by the
decline in the housing and real estate markets. In addition, the continued increase in the
unemployment rate during 2009 may have adverse implications for an already weak housing market.
The decline in the real estate and housing markets resulted in higher charge-offs in 2009, although
the overall amount of our charge-offs has been moderate because of our underwriting standards and
the geographical areas in which we lend. The weighted average LTV in our one- to four-family
mortgage loan portfolio at December 31, 2009 was approximately 61%, using appraised values at the
time of origination. In addition, the average LTV ratio of our non-performing loans was
approximately 72% at December 31, 2009 based on the appraised value at the time of origination. As
a result, the amount of equity that borrowers have in the underlying properties or that other
lenders have in the form of second mortgages that are subordinate to Hudson City Savings, has
helped to protect us from declining conditions in the housing market and the economy. However,
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 purchase the property to protect
their interest if the value of the property is not enough to satisfy their loan. Due to the recent
deterioration of real estate values, the LTV 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.
With the exception of first mortgage loans guaranteed by a federal agency or for which the borrower
has obtained private mortgage insurance, we stop accruing income on loans when interest or
principal payments are 90 days in arrears or earlier when the timely collectability of such
interest or principal is doubtful. We reverse outstanding interest on non-accrual loans that we
previously credited to income. We recognize income in the period that we collect it or when the
ultimate collectability of principal is no longer in doubt. We return a non-accrual loan to accrual
status when factors indicating doubtful collection no longer exist.
Foreclosed real estate consists of property we acquired through foreclosure or deed in lieu of
foreclosure. After acquisition, foreclosed properties held for sale are carried at the lower of
fair value minus estimated cost to sell, or at cost. Subsequent provisions for losses, which may
result from the ongoing periodic valuation of these properties, are charged to income in the period
in which they are identified. Fair market value is generally based on recent appraisals.
17
The following table presents information regarding non-performing assets as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
Non-accrual first mortgage loans
|
|
$
|
583,200
|
|
|
$
|
202,496
|
|
|
$
|
71,932
|
|
|
$
|
20,053
|
|
|
$
|
9,649
|
|
Non-accrual construction loans
|
|
|
6,624
|
|
|
|
7,610
|
|
|
|
647
|
|
|
|
3,098
|
|
|
|
|
|
Non-accrual consumer and other loans
|
|
|
1,916
|
|
|
|
626
|
|
|
|
956
|
|
|
|
1,217
|
|
|
|
2
|
|
Accruing loans delinquent 90 days or more
|
|
|
35,955
|
|
|
|
6,842
|
|
|
|
5,867
|
|
|
|
5,630
|
|
|
|
9,661
|
|
|
Total non-performing loans
|
|
|
627,695
|
|
|
|
217,574
|
|
|
|
79,402
|
|
|
|
29,998
|
|
|
|
19,312
|
|
Foreclosed real estate, net
|
|
|
16,736
|
|
|
|
15,532
|
|
|
|
4,055
|
|
|
|
3,161
|
|
|
|
1,040
|
|
|
Total non-performing assets
|
|
$
|
644,431
|
|
|
$
|
233,106
|
|
|
$
|
83,457
|
|
|
$
|
33,159
|
|
|
$
|
20,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
|
1.98
|
%
|
|
|
0.74
|
%
|
|
|
0.33
|
%
|
|
|
0.16
|
%
|
|
|
0.13
|
%
|
Non-performing assets to total assets
|
|
|
1.07
|
|
|
|
0.43
|
|
|
|
0.19
|
|
|
|
0.09
|
|
|
|
0.07
|
|
Included
in accruing loans delinquent 90 days or more are $31.9 million of FHA
loans. We continue to accrue interest on these loans since they are guaranteed by the FHA. At December 31, 2009, approximately $402.8 million of our non-performing loans were in the
New York metropolitan area and $224.9 million were outside of the New York metropolitan area. At
December 31, 2008, approximately $144.0 million of our non-performing loans were in the New York
metropolitan area and $73.6 million were outside of the New York metropolitan area. Non-accrual
first mortgage loans at December 31, 2009 included $82.2 million of interest-only loans and $68.0
million of reduced documentation loans with average LTV ratios of approximately 69% and 75%,
respectively, based on appraised values at time of origination. Non-accrual first mortgage loans
at December 31, 2008 included $16.6 million of interest-only loans and $7.6 million of reduced
documentation loans with average LTV ratios of approximately 70% and 61%, respectively, based on
appraised values at time of origination. The total amount of interest income received during the
year on non-accrual loans outstanding and additional interest income on non-accrual loans that
would have been recognized if interest on all such loans had been recorded based upon original
contract terms is immaterial. We are not committed to lend additional funds to borrowers whose
loans are in non-accrual status.
Allowance for Loan Losses
.
The following table presents the activity in our allowance for loan
losses at or for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
Balance at beginning of year
|
|
$
|
49,797
|
|
|
$
|
34,741
|
|
|
$
|
30,625
|
|
|
$
|
27,393
|
|
|
$
|
27,319
|
|
|
Provision for loan losses
|
|
|
137,500
|
|
|
|
19,500
|
|
|
|
4,800
|
|
|
|
|
|
|
|
65
|
|
Allowance transferred in Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,308
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans
|
|
|
(48,097
|
)
|
|
|
(4,458
|
)
|
|
|
(701
|
)
|
|
|
(72
|
)
|
|
|
(2
|
)
|
Consumer and other loans
|
|
|
(36
|
)
|
|
|
(64
|
)
|
|
|
(62
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
Total charge-offs
|
|
|
(48,133
|
)
|
|
|
(4,522
|
)
|
|
|
(763
|
)
|
|
|
(79
|
)
|
|
|
(10
|
)
|
Recoveries
|
|
|
910
|
|
|
|
78
|
|
|
|
79
|
|
|
|
3
|
|
|
|
19
|
|
|
Net (charge-offs) recoveries
|
|
|
(47,223
|
)
|
|
|
(4,444
|
)
|
|
|
(684
|
)
|
|
|
(76
|
)
|
|
|
9
|
|
|
Balance at end of year
|
|
$
|
140,074
|
|
|
$
|
49,797
|
|
|
$
|
34,741
|
|
|
$
|
30,625
|
|
|
$
|
27,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
0.44
|
%
|
|
|
0.17
|
%
|
|
|
0.14
|
%
|
|
|
0.16
|
%
|
|
|
0.18
|
%
|
Allowance for loan losses to
non-performing loans
|
|
|
22.32
|
|
|
|
22.89
|
|
|
|
43.75
|
|
|
|
102.09
|
|
|
|
141.84
|
|
18
The allowance for loan losses (ALL) has been determined in accordance with U.S. generally
accepted accounting principles, which requires us to maintain adequate allowances for loan losses.
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.
The ALL amounted to $140.1 million and $49.8 million at December 31, 2009 and 2008, respectively.
We recorded our provision for loan losses during 2009 based on our ALL methodology that considers a
number of quantitative and qualitative factors, including the amount of non-performing loans, our
loss experience on non-performing loans, 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 in Item 7, Managements
Discussion and Analysis.
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 is primarily concentrated in one- to
four-family mortgage loans with original LTV ratios of less than 80%. The average LTV ratio of our
2009 one- to four-family first mortgage loan originations and our total one- to four-family first
mortgage loan portfolio were 60.5% and 60.8%, respectively using the appraised value at the time of
origination. The value of the property used as collateral for our loans is dependent upon local
market conditions. As part of our estimation of the ALL, 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 fourth 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 decline 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. However,
home values appear to have stabilized during the second half of 2009 as indicated by the S&P/Case-Shiller Home
Price Index.
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 December 31, 2009, approximately 73.8% of
our total loans were in the New York metropolitan area. Additionally, the states of Virginia,
Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania accounted for 4.6%, 3.9%,
3.5%, 2.7%, 1.4%, 1.3% and 2.0%, respectively, of total loans. The remaining 6.8% 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 63.8% are in the New York
metropolitan area and 6.2%, 5.6%, 5.1%, 2.3%, 1.8%, 4.2% and 1.9% are located in the states of
Virginia, Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania, respectively.
The remaining 9.1% 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 2 years 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. Economic conditions have improved slightly during the second half of 2009 although
unemployment rates continued to increase. 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 2009 based on our evaluation of the foregoing factors,
the growth of the loan portfolio, our loss experience on non-performing loans, the recent increases
in delinquent loans, non-performing loans and net loan charge-offs, and the increasing trend in the
unemployment rate.
At December 31, 2009, first mortgage loans secured by one-to four-family properties accounted for
98.7% of total loans. Fixed-rate mortgage loans represent 69.1% 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 option ARM loans, negative amortization loans or sub-prime loans.
19
Non-performing loans amounted to $627.7 million at December 31, 2009 as compared to $217.6 million
at December 31, 2008. Non-performing loans at December 31, 2009 included $613.6 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 1.98% at December 31, 2009 compared with 0.74% at December
31, 2008. Loans delinquent 60 to 89 days amounted to $182.5 million at December 31, 2009 as
compared to $104.7 million at December 31, 2008. Foreclosed real estate amounted to $16.7 million
at December 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. Due to the
steady deterioration of real estate values over the last three years, the LTV 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. However, our lower average LTV ratios
have helped to moderate our
charge-offs as there has generally been adequate equity behind our first lien as of the foreclosure
date to satisfy our loan.
As a result of the increase in non-performing loans, the ratio of the ALL to non-performing loans
decreased from 102.09% at December 31, 2006 to 22.32% at December 31, 2009. During this same
period, the ratio of the ALL to total loans increased from 0.16% to 0.44%. Historically, our
non-performing loans have been a negligible percentage of our total loan portfolio and, as a
result, our ratio of the ALL to non-performing loans was high and did not serve as a reasonable
measure of the adequacy of our ALL. The decline in the ratio of the ALL to non-performing loans
is not, absent other factors, an indication of the adequacy of the ALL since there is not
necessarily a direct relationship between changes in various asset quality ratios and changes in
the ALL and non-performing loans. In the current economic environment, a loan generally becomes
non-performing when the borrower experiences financial difficulty. In many cases, the borrower
also has a second mortgage or home equity loan on the property. In substantially all of these
cases, we do not hold the second mortgage or home equity loan as this is not a business we have
actively pursued.
The Companys losses on non-performing loans increased in 2009, but overall have been modest due
to our first lien position and relatively low average LTV ratios. We generally obtain new
collateral values for loans after 180 days of delinquency. If the estimated fair value of the
collateral (less estimated selling costs) is less than the recorded investment in the loan, we
charge-off an amount to reduce the loan to the fair value of the collateral less estimated
selling costs. As a result, certain losses inherent in our non-performing loans are being
recognized as charge-offs which may result in a lower ratio of the ALL to non-performing loans
when accompanied by a concurrent increase in total non-performing loans (i.e. due to the addition
of new non-performing loans). Charge-offs amounted to $47.2 million, consisting of 517 loans,
for 2009 and $4.4 million, consisting of 47 loans, in 2008. These charge-offs were primarily due
to the results of our reappraisal process for our non-performing residential first mortgage loans
with only 55 loans disposed of through the foreclosure process during 2009 with a final loss on
sale (after previous charge-offs) of $2.4 million. The results of our reappraisal process and
our recent charge-off history are also considered in the determination of the ALL. At December
31, 2009 the average LTV ratio (using appraised values at the time of origination) of our
non-performing loans was 72.4% and was 60.8% for our total mortgage loan portfolio. Thus, the
ratio of the ALL to non-performing loans needs to be viewed in the context of the underlying
LTVs of the non-performing loans and the relative decline in home values.
As part of our estimation of the ALL, we monitor changes in the values of homes in each market
using indices published by various organizations including the Office of Federal Housing
Enterprise Oversight and Case-Shiller. Our AQC uses these indices and a stratification of our
loan portfolio by state as part of its quarterly
determination of the ALL. We do not apply different loss factors based on geographic locations
since, at December 31, 2009, 73.8% of our loan portfolio and 63.8% of our non-performing loans
are located in the New York metropolitan area. In addition, we obtain updated collateral values
when a loan becomes 180 days past due which we believe identifies potential charge-offs more
accurately than a house price index that is
20
based on a wide geographic area and includes many different types of houses. However, we
use the house price indices to identify geographic areas experiencing weaknesses in housing
markets to determine if an overall adjustment to the ALL is required based on loans we have in
those geographic areas and to determine if changes in the loss factors used in the ALL
quantitative analysis are necessary. Our quantitative analysis of the ALL accounts for increases
in non-performing loans by applying progressively higher risk factors to loans as they become
more delinquent.
Due to the nature of our loan portfolio, our evaluation of the adequacy of our ALL 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.
Based on our recent loss experience on non-performing loans, we increased the loss factors used
in our quantitative analysis of the ALL for our one- to four-family first mortgage loans during
2009. If our future loss experience requires additional increases in our loss factors, this may
result in increased levels of loan loss provisions.
In addition to our quantitative systematic methodology, we also use qualitative analyses to
determine the adequacy of our ALL. Our qualitative analyses include further evaluation of economic
factors, such as trends in the unemployment rate, as well as a ratio analysis to evaluate the
overall measurement of the ALL. This analysis includes a review of delinquency ratios, net
charge-off ratios and the ratio of the ALL to both non-performing loans and total loans. This
qualitative review is used to reassess the overall determination of the ALL and to ensure that
directional changes in the ALL and the provision for loan losses are supported by relevant internal
and external data.
We consider the average LTV of our non-performing loans and our total portfolio in relation to the
overall changes in house prices in our lending markets when determining the ALL. This provides us
with a macro indication of the severity of potential losses that might be expected. Since
substantially all our portfolio consists of first mortgage loans on residential properties, the LTV
is particularly important to us when a loan becomes non-performing. The weighted average LTV in
our one- to four-family mortgage loan portfolio at December 31, 2009 was 60.8%, using appraised
values at the time of origination. The average LTV ratio of our non-performing loans was 72.4% at
December 31, 2009. Based on the valuation indices, house prices have declined in the New York
metropolitan area, where 63.8% of our non-performing loans were located at December 31, 2009, by
approximately 20% from the peak of the market in 2006 through November 2009 and by 29% nationwide
during that period. Changes in house values may affect our loss experience which may require that
we change the loss factors used in our quantitative analysis of the ALL. There can be no assurance
whether significant further declines in house values may occur and result in higher loss experience
and increased levels of charge-offs and loan loss provisions.
Net charge-offs amounted to $47.2 million for 2009 as compared to net charge-offs of $4.4 million
for 2008. Our charge-offs on non-performing loans have historically
been low relative to the size of our portfolio 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 their 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. If
real estate prices decline further, this extended time may result in further charge-offs. In
addition, current conditions
21
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 purchase the
property and 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 December 31, 2009 and December 31, 2008, commercial and construction loans evaluated for
impairment in accordance with FASB guidance amounted to $11.2 million and $9.5 million,
respectively. Based on this evaluation, we established an ALL of $2.1 million for loans classified
as impaired at December 31, 2009 compared to $818,000 at December 31, 2008.
The markets in which we lend have experienced significant declines in real estate values which
we have taken into account in evaluating our ALL. Although we believe that we have established and
maintained the ALL at adequate levels, additions may be necessary if future economic and other
conditions differ substantially from the current operating environment. Increases in our
loss experience on non-performing loans, the loss factors used in our quantitative analysis of the
ALL and continued increases in overall loan delinquencies can have a significant impact on our need
for increased levels of loan loss provisions in the future. No assurance can be given in any
particular case that our LTV ratios will provide full protection in the event of borrower default.
Although we use the best information available, the level of the ALL remains an estimate that is
subject to significant judgment and short-term change. See Critical Accounting Policies -
Allowance for Loan Losses in Item 7, Managements Discussion and Analysis.
The following table presents our allocation of the ALL by loan category and the percentage of loans
in each category to total loans at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
of Loans in
|
|
|
|
|
|
|
of Loans in
|
|
|
|
|
|
|
of Loans in
|
|
|
|
|
|
|
of Loans in
|
|
|
|
|
|
|
of Loans in
|
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
|
$
|
133,927
|
|
|
|
98.69
|
%
|
|
$
|
45,642
|
|
|
|
98.43
|
%
|
|
$
|
29,511
|
|
|
|
97.95
|
%
|
|
$
|
24,578
|
|
|
|
97.42
|
%
|
|
$
|
25,474
|
|
|
|
98.13
|
%
|
Other first mortgages
|
|
|
3,169
|
|
|
|
0.21
|
|
|
|
2,065
|
|
|
|
0.26
|
|
|
|
1,883
|
|
|
|
0.38
|
|
|
|
999
|
|
|
|
0.58
|
|
|
|
23
|
|
|
|
0.31
|
|
|
Total first
mortgage loans
|
|
|
137,096
|
|
|
|
98.90
|
|
|
|
47,707
|
|
|
|
98.69
|
|
|
|
31,394
|
|
|
|
98.33
|
|
|
|
25,577
|
|
|
|
98.00
|
|
|
|
25,497
|
|
|
|
98.44
|
|
Consumer and other loans
|
|
|
2,978
|
|
|
|
1.10
|
|
|
|
2,090
|
|
|
|
1.31
|
|
|
|
3,347
|
|
|
|
1.67
|
|
|
|
3,618
|
|
|
|
2.00
|
|
|
|
1,774
|
|
|
|
1.56
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,430
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
Total allowance for
loan losses
|
|
$
|
140,074
|
|
|
|
100.00
|
%
|
|
$
|
49,797
|
|
|
|
100.00
|
%
|
|
$
|
34,741
|
|
|
|
100.00
|
%
|
|
$
|
30,625
|
|
|
|
100.00
|
%
|
|
$
|
27,393
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
The Board of Directors reviews and approves our investment policy on an annual basis. The Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer,
and other officers are authorized to purchase, sell, or loan securities. The Board of Directors reviews our investment activity on a
quarterly basis.
Our investment policy is designed primarily to manage the interest rate sensitivity of our assets
and liabilities, to generate a favorable return without incurring undue interest rate and credit
risk, to complement our lending
22
activities and to provide and maintain liquidity within established guidelines. In establishing our
investment strategies, we consider our asset/liability position,
asset concentrations, interest rate risk, credit risk, liquidity,
market volatility and desired rate of return. We may invest in
securities in accordance with the regulations of the OTS. We invest in various types of assets,
including U.S. Treasury obligations, federal agency securities, mortgage-backed securities, certain
time deposits of insured banks and savings institutions, certain bankers acceptances, repurchase
agreements, federal funds sold, and, subject to certain limits, corporate debt and equity
securities, commercial paper and mutual funds. Our investment policy
also provides that we will not engage in any practice that the
Federal Financial Institutions Examination Council considers to be an
unsuitable investment practice.
We invest primarily in mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac,
as well as other securities issued by GSEs. These securities account for substantially all of our
securities. 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.
We have 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. 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.
Our investment policy currently does not authorize participation in hedging programs, options or
futures transactions or interest rate swaps, and also prohibits the purchase of non-investment
grade bonds. In the future we may amend our policy to allow us to engage in these types of
transactions.
We classify investments as held to maturity or available for sale at the date of purchase based on
our assessment of our internal liquidity requirements. Held to maturity securities are reported at
cost, adjusted for amortization of premium and accretion of discount. We have both the ability and
positive intent to hold these securities to maturity. Available for sale securities are reported
at fair market value. We currently have no securities classified as trading securities.
Investment Securities
.
At December 31, 2009, investment securities classified as held to
maturity amounted to $4.19 billion while $1.10 billion were classified as available for sale. At
December 31, 2009, the investment securities portfolio had a weighted-average rate of 4.38% and a
fair value of approximately $5.17 billion. During 2009, we purchased $5.87 billion of investment
securities compared with $2.10 billion during 2008. These securities were all issued by U.S. GSEs.
Of the securities held as of December 31, 2009, $4.15 billion have step-up features where the
interest rate is increased on scheduled future dates. These securities have call options that are
generally effective prior to the initial rate increase, but after an initial no-call period of
three months to two years, and assist in our management of interest
rate risk (IRR). The above step-up features are not accounted for
separately from the underlying securities as we have concluded that they are clearly and closely
related to the step-up note in accordance with FASB guidance. Approximately $1.30 billion of these
step-up notes are scheduled to reset within the next two years. At December 31, 2009,
investment securities with an amortized cost of $2.43 billion were used as collateral for
securities sold under agreements to repurchase. Also, at December 31, 2009, we had $874.8 million
in Federal Home Loan Bank of New York (FHLB) stock. See - Regulation of Hudson City Savings Bank
and Hudson City Bancorp.
Mortgage-backed Securities
.
All of our mortgage-backed securities are issued by GinnieMae,
FannieMae or FreddieMac. At December 31, 2009, mortgage-backed securities classified as held to
maturity totaled $9.96 billion, or 16.5% of total assets, while $11.12 billion, or 18.5% of total
assets, were classified as available for
23
sale. At December 31, 2009, the mortgage-backed securities portfolio had a weighted-average rate
of 4.70% and a fair value of approximately $21.44 billion. Of the mortgage-backed securities we
held at December 31, 2009, $14.91 billion, or 70.7% of total mortgage-backed securities, had
adjustable rates and $6.17 billion, or 29.3% of total mortgage-backed securities, had fixed rates.
Our mortgage-backed securities portfolio includes real estate mortgage investment conduits
(REMICs), which are securities derived by reallocating cash flows from mortgage pass-through
securities or from pools of mortgage loans held by a trust. REMICs are a form of, and are often
referred to as, collateralized mortgage obligations (CMOs). At December 31, 2009, we held $3.63
billion of fixed-rate REMICs, which constituted 17.2% of our mortgage-backed securities portfolio.
Mortgage-backed security purchases totaled $6.87 billion during 2009 compared with $7.14 billion
during 2008. At December 31, 2009, mortgage-backed securities with an amortized cost of $14.48
billion were used as collateral for securities sold under agreements to repurchase.
Mortgage-backed securities generally yield less than the underlying loans because of the cost of
payment guarantees or credit enhancements that reduce credit risk. However, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to collateralize certain
borrowings. In general, mortgage-backed securities issued or guaranteed by GinnieMae, FannieMae and
FreddieMac are weighted at no more than 20% for risk-based capital purposes, compared to the 50%
risk-weighting assigned to most non-securitized residential mortgage loans.
While mortgage-backed securities are subject to a reduced credit risk as compared to whole loans,
they remain subject to the risk of a fluctuating interest rate environment. Along with other
factors, such as the geographic distribution of the underlying mortgage loans, changes in interest
rates may alter the prepayment rate of those mortgage loans and affect both the prepayment rates
and value of mortgage-backed securities. At December 31, 2009, we did not own any principal-only,
REMIC residuals, private label mortgage-backed securities or other higher risk securities such as
those backed by sub-prime loans.
The following table presents our investment securities activity for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at beginning of year
|
|
$
|
3,463,719
|
|
|
$
|
4,173,992
|
|
|
$
|
5,913,584
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
4,540,329
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
1,331,300
|
|
|
|
2,100,000
|
|
|
|
2,148,705
|
|
Calls:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
(400,000
|
)
|
|
|
(1,358,485
|
)
|
|
|
(125,480
|
)
|
Available for sale
|
|
|
(3,622,225
|
)
|
|
|
(1,449,902
|
)
|
|
|
(2,100,060
|
)
|
Maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
(4
|
)
|
|
|
(1,725,000
|
)
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
Premium (amortization) and discount accretion, net
|
|
|
(4,292
|
)
|
|
|
164
|
|
|
|
1,025
|
|
Change in unrealized gain or (loss)
|
|
|
(25,719
|
)
|
|
|
(2,046
|
)
|
|
|
61,218
|
|
|
Net increase (decrease) in investment securities
|
|
|
1,819,225
|
|
|
|
(710,273
|
)
|
|
|
(1,739,592
|
)
|
|
Carrying value at end of year
|
|
$
|
5,282,944
|
|
|
$
|
3,463,719
|
|
|
$
|
4,173,992
|
|
|
|
|
|
|
|
|
|
|
|
24
The following table presents our mortgage-backed securities activity for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at beginning of year
|
|
$
|
19,487,811
|
|
|
$
|
14,570,935
|
|
|
$
|
9,329,631
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
3,017,730
|
|
|
|
1,360,861
|
|
|
|
3,861,633
|
|
Available for sale
|
|
|
3,849,268
|
|
|
|
5,777,777
|
|
|
|
3,248,326
|
|
Principal payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
(2,609,338
|
)
|
|
|
(1,348,304
|
)
|
|
|
(1,215,867
|
)
|
Available for sale
|
|
|
(2,123,330
|
)
|
|
|
(956,710
|
)
|
|
|
(696,560
|
)
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
(761,557
|
)
|
|
|
|
|
|
|
|
|
Premium amortization and discount accretion, net
|
|
|
(27,972
|
)
|
|
|
(11,722
|
)
|
|
|
(10,257
|
)
|
Change in unrealized gain or (loss)
|
|
|
247,473
|
|
|
|
94,974
|
|
|
|
54,029
|
|
|
Net increase in mortgage-backed securities
|
|
|
1,592,274
|
|
|
|
4,916,876
|
|
|
|
5,241,304
|
|
|
Carrying value at end of year
|
|
$
|
21,080,085
|
|
|
$
|
19,487,811
|
|
|
$
|
14,570,935
|
|
|
|
|
|
|
|
|
|
|
|
25
The following table presents the composition of our money market investments, investment
securities and mortgage-backed securities portfolios in dollar amount and in percentage of each
investment type at the dates indicated. The table also presents the mortgage-backed securities
portfolio by coupon type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Carrying
|
|
|
of
|
|
|
Fair
|
|
|
Carrying
|
|
|
of
|
|
|
Fair
|
|
|
Carrying
|
|
|
of
|
|
|
Fair
|
|
|
|
Value
|
|
|
Total (1)
|
|
|
Value
|
|
|
Value
|
|
|
Total (1)
|
|
|
Value
|
|
|
Value
|
|
|
Total (1)
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
362,449
|
|
|
|
100.00
|
%
|
|
$
|
362,449
|
|
|
$
|
76,896
|
|
|
|
100.00
|
%
|
|
$
|
76,896
|
|
|
$
|
106,299
|
|
|
|
100.00
|
%
|
|
$
|
106,299
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
government-
sponsored enterprises
|
|
$
|
4,187,599
|
|
|
|
79.27
|
%
|
|
$
|
4,070,900
|
|
|
$
|
49,981
|
|
|
|
1.45
|
%
|
|
$
|
50,406
|
|
|
$
|
1,408,071
|
|
|
|
33.74
|
%
|
|
$
|
1,409,814
|
|
Municipal bonds
|
|
|
105
|
|
|
|
0.01
|
|
|
|
105
|
|
|
|
105
|
|
|
|
0.01
|
|
|
|
106
|
|
|
|
430
|
|
|
|
0.01
|
|
|
|
432
|
|
|
Total held to maturity
|
|
|
4,187,704
|
|
|
|
79.28
|
|
|
|
4,071,005
|
|
|
|
50,086
|
|
|
|
1.46
|
|
|
|
50,512
|
|
|
|
1,408,501
|
|
|
|
33.75
|
|
|
|
1,410,246
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
government-
sponsored enterprises
|
|
|
1,088,165
|
|
|
|
20.59
|
|
|
|
1,088,165
|
|
|
|
3,406,248
|
|
|
|
98.33
|
|
|
|
3,406,248
|
|
|
|
2,758,193
|
|
|
|
66.08
|
|
|
|
2,758,193
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Equity securities
|
|
|
7,075
|
|
|
|
0.13
|
|
|
|
7,075
|
|
|
|
7,385
|
|
|
|
0.21
|
|
|
|
7,385
|
|
|
|
7,294
|
|
|
|
0.17
|
|
|
|
7,294
|
|
|
Total available for sale
|
|
|
1,095,240
|
|
|
|
20.72
|
|
|
|
1,095,240
|
|
|
|
3,413,633
|
|
|
|
98.54
|
|
|
|
3,413,633
|
|
|
|
2,765,491
|
|
|
|
66.25
|
|
|
|
2,765,491
|
|
|
Total investment
securities
|
|
$
|
5,282,944
|
|
|
|
100.00
|
%
|
|
$
|
5,166,245
|
|
|
$
|
3,463,719
|
|
|
|
100.00
|
%
|
|
$
|
3,464,145
|
|
|
$
|
4,173,992
|
|
|
|
100.00
|
%
|
|
$
|
4,175,737
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By issuer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
$
|
112,019
|
|
|
|
0.53
|
%
|
|
$
|
114,787
|
|
|
$
|
128,906
|
|
|
|
0.66
|
%
|
|
$
|
127,309
|
|
|
$
|
157,716
|
|
|
|
1.08
|
%
|
|
$
|
158,999
|
|
FNMA pass-through
certificates
|
|
|
2,510,095
|
|
|
|
11.91
|
|
|
|
2,616,604
|
|
|
|
3,203,799
|
|
|
|
16.44
|
|
|
|
3,247,847
|
|
|
|
3,214,509
|
|
|
|
22.06
|
|
|
|
3,205,922
|
|
FHLMC pass-through
certificates
|
|
|
4,764,429
|
|
|
|
22.60
|
|
|
|
4,995,782
|
|
|
|
5,859,297
|
|
|
|
30.07
|
|
|
|
5,943,155
|
|
|
|
5,808,288
|
|
|
|
39.87
|
|
|
|
5,849,744
|
|
FHLMC and FNMA
REMICs
|
|
|
2,577,011
|
|
|
|
12.22
|
|
|
|
2,597,658
|
|
|
|
380,255
|
|
|
|
1.95
|
|
|
|
377,134
|
|
|
|
385,013
|
|
|
|
2.64
|
|
|
|
351,647
|
|
|
Total held to maturity
|
|
|
9,963,554
|
|
|
|
47.26
|
|
|
|
10,324,831
|
|
|
|
9,572,257
|
|
|
|
49.12
|
|
|
|
9,695,445
|
|
|
|
9,565,526
|
|
|
|
65.65
|
|
|
|
9,566,312
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
|
1,270,074
|
|
|
|
6.02
|
|
|
|
1,270,074
|
|
|
|
915,995
|
|
|
|
4.70
|
|
|
|
915,995
|
|
|
|
1,257,893
|
|
|
|
8.62
|
|
|
|
1,257,893
|
|
FNMA pass-through
certificates
|
|
|
3,907,368
|
|
|
|
18.54
|
|
|
|
3,907,368
|
|
|
|
3,300,888
|
|
|
|
16.94
|
|
|
|
3,300,888
|
|
|
|
1,098,072
|
|
|
|
7.54
|
|
|
|
1,098,072
|
|
FHLMC pass-through
certificates
|
|
|
4,888,326
|
|
|
|
23.20
|
|
|
|
4,888,326
|
|
|
|
5,698,671
|
|
|
|
29.24
|
|
|
|
5,698,671
|
|
|
|
2,649,444
|
|
|
|
18.18
|
|
|
|
2,649,444
|
|
FHLMC and FNMA
REMICs
|
|
|
1,050,763
|
|
|
|
4.98
|
|
|
|
1,050,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
|
11,116,531
|
|
|
|
52.74
|
|
|
|
11,116,531
|
|
|
|
9,915,554
|
|
|
|
50.88
|
|
|
|
9,915,554
|
|
|
|
5,005,409
|
|
|
|
34.35
|
|
|
|
5,005,409
|
|
|
Total mortgage-backed
securities
|
|
$
|
21,080,085
|
|
|
|
100.00
|
%
|
|
$
|
21,441,362
|
|
|
$
|
19,487,811
|
|
|
|
100.00
|
%
|
|
$
|
19,610,999
|
|
|
$
|
14,570,935
|
|
|
|
100.00
|
%
|
|
$
|
14,571,721
|
|
|
|
|
|
|
|
|
By coupon type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
$
|
14,912,735
|
|
|
|
70.74
|
%
|
|
$
|
15,211,271
|
|
|
$
|
16,277,336
|
|
|
|
83.53
|
%
|
|
$
|
16,377,257
|
|
|
$
|
11,995,377
|
|
|
|
82.32
|
%
|
|
$
|
12,055,525
|
|
Fixed-rate
|
|
|
6,167,350
|
|
|
|
29.26
|
|
|
|
6,230,091
|
|
|
|
3,210,475
|
|
|
|
16.47
|
|
|
|
3,233,742
|
|
|
|
2,575,558
|
|
|
|
17.68
|
|
|
|
2,516,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed
securities
|
|
$
|
21,080,085
|
|
|
|
100.00
|
%
|
|
$
|
21,441,362
|
|
|
$
|
19,487,811
|
|
|
|
100.00
|
%
|
|
$
|
19,610,999
|
|
|
$
|
14,570,935
|
|
|
|
100.00
|
%
|
|
$
|
14,571,721
|
|
|
|
|
|
|
|
|
Total investment portfolio
|
|
$
|
26,725,478
|
|
|
|
|
|
|
$
|
26,970,056
|
|
|
$
|
23,028,426
|
|
|
|
|
|
|
$
|
23,152,040
|
|
|
$
|
18,851,226
|
|
|
|
|
|
|
$
|
18,853,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Based on carrying value for each investment type.
|
26
Carrying Values, Rates and Maturities
.
The table below presents information regarding
the carrying values, weighted average rates and contractual maturities of our money market
investments, investment securities and mortgage-backed securities at December 31, 2009.
Mortgage-backed securities are presented by issuer and by coupon type. The table does not include
the effect of prepayments or scheduled principal amortization. Equity securities have been excluded
from this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than One Year
|
|
|
More Than Five Years
|
|
|
|
|
|
|
|
|
|
One Year or Less
|
|
|
to Five Years
|
|
|
to Ten Years
|
|
|
More Than Ten Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
Value
|
|
|
Rate
|
|
|
|
|
|
(Dollars in thousands)
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
362,449
|
|
|
|
0.25
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
362,449
|
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government-
sponsored enterprises
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
1,299,130
|
|
|
|
3.80
|
%
|
|
$
|
2,888,469
|
|
|
|
4.56
|
%
|
|
$
|
4,187,599
|
|
|
|
4.32
|
%
|
Municipal bonds
|
|
|
105
|
|
|
|
7.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
7.58
|
|
|
Total held to maturity
|
|
|
105
|
|
|
|
7.58
|
|
|
|
|
|
|
|
|
|
|
|
1,299,130
|
|
|
|
3.80
|
|
|
|
2,888,469
|
|
|
|
4.56
|
|
|
|
4,187,704
|
|
|
|
4.32
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government-
sponsored enterprises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,941
|
|
|
|
3.53
|
|
|
|
691,224
|
|
|
|
5.19
|
|
|
|
1,088,165
|
|
|
|
4.58
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,941
|
|
|
|
3.53
|
|
|
|
691,224
|
|
|
|
5.19
|
|
|
|
1,088,165
|
|
|
|
4.58
|
|
|
Total investment
securities
|
|
$
|
105
|
|
|
|
7.58
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
1,696,071
|
|
|
|
3.74
|
%
|
|
$
|
3,579,693
|
|
|
|
4.68
|
%
|
|
$
|
5,275,869
|
|
|
|
4.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By issuer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
$
|
10
|
|
|
|
10.96
|
%
|
|
$
|
36
|
|
|
|
11.10
|
%
|
|
$
|
204
|
|
|
|
4.25
|
%
|
|
$
|
111,769
|
|
|
|
4.13
|
%
|
|
$
|
112,019
|
|
|
|
4.13
|
%
|
FNMA pass-through
certificates
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
6.84
|
|
|
|
8,350
|
|
|
|
6.35
|
|
|
|
2,501,520
|
|
|
|
5.05
|
|
|
|
2,510,095
|
|
|
|
5.05
|
|
FHLMC pass-through
certificates
|
|
|
63
|
|
|
|
6.80
|
|
|
|
266
|
|
|
|
5.38
|
|
|
|
5,150
|
|
|
|
3.97
|
|
|
|
4,758,950
|
|
|
|
5.23
|
|
|
|
4,764,429
|
|
|
|
5.23
|
|
FHLMC and FNMA
REMICs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,577,011
|
|
|
|
4.15
|
|
|
|
2,577,011
|
|
|
|
4.15
|
|
|
Total held to maturity
|
|
|
73
|
|
|
|
7.37
|
|
|
|
527
|
|
|
|
6.39
|
|
|
|
13,704
|
|
|
|
5.42
|
|
|
|
9,949,250
|
|
|
|
4.89
|
|
|
|
9,963,554
|
|
|
|
4.89
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA pass-through
certificates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,270,074
|
|
|
|
3.76
|
|
|
|
1,270,074
|
|
|
|
3.76
|
|
FNMA pass-through
certificates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,907,368
|
|
|
|
4.11
|
|
|
|
3,907,368
|
|
|
|
4.11
|
|
FHLMC pass-through
certificates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,888,326
|
|
|
|
5.17
|
|
|
|
4,888,326
|
|
|
|
5.17
|
|
FHLMC and FNMA
REMICs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,050,763
|
|
|
|
4.02
|
|
|
|
1,050,763
|
|
|
|
4.02
|
|
|
Total available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,116,531
|
|
|
|
4.53
|
|
|
|
11,116,531
|
|
|
|
4.53
|
|
|
Total mortgage-backed
securities
|
|
$
|
73
|
|
|
|
7.37
|
%
|
|
$
|
527
|
|
|
|
6.39
|
%
|
|
$
|
13,704
|
|
|
|
5.42
|
%
|
|
$
|
21,065,781
|
|
|
|
4.70
|
%
|
|
$
|
21,080,085
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By coupon type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
$
|
|
|
|
|
|
%
|
|
$
|
82
|
|
|
|
2.31
|
%
|
|
$
|
5,042
|
|
|
|
3.21
|
%
|
|
$
|
14,907,611
|
|
|
|
4.79
|
%
|
|
$
|
14,912,735
|
|
|
|
4.79
|
%
|
Fixed-rate
|
|
|
73
|
|
|
|
7.37
|
|
|
|
445
|
|
|
|
7.15
|
|
|
|
8,662
|
|
|
|
6.71
|
|
|
|
6,158,170
|
|
|
|
4.50
|
|
|
|
6,167,350
|
|
|
|
4.50
|
|
|
Total mortgage-backed
securities
|
|
$
|
73
|
|
|
|
7.37
|
%
|
|
$
|
527
|
|
|
|
6.39
|
%
|
|
$
|
13,704
|
|
|
|
5.42
|
%
|
|
$
|
21,065,781
|
|
|
|
4.70
|
%
|
|
$
|
21,080,085
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment portfolio
|
|
$
|
362,627
|
|
|
|
0.25
|
%
|
|
$
|
527
|
|
|
|
6.39
|
%
|
|
$
|
1,709,775
|
|
|
|
3.75
|
%
|
|
$
|
24,645,474
|
|
|
|
4.70
|
%
|
|
$
|
26,718,403
|
|
|
|
4.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Sources of Funds
General
.
Our primary sources of funds are customer deposits, borrowings, scheduled amortization
and prepayments of mortgage loans and mortgage-backed securities, maturities and calls of
investment securities and funds provided by our operations. Retail deposits generated through our
branch network and wholesale borrowings have been our primary means of funding our growth
initiatives. We intend to fund our future growth primarily with customer deposits, using borrowed
funds as a supplemental funding source if deposit growth decreases. See Managements Discussion
and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources.
Deposits
.
We offer a variety of deposit accounts having a range of interest rates and terms. We
currently offer passbook and statement savings accounts, interest-bearing transaction accounts,
checking accounts, money market accounts and time deposits. We also offer IRA accounts and
qualified retirement plans.
Deposit flows are influenced significantly by general and local economic conditions, changes in
prevailing market interest rates, pricing of deposits and competition. In determining our deposit
rates, we consider local competition, U.S. Treasury securities offerings and the rates charged on
other sources of funds. Our deposits are primarily obtained from market areas surrounding our
branch offices. In December 2008, we began to open deposit accounts through the internet for
customers throughout the United States. We rely primarily on paying competitive rates, providing
strong customer service and maintaining long-standing relationships with customers to attract and
retain these deposits. We do not use brokers to obtain deposits. During 2009, we opened 4 new
branches. Our most direct competition for deposits comes from commercial banks, savings banks,
savings and loan associations and credit unions. There are large money-center and regional
financial institutions operating throughout our market area, and we also face strong competition
from other community-based financial institutions. In response to the economic recession, we
believe that households during 2009 increased their personal savings and customers sought insured
bank deposit products as an alternative to investments such as equity securities and bonds. We
believe these factors contributed to our deposit growth.
Total deposits increased $6.12 billion, or 33.2%, during 2009 due primarily to a $3.12 billion
increase in total time deposits, a $2.34 billion increase in our money market accounts and a $575.5
million increase in our interest-bearing transaction accounts and savings accounts. Total core
deposits (defined as non-time deposit accounts) represented approximately 34.6% of total deposits
as of December 31, 2009 compared with 29.9% as of December 31, 2008. This increase is due to the
growth in our money market accounts as a result of our favorable rates as compared to our
competitors. The aggregate balance in our time deposit accounts was $16.07 billion as of December
31, 2009 compared with $12.95 billion as of December 31, 2008. Time deposits with remaining
maturities of less than one year amounted to $13.08 billion at December 31, 2009 compared with
$12.48 billion at December 31, 2008. These time deposits are scheduled to mature as follows: $6.11
billion with an average cost of 1.86% in the first quarter of 2010, $4.53 billion with an average
cost of 1.86% in the second quarter of 2010, $1.51 billion with an average cost of 1.98% in the
third quarter of 2010 and $930.4 million with an average cost of 1.84% in the fourth quarter of
2010. The current yields offered on our six month and one year time deposits are 1.35% and 1.55%,
respectively. 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.
28
The following table presents our deposit activity for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits at beginning of year
|
|
$
|
18,464,042
|
|
|
$
|
15,153,382
|
|
|
$
|
13,415,587
|
|
Net increase in deposits
|
|
|
5,630,538
|
|
|
|
2,729,303
|
|
|
|
1,130,859
|
|
Interest credited
|
|
|
483,468
|
|
|
|
581,357
|
|
|
|
606,936
|
|
|
Total deposits at end of year
|
|
$
|
24,578,048
|
|
|
$
|
18,464,042
|
|
|
$
|
15,153,382
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
$
|
6,114,006
|
|
|
$
|
3,310,660
|
|
|
$
|
1,737,795
|
|
|
|
|
|
|
|
|
|
|
|
Percent increase
|
|
|
33.11
|
%
|
|
|
21.85
|
%
|
|
|
12.95
|
%
|
At December 31, 2009, we had $5.94 billion in time deposits with balances of $100,000 and
over maturing as follows:
|
|
|
|
|
Maturity Period
|
|
Amount
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
3 months or less
|
|
$
|
2,233,482
|
|
Over 3 months through 6 months
|
|
|
1,573,942
|
|
Over 6 months through 12 months
|
|
|
908,756
|
|
Over 12 months
|
|
|
1,228,406
|
|
|
Total
|
|
$
|
5,944,586
|
|
|
|
|
|
29
The following table presents the distribution of our deposit accounts at the dates indicated
by dollar amount and percent of portfolio, and the weighted average nominal interest rate on each
category of deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Percent
|
|
|
average
|
|
|
|
|
|
|
Percent
|
|
|
average
|
|
|
|
|
|
|
Percent
|
|
|
average
|
|
|
|
|
|
|
|
of total
|
|
|
nominal
|
|
|
|
|
|
|
of total
|
|
|
nominal
|
|
|
|
|
|
|
of total
|
|
|
nominal
|
|
|
|
Amount
|
|
|
deposits
|
|
|
rate
|
|
|
Amount
|
|
|
deposits
|
|
|
rate
|
|
|
Amount
|
|
|
deposits
|
|
|
rate
|
|
|
|
|
|
(Dollars in thousands)
|
|
Savings
|
|
$
|
786,559
|
|
|
|
3.20
|
%
|
|
|
0.74
|
%
|
|
$
|
712,420
|
|
|
|
3.86
|
%
|
|
|
0.76
|
%
|
|
$
|
737,813
|
|
|
|
4.87
|
%
|
|
|
0.74
|
%
|
Interest-bearing demand
|
|
|
2,075,175
|
|
|
|
8.44
|
|
|
|
1.36
|
|
|
|
1,573,771
|
|
|
|
8.52
|
|
|
|
2.47
|
|
|
|
1,588,084
|
|
|
|
10.48
|
|
|
|
3.26
|
|
Money market
|
|
|
5,058,842
|
|
|
|
20.59
|
|
|
|
1.38
|
|
|
|
2,716,429
|
|
|
|
14.72
|
|
|
|
2.87
|
|
|
|
1,575,097
|
|
|
|
10.39
|
|
|
|
4.26
|
|
Noninterest-bearing
demand
|
|
|
586,041
|
|
|
|
2.38
|
|
|
|
|
|
|
|
514,196
|
|
|
|
2.78
|
|
|
|
|
|
|
|
517,970
|
|
|
|
3.42
|
|
|
|
|
|
|
Total
|
|
|
8,506,617
|
|
|
|
34.61
|
|
|
|
1.22
|
|
|
|
5,516,816
|
|
|
|
29.88
|
|
|
|
2.22
|
|
|
|
4,418,964
|
|
|
|
29.16
|
|
|
|
2.81
|
|
|
Time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits $100,000
and over
|
|
|
5,944,586
|
|
|
|
24.20
|
|
|
|
2.02
|
|
|
|
4,599,228
|
|
|
|
24.92
|
|
|
|
3.66
|
|
|
|
3,336,049
|
|
|
|
22.02
|
|
|
|
4.97
|
|
|
Time deposits less than
$100,000 with original
maturities of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months or less
|
|
|
485,518
|
|
|
|
1.98
|
|
|
|
1.19
|
|
|
|
356,822
|
|
|
|
1.93
|
|
|
|
3.17
|
|
|
|
1,057,289
|
|
|
|
6.98
|
|
|
|
4.98
|
|
Over 3 months to
12 months
|
|
|
3,212,728
|
|
|
|
13.06
|
|
|
|
1.41
|
|
|
|
5,520,470
|
|
|
|
29.89
|
|
|
|
3.74
|
|
|
|
4,558,298
|
|
|
|
30.07
|
|
|
|
5.04
|
|
Over 12 months to
24 months
|
|
|
3,753,700
|
|
|
|
15.27
|
|
|
|
2.23
|
|
|
|
1,200,957
|
|
|
|
6.50
|
|
|
|
3.56
|
|
|
|
524,722
|
|
|
|
3.46
|
|
|
|
4.57
|
|
Over 24 months
to 36 months
|
|
|
952,722
|
|
|
|
3.88
|
|
|
|
2.51
|
|
|
|
71,707
|
|
|
|
0.39
|
|
|
|
3.65
|
|
|
|
79,613
|
|
|
|
0.53
|
|
|
|
3.87
|
|
Over 36 months to
48 months
|
|
|
236,551
|
|
|
|
0.96
|
|
|
|
2.94
|
|
|
|
34,469
|
|
|
|
0.19
|
|
|
|
3.89
|
|
|
|
77,185
|
|
|
|
0.51
|
|
|
|
3.93
|
|
Over 48 months
to 60 months
|
|
|
35,505
|
|
|
|
0.14
|
|
|
|
3.18
|
|
|
|
14,498
|
|
|
|
0.08
|
|
|
|
4.08
|
|
|
|
32,299
|
|
|
|
0.21
|
|
|
|
3.94
|
|
Over 60 months
|
|
|
126,281
|
|
|
|
0.51
|
|
|
|
3.59
|
|
|
|
109,666
|
|
|
|
0.59
|
|
|
|
4.27
|
|
|
|
138,738
|
|
|
|
0.92
|
|
|
|
3.98
|
|
Qualified retirement plans
|
|
|
1,323,840
|
|
|
|
5.39
|
|
|
|
2.37
|
|
|
|
1,039,409
|
|
|
|
5.63
|
|
|
|
3.78
|
|
|
|
930,225
|
|
|
|
6.14
|
|
|
|
4.70
|
|
|
Total time deposits
|
|
|
16,071,431
|
|
|
|
65.39
|
|
|
|
2.01
|
|
|
|
12,947,226
|
|
|
|
70.12
|
|
|
|
3.69
|
|
|
|
10,734,418
|
|
|
|
70.84
|
|
|
|
4.93
|
|
|
Total deposits
|
|
$
|
24,578,048
|
|
|
|
100.00
|
%
|
|
|
1.74
|
%
|
|
$
|
18,464,042
|
|
|
|
100.00
|
%
|
|
|
3.25
|
%
|
|
$
|
15,153,382
|
|
|
|
100.00
|
%
|
|
|
4.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents, by rate category, the amount of our time deposit accounts
outstanding at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In thousands)
|
|
Time deposit accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
2.00% or less
|
|
$
|
8,123,453
|
|
|
$
|
322
|
|
|
$
|
2,032
|
|
2.01% to 2.50%
|
|
|
4,688,010
|
|
|
|
|
|
|
|
22
|
|
2.51% to 3.00%
|
|
|
2,444,254
|
|
|
|
1,672,600
|
|
|
|
343
|
|
3.01% to 3.50%
|
|
|
549,624
|
|
|
|
3,513,581
|
|
|
|
44,450
|
|
3.51% to 4.00%
|
|
|
91,665
|
|
|
|
7,278,114
|
|
|
|
514,022
|
|
4.01% and over
|
|
|
174,425
|
|
|
|
482,609
|
|
|
|
10,173,549
|
|
|
Total
|
|
$
|
16,071,431
|
|
|
$
|
12,947,226
|
|
|
$
|
10,734,418
|
|
|
|
|
|
|
|
|
|
|
|
30
The following table presents, by rate category, the remaining period to maturity of time
deposit accounts outstanding as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period to Maturity from December 31, 2009
|
|
|
|
|
|
Within
|
|
|
Over three
|
|
|
Over six
|
|
|
Over one
|
|
|
Over two
|
|
|
Over
|
|
|
|
|
|
|
three
|
|
|
to six
|
|
|
months to
|
|
|
to two
|
|
|
to three
|
|
|
three
|
|
|
|
|
|
|
months
|
|
|
months
|
|
|
one year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
|
Total
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposit accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.00% or less
|
|
$
|
4,142,327
|
|
|
$
|
2,046,619
|
|
|
$
|
1,657,638
|
|
|
$
|
276,568
|
|
|
$
|
224
|
|
|
$
|
77
|
|
|
$
|
8,123,453
|
|
2.01% to 2.50%
|
|
|
59,752
|
|
|
|
2,357,107
|
|
|
|
712,989
|
|
|
|
1,500,227
|
|
|
|
37,933
|
|
|
|
20,002
|
|
|
|
4,688,010
|
|
2.51% to 3.00%
|
|
|
1,684,873
|
|
|
|
36,092
|
|
|
|
15,422
|
|
|
|
260,901
|
|
|
|
439,908
|
|
|
|
7,058
|
|
|
|
2,444,254
|
|
3.01% to 3.50%
|
|
|
68,134
|
|
|
|
60,004
|
|
|
|
17,022
|
|
|
|
90,333
|
|
|
|
1,475
|
|
|
|
312,656
|
|
|
|
549,624
|
|
3.51% to 4.00%
|
|
|
73,410
|
|
|
|
4,323
|
|
|
|
6,136
|
|
|
|
5,088
|
|
|
|
416
|
|
|
|
2,292
|
|
|
|
91,665
|
|
4.01% and over
|
|
|
82,158
|
|
|
|
21,807
|
|
|
|
35,904
|
|
|
|
13,074
|
|
|
|
17,090
|
|
|
|
4,392
|
|
|
|
174,425
|
|
|
Total
|
|
$
|
6,110,654
|
|
|
$
|
4,525,952
|
|
|
$
|
2,445,111
|
|
|
$
|
2,146,191
|
|
|
$
|
497,046
|
|
|
$
|
346,477
|
|
|
$
|
16,071,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings.
We have entered into agreements with selected brokers and the FHLB to
repurchase securities sold to these parties. These agreements are recorded as financing
transactions as we have maintained effective control over the transferred securities. The dollar
amount of the securities underlying the agreements continues to be carried in our securities
portfolio. The obligations to repurchase the securities are reported as a liability in the
consolidated statements of financial condition. The securities underlying the agreements are
delivered to the party with whom each transaction is executed. They agree to resell to us the same
securities at the maturity or call of the agreement. We retain the right of substitution of the
underlying securities throughout the terms of the agreements.
We have also obtained advances from the FHLB, which are generally secured by a blanket lien against
our mortgage portfolio. Borrowings with the FHLB are generally limited to approximately twenty
times the amount of FHLB stock owned
.
Borrowed funds at December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Principal
|
|
|
Rate
|
|
|
Principal
|
|
|
Rate
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
|
|
$
|
2,400,000
|
|
|
|
4.44
|
%
|
|
$
|
2,400,000
|
|
|
|
4.44
|
%
|
Other brokers
|
|
|
12,700,000
|
|
|
|
3.93
|
|
|
|
12,700,000
|
|
|
|
3.91
|
|
|
Total securities sold under agreements to
repurchase
|
|
|
15,100,000
|
|
|
|
4.01
|
|
|
|
15,100,000
|
|
|
|
3.99
|
|
|
Advances from the FHLB
|
|
|
14,875,000
|
|
|
|
3.99
|
|
|
|
15,125,000
|
|
|
|
3.94
|
|
|
Total borrowed funds
|
|
$
|
29,975,000
|
|
|
|
4.00
|
%
|
|
$
|
30,225,000
|
|
|
|
3.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
$
|
141,828
|
|
|
|
|
|
|
$
|
138,351
|
|
|
|
|
|
31
The average balances of borrowings and the maximum amount outstanding at any month-end are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance outstanding during the year
|
|
$
|
15,100,221
|
|
|
$
|
13,465,540
|
|
|
$
|
10,305,216
|
|
|
|
|
|
|
|
|
|
|
|
Maximum balance outstanding at any month-end
during the year
|
|
$
|
15,100,000
|
|
|
$
|
15,100,000
|
|
|
$
|
12,016,000
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rate during the period
|
|
|
4.05
|
%
|
|
|
4.17
|
%
|
|
|
4.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB Advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance outstanding during the year
|
|
$
|
15,035,798
|
|
|
$
|
13,737,057
|
|
|
$
|
10,286,869
|
|
|
|
|
|
|
|
|
|
|
|
Maximum balance outstanding at any month-end
during the year
|
|
$
|
15,575,000
|
|
|
$
|
15,125,000
|
|
|
$
|
12,125,000
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rate during the period
|
|
|
4.01
|
%
|
|
|
4.14
|
%
|
|
|
4.28
|
%
|
|
|
|
|
|
|
|
|
|
|
Substantially all of our borrowed funds are callable at the discretion of the issuer after
an initial no-call period. As a result, if interest rates were to decrease, 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 no-call period of three months to five years from the date of borrowing. We
believe, given current market conditions, that the likelihood that a significant portion of these
borrowings would be called will not increase substantially unless interest rates were to increase
by at least 300 basis points.
Our borrowings have traditionally consisted of structured callable borrowings with ten year final
maturities and initial no-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 initial call date of the callable borrowing. Our new borrowings in 2009 consisted of
non-callable borrowings of $400.0 million with maturities of one to three months and $350.0 million
of non-callable borrowings with maturities of two to three years.
During 2009, we were able to fund our asset growth primarily with deposit inflows. In order to
effectively manage our interest rate risk and liquidity risk resulting from our current callable
borrowing position, we are pursuing a variety of strategies to reduce callable borrowings while
continuing to pursue our growth plans. We intend to continue focusing on funding our growth
primarily with customer deposits, using borrowed funds as a supplemental funding source if deposit
growth decreases which will allow us to achieve a greater balance between deposits and borrowings.
If necessary to fund our growth and provide for liquidity, we may 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. We also intend to modify certain borrowings to extend their call
dates, which we began to do during 2009. During 2009, we modified approximately $1.73 billion of
callable borrowings to extend the call dates of the borrowings by between three and four years as part
of this strategy. In addition, we are considering prepayment of certain borrowings; however, at this
time, we have no immediate plans to make any such prepayments, and we anticipate that any
prepayment of borrowings will be limited.
32
The scheduled maturities and potential call dates of our borrowings as of December 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings by Scheduled
|
|
|
Borrowings by Earlier of Scheduled
|
|
|
|
Maturity Date
|
|
|
Maturity or Next Potential Call Date
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Year
|
|
Principal
|
|
|
Rate
|
|
|
Principal
|
|
|
Rate
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
300,000
|
|
|
|
5.68
|
%
|
|
$
|
22,250,000
|
|
|
|
4.14
|
%
|
2011
|
|
|
450,000
|
|
|
|
3.71
|
|
|
|
5,350,000
|
|
|
|
3.20
|
|
2012
|
|
|
250,000
|
|
|
|
3.55
|
|
|
|
1,050,000
|
|
|
|
4.15
|
|
2013
|
|
|
250,000
|
|
|
|
5.30
|
|
|
|
1,325,000
|
|
|
|
4.69
|
|
2014
|
|
|
350,000
|
|
|
|
3.37
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
3,725,000
|
|
|
|
3.85
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
7,100,000
|
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
9,975,000
|
|
|
|
4.20
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
5,850,000
|
|
|
|
3.13
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
1,725,000
|
|
|
|
4.63
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,975,000
|
|
|
|
4.00
|
|
|
$
|
29,975,000
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of the underlying securities used as collateral for
securities sold under agreements to repurchase are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost of collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government-sponsored enterprise securities
|
|
$
|
2,429,640
|
|
|
$
|
2,150,000
|
|
|
$
|
3,620,083
|
|
Mortgage-backed securities
|
|
|
14,482,533
|
|
|
|
15,572,838
|
|
|
|
9,308,551
|
|
|
Total amortized cost of collateral
|
|
$
|
16,912,173
|
|
|
$
|
17,722,838
|
|
|
$
|
12,928,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government-sponsored enterprise securities
|
|
$
|
2,363,328
|
|
|
$
|
2,159,471
|
|
|
$
|
3,626,572
|
|
Mortgage-backed securities
|
|
|
15,115,964
|
|
|
|
15,759,490
|
|
|
|
9,294,264
|
|
|
Total fair value of collateral
|
|
$
|
17,479,292
|
|
|
$
|
17,918,961
|
|
|
$
|
12,920,836
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries
Hudson City Savings has two wholly owned and consolidated subsidiaries: HudCiti Service Corporation
and HC Value Broker Services, Inc. HudCiti Service Corporation, which qualifies as a New Jersey
investment company, has two wholly owned and consolidated subsidiaries: Hudson City Preferred
Funding Corporation and Sound REIT, Inc. Hudson City Preferred Funding and Sound REIT qualify as
real estate investment trusts, pursuant to the Internal Revenue Code of 1986, as amended, and had
$6.96 billion and $29.7 million, respectively, of residential mortgage loans outstanding at
December 31, 2009.
HC Value Broker Services, Inc., whose primary operating activity is the referral of insurance
applications, formed a strategic alliance that jointly markets insurance products with Savings Bank
Life Insurance of Massachusetts.
33
Personnel
As of December 31, 2009, we had 1,387 full-time employees and 165 part-time employees. Employees
are not represented by a collective bargaining unit and we consider our relationship with our
employees to be good.
REGULATION OF HUDSON CITY SAVINGS BANK AND HUDSON CITY BANCORP
General
Hudson City Savings has been a federally chartered savings bank since January 1, 2004 when it
converted from a New Jersey chartered savings bank. Its deposit accounts are insured up to
applicable limits by the FDIC under the Deposit Insurance Fund (DIF). Under its charter, Hudson
City Savings is subject to extensive regulation, examination and supervision by the OTS as its
chartering agency, and by the FDIC as the deposit insurer. Hudson City Bancorp is a unitary
savings and loan holding company regulated, examined and supervised by the OTS. Each of Hudson
City Bancorp and Hudson City Savings must file reports with the OTS concerning its activities and
financial condition, and must obtain regulatory approval from the OTS prior to entering into
certain transactions, such as mergers with, or acquisitions of, other depository institutions. The
OTS will conduct periodic examinations to assess Hudson City Bancorps and Hudson City Savings
compliance with various regulatory requirements. The OTS has primary enforcement responsibility
over federally chartered savings banks and has substantial discretion to impose enforcement action
on an institution that fails to comply with applicable regulatory requirements, particularly with
respect to its capital requirements. In addition, the FDIC has the authority to recommend to the
Director of the OTS that enforcement action be taken with respect to a particular federally
chartered savings bank and, if action is not taken by the Director, the FDIC has authority to take
such action under certain circumstances.
This regulation and supervision establishes a comprehensive framework of activities in which a
federal savings bank can engage and is intended primarily for the protection of the DIF and
depositors. The regulatory structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes. Any change in such laws and regulations (including laws
concerning taxes, banking, securities, accounting and insurance), whether by the OTS, the FDIC or
through legislation, could have a material adverse impact on Hudson City Bancorp and Hudson City
Savings and their operations and shareholders.
Federally Chartered Savings Bank Regulation
Activity Powers.
Hudson City Savings derives its lending, investment and other activity powers
primarily from the Home Owners Loan Act, as amended, commonly referred to as HOLA, and the
regulations of the OTS thereunder. Under these laws and regulations, federal savings banks,
including Hudson City Savings, generally may invest in real estate mortgages, consumer and
commercial loans, certain types of debt securities and certain other assets.
Hudson City Savings may also establish service corporations that may engage in activities not
otherwise permissible for Hudson City Savings, including certain real estate equity investments and
securities and insurance brokerage activities. These investment powers are subject to various
limitations, including (1) a prohibition against the acquisition of any corporate debt security
that is not rated in one of the four highest rating categories, (2) a limit of 400% of an
associations capital on the aggregate amount of loans secured by non-residential real estate
property, (3) a limit of 20% of an associations assets on commercial loans, with the amount of
commercial loans in excess of 10% of assets being limited to small business loans, (4) a limit of
35% of an associations assets on the aggregate amount of consumer loans and acquisitions of
certain debt securities, (5) a limit of 5% of assets on non-conforming loans (loans in excess of
the specific limitations of HOLA), and
34
(6) a limit of the greater of 5% of assets or an associations capital on certain construction
loans made for the purpose of financing what is or is expected to become residential property.
Capital Requirements.
The OTS capital regulations require federally chartered savings banks to
meet three minimum capital ratios: a 1.5% tangible capital ratio, a 4% (3% if the savings bank
received the highest rating on its most recent examination) leverage (core capital) ratio and an 8%
total risk-based capital ratio. In assessing an institutions capital adequacy, the OTS takes into
consideration not only these numeric factors but also qualitative factors as well, and has the
authority to establish higher capital requirements for individual institutions where necessary.
Hudson City Savings, as a matter of prudent management, targets as its goal the maintenance of
capital ratios which exceed these minimum requirements and that are consistent with Hudson City
Savings risk profile.
Generally, under the Agencies existing risk-based and leverage capital rules, banks, bank holding
companies and savings associations (collectively, banking organizations) are required to deduct
certain assets from Tier 1 capital, and though a banking organization is permitted to net any
associated deferred tax liability against some of such assets prior to making the deduction from
Tier 1 capital, such netting generally is not permitted for goodwill and other intangible assets
arising from a taxable business combination. In these cases, the full or gross carrying amount of
the asset is deducted. However, banking organizations may reduce the amount of goodwill arising
from a taxable business combination that they may deduct from Tier 1 capital by the amount of any
deferred tax liability associated with that goodwill. We have no deferred tax liabilities
associated with goodwill and, as a result, the full amount of our goodwill is deducted from Tier 1
capital.
For banking organizations that elect to apply this rule, the amount of goodwill deducted from
Tier 1 capital would reflect the maximum exposure to loss in the event that the entire amount of
goodwill is impaired or derecognized for financial reporting purposes. A banking organization that
reduces the amount of goodwill deducted from Tier 1 capital by the amount of the deferred tax
liability is not permitted to net this deferred tax liability against deferred tax assets when
determining regulatory capital limitations on deferred tax assets.
At December 31, 2009, Hudson City Savings exceeded each of its capital requirements as shown
in the following table:
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OTS Requirements
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Minimum Capital
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For Classification as
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Bank Actual
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Adequacy
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Well-Capitalized
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Amount
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Ratio
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Amount
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Ratio
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Amount
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Ratio
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(Dollars in thousands)
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December 31, 2009
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Tangible capital
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$
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4,539,630
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7.59
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%
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$
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897,374
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1.50
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%
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n/a
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n/a
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Leverage (core)
capital
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4,539,630
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7.59
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2,392,955
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4.00
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$
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2,991,245
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5.00
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%
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Total-risk-based
capital
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4,679,843
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21.02
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1,781,277
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8.00
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2,226,597
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10.00
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December 31, 2008
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Tangible capital
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$
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4,290,316
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7.99
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%
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$
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805,475
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1.50
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%
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n/a
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n/a
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Leverage (core)
capital
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4,290,316
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7.99
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2,147,935
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4.00
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$
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2,684,918
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5.00
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%
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Total-risk-based
capital
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4,340,315
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21.52
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1,613,657
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8.00
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2,017,071
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10.00
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Interest Rate Risk.
The OTS monitors the IRR of individual institutions through the OTS
requirements for IRR management, the ability of the OTS to impose individual minimum capital
requirements on institutions that exhibit a high degree of IRR, and the requirements of Thrift
Bulletin 13a, which provides guidance on the management of IRR and the responsibility of boards of
directors in that area.
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The OTS continues to monitor the IRR of individual institutions through analysis of the change in
net portfolio value, or NPV. NPV is defined as the net present value of the expected future cash
flows of an entitys assets and liabilities and, therefore, hypothetically represents the value of
an institutions net worth. The OTS has also used this NPV analysis as part of its evaluation of
certain applications or notices submitted by thrift institutions. The OTS, through its general
oversight of the safety and soundness of savings associations, retains the right to impose minimum
capital requirements on individual institutions to the extent the institution is not in compliance
with certain written guidelines established by the OTS regarding NPV analysis. The OTS has not
imposed any such additional minimum capital requirements on Hudson City Savings.
In January 2010, the Agencies released an Advisory on Interest Rate Risk Management (the IRR
Advisory) to remind institutions of the supervisory expectations regarding sound practices for
managing IRR. While some degree of IRR is inherent in the business of banking, the Agencies expect
institutions to have sound risk management practices in place to measure, monitor and control IRR
exposures, and IRR management should be an integral component of an institutions risk management
infrastructure. The Agencies expect all institutions to manage their IRR exposures using processes
and systems commensurate with their earnings and capital levels, complexity, business model, risk
profile and scope of operations, and the IRR Advisory reiterates the importance of effective
corporate governance, policies and procedures, risk measuring and monitoring systems, stress
testing, and internal controls related to the IRR exposures of institutions.
The IRR Advisory encourages institutions to use a variety of techniques to measure IRR exposure,
including simple maturity gap analysis, income measurement and valuation measurement for assessing
the impact of changes in market rates, as well as simulation modeling to measure IRR exposure.
Institutions are encouraged to use the full complement of analytical capabilities of their IRR
simulation models. The IRR Advisory also reminds institutions that stress testing, which includes
both scenario and sensitivity analysis, is an integral component of IRR management. The IRR
Advisory indicates that institutions should regularly assess IRR exposures beyond typical industry
conventions, including changes in rates of greater magnitude (e.g., up and down 300 and 400 basis
points, as compared to up and down 200 basis points, which has been the general practice) across
different tenors to reflect changing slopes and twists of the yield curve.
The IRR Advisory emphasizes that effective IRR management not only involves the identification and
measurement of IRR, but also provides for appropriate actions to control this risk. The adequacy
and effectiveness of an institutions IRR management process and the level of its IRR exposure are
critical factors in the Agencies evaluation of an institutions sensitivity to changes in interest
rates and capital adequacy.
Safety and Soundness Standards.
Pursuant to the requirements of the Federal Deposit Insurance
Corporation Improvement Act (FDICIA), as amended by the Riegle Community Development and
Regulatory Improvement Act of 1994, each federal banking agency, including the OTS, has adopted
guidelines establishing general standards relating to internal controls, information and internal
audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, earnings and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee, director, or
principal shareholder.
In addition, the OTS adopted regulations to require a savings bank that is given notice by the OTS
that it is not satisfying any of such safety and soundness standards to submit a compliance plan to
the OTS. If, after being so notified, a savings bank fails to submit an acceptable compliance plan
or fails in any material respect to implement an accepted compliance plan, the OTS may issue an
order directing corrective and other actions of the types to which a significantly undercapitalized
institution is subject under the prompt corrective action provisions of FDICIA. If a savings
bank fails to comply with such an order, the OTS may seek to enforce such an order in judicial
proceedings and to impose civil monetary penalties.
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Prompt Corrective Action.
FDICIA also established a system of prompt corrective action to resolve
the problems of undercapitalized institutions. Under this system, the bank regulators are required
to take certain, and authorized to take other, supervisory actions against undercapitalized
institutions, based upon five categories of capitalization which FDICIA created: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a banks capital decreases within the three
undercapitalized categories. All banks are prohibited from paying dividends or other capital
distributions or paying management fees to any controlling person if, following such distribution,
the bank would be undercapitalized. The OTS is required to monitor closely the condition of an
undercapitalized bank and to restrict the growth of its assets.
An undercapitalized bank is required to file a capital restoration plan within 45 days of the date
the bank receives notices that it is within any of the three undercapitalized categories, and the
plan must be guaranteed by every parent holding company. The aggregate liability of a parent
holding company is limited to the lesser of:
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an amount equal to five percent of the banks total assets at the time it became
undercapitalized; and
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2.
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the amount that is necessary (or would have been necessary) to bring the bank
into compliance with all capital standards applicable with respect to such bank as of
the time it fails to comply with the plan.
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If a bank fails to submit an acceptable plan, it is treated as if it were significantly
undercapitalized. Banks that are significantly or critically undercapitalized are subject to a
wider range of regulatory requirements and restrictions. Under the OTS regulations, generally, a
federally chartered savings bank is treated as well capitalized if its total risk-based capital
ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater, and its leverage
ratio is 5% or greater, and it is not subject to any order or directive by the OTS to meet a
specific capital level. As of December 31, 2009, Hudson City Savings was considered well
capitalized by the OTS.
Insurance Activities.
Hudson City Savings is generally permitted to engage in certain activities
through its subsidiaries. However, the federal banking agencies have adopted regulations
prohibiting depository institutions from conditioning the extension of credit to individuals upon
either the purchase of an insurance product or annuity or an agreement by the consumer not to
purchase an insurance product or annuity from an entity that is not affiliated with the depository
institution. The regulations also require prior disclosure of this prohibition to potential
insurance product or annuity customers.
Deposit Insurance.
The FDIC merged the BIF and the Savings Association Insurance Fund to form the
DIF on March 31, 2006. Hudson City Savings is a member of the DIF and pays its deposit insurance
assessments to the DIF.
Under the Deposit Insurance Funds Act of 1996 (Funds Act), the assessment base for the payments
on the bonds (FICO bonds) issued in the late 1980s by the Financing Corporation to recapitalize
the now defunct Federal Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF-insured institutions, such as Hudson City Savings. Our total
expense for the assessment for the FICO payments was $2.1 million in 2009.
Under the Federal Deposit Insurance Act, as amended (FDIA), the FDIC may terminate the insurance
of an institutions deposits upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The management of Hudson
City Savings does not know of any practice, condition or violation that might lead to termination
of deposit insurance.
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As a result of the recent failures of a number of banks and thrifts, there has been a significant
increase in the loss provisions of the DIF of the FDIC. This has resulted in a decline in the DIF
reserve ratio. Because the DIF reserve ratio declined below 1.15% the FDIC was required to
establish a restoration plan to restore the reserve ratio to 1.15% within five years. In order to
restore the reserve ratio to 1.15%, the FDIC increased risk-based assessment rates uniformly by 7
basis points (annualized) during the first quarter of 2009. Thereafter, the FDIC further increased
the initial base assessment rates, beginning with the second quarter of 2009, depending on an
institutions risk category, with adjustments resulting in increased assessment rates for
institutions with a significant reliance on secured liabilities and brokered deposits. In
addition, the FDIC extended the period of the restoration plan from five to seven years due to
extraordinary circumstances. In May of 2009 the FDIC imposed a five basis point special assessment
on each insured depository institutions assets minus Tier 1 capital as of June 30, 2009. The
special assessment was $21.1 million for Hudson City and was collected on September 30, 2009.
On September 29, 2009, the FDIC adopted an amendment to the restoration plan that increases the
deposit insurance assessment rate schedule uniformly across all four risk categories by three basis
points (annualized) of insured deposits beginning January 1, 2011. In addition, on November 17,
2009 the FDIC adopted a final rule which required insured depository institutions to prepay their
estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011
and 2012. The prepaid assessment for these periods was collected on December 30, 2009 and our
prepaid assessment was $162.5 million which was recorded as a prepaid expense.
For 2009, Hudson City Savings had an assessment rate of approximately 18.25 basis points resulting
in a deposit insurance assessment of $33.0 million. The deposit insurance assessment rates are in
addition to the FICO payments. The FDIC also established 1.25% of estimated insured deposits as
the designated reserve ratio of the DIF. Total expense for 2009, including the FICO assessment,
was $35.1 million (excluding the special assessment).
On October 3, 2008, the FDIC announced a temporary increase in the standard maximum deposit
insurance amount from $100,000 to $250,000 per depositor through December 31, 2009, in response to
the financial crises affecting the banking system and financial markets. On May 20, 2009,
President Obama signed the Helping Families Save Their Homes Act of 2009, which, among other
provisions, extended the expiration date of the temporary increase in the standard maximum deposit
insurance amount from December 31, 2009 to December 31, 2013. To reflect Congresss extension, on
September 17, 2009, the FDIC adopted a final rule extending the increase in deposit insurance from
$100,000 to $250,000 per depositor through December 31, 2013.
Temporary Liquidity Guarantee Program
.
On November 21, 2008, the FDIC adopted the Temporary
Liquidity Guarantee Program (TLGP) pursuant to its authority to prevent systematic risk in the
U.S banking system. Under the TLGP the FDIC will fully insure non-interest bearing transaction
deposit accounts held at participating FDIC-insured institutions (Transaction Account Guarantee
Program). The Transaction Account Guarantee Program was to expire on December 31, 2009; however,
on August 26, 2009, the FDIC extended the Transaction Account Guarantee Program for six months
until June 30, 2010. Each institution that participates in the extended Transaction Account
Guarantee Program will be subject to increased fees during the extension period. However, all
participating institutions were given an opportunity to opt out of the extended program.
In addition, under the TLGP, the FDIC will guarantee, through the earlier of maturity or December
31, 2012, certain newly issued senior unsecured debt issued by participating institutions on or
after October 14, 2008, and before October 31, 2009 (Debt Guarantee Program). While the Debt
Guarantee Program concluded on October 31, 2009, the FDIC has established a limited emergency
guarantee facility, for debt issued on or before April 30, 2010, that will be available on an
application basis to TLGP participants that are unable to issue non-guaranteed debt to replace
maturing senior unsecured debt because of market disruptions or other circumstances beyond their
control.
38
We do not participate in either the Transaction Account Guarantee or the Debt Guarantee Program.
Transactions with Affiliates of Hudson City Savings.
Hudson City Savings is subject to the
affiliate and insider transaction rules set forth in Sections 23A, 23B, 22(g) and 22(h) of the
Federal Reserve Act (FRA), Regulation W issued by the FRB, as well as additional limitations as
adopted by the Director of the OTS. OTS regulations regarding transactions with affiliates conform
to Regulation W. These provisions, among other things, prohibit or limit a savings bank from
extending credit to, or entering into certain transactions with, its affiliates (which for Hudson
City Savings would include Hudson City Bancorp) and principal shareholders, directors and executive
officers.
In addition, the OTS regulations include additional restrictions on savings banks under Section 11
of HOLA, including provisions prohibiting a savings bank from making a loan to an affiliate that is
engaged in non-bank holding company activities and provisions prohibiting a savings association
from purchasing or investing in securities issued by an affiliate that is not a subsidiary. OTS
regulations also include certain specific exemptions from these prohibitions. The FRB and the OTS
require each depository institution that is subject to Sections 23A and 23B of the FRA to implement
policies and procedures to ensure compliance with Regulation W and the OTS regulations regarding
transactions with affiliates.
Section 402 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) prohibits the extension of
personal loans to directors and executive officers of issuers (as defined in Sarbanes-Oxley).
The prohibition, however, does not apply to mortgages advanced by an insured depository
institution, such as Hudson City Savings, that are subject to the insider lending restrictions of
Section 22(h) of the FRA.
Privacy Standards.
Hudson City Savings is subject to OTS regulations implementing the privacy
protection provisions of the Gramm-Leach-Bliley Act (Gramm-Leach). These regulations require
Hudson City Savings to disclose its privacy policy, including identifying with whom it shares
non-public personal information, to customers at the time of establishing the customer
relationship and annually thereafter.
The regulations also require Hudson City Savings to provide its customers with initial and annual
notices that accurately reflect its privacy policies and practices. In addition, Hudson City
Savings is required to provide its customers with the ability to opt-out of having Hudson City
Savings share their non-public personal information with unaffiliated third parties before they can
disclose such information, subject to certain exceptions.
Hudson City Savings is subject to regulatory guidelines establishing standards for safeguarding
customer information. These regulations implement certain provisions of Gramm-Leach. The
guidelines describe the Agencies expectations for the creation, implementation and maintenance of
an information security program, which would include administrative, technical and physical
safeguards appropriate to the size and complexity of the institution and the nature and scope of
its activities. The standards set forth in the guidelines are intended to ensure the security and
confidentiality of customer records and information, protect against any anticipated threats or
hazards to the security or integrity of such records and protect against unauthorized access to or
use of such records or information that could result in substantial harm or inconvenience to any
customer.
Community Reinvestment Act.
Under the Community Reinvestment Act (CRA), as implemented by OTS
regulations, any federally chartered savings bank, including Hudson City Savings, has a continuing
and affirmative obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions nor does it limit an
institutions discretion to develop the types of products and services that it believes are best
suited to its particular community. The CRA requires the OTS, in connection with its examination
of a federally chartered savings bank, to assess the depository institutions record of meeting the
credit needs of its community and to take such record into account in its evaluation of certain
applications by such institution.
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Current CRA regulations rate an institution based on its actual performance in meeting community
needs. In particular, the evaluation system focuses on three tests:
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a lending test, to evaluate the institutions record of making loans in its
service areas;
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an investment test, to evaluate the institutions record of investing in community
development projects, affordable housing, and programs benefiting low or moderate
income individuals and businesses; and
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a service test, to evaluate the institutions delivery of services through its
branches, ATMs and other offices.
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The CRA also requires all institutions to make public disclosure of their CRA ratings. Hudson City
Savings has received a satisfactory rating in its most recent CRA examination. The Agencies
adopted regulations implementing the requirement under Gramm-Leach that insured depository
institutions publicly disclose certain agreements that are in fulfillment of the CRA. Hudson City
Savings has no such agreements in place at this time.
Loans to One Borrower.
Under HOLA, savings banks are generally subject to the national bank limits
on loans to one borrower. Generally, savings banks may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of the institutions unimpaired capital and
unimpaired surplus. Additional amounts may be loaned, not in excess of 10% of unimpaired capital
and unimpaired surplus, if such loans or extensions of credit are secured by readily-marketable
collateral. Hudson City Savings is in compliance with applicable loans to one borrower
limitations. At December 31, 2009, Hudson City Savings largest aggregate amount of loans to one
borrower totaled $8.1 million. All of the loans for the largest borrower were performing in
accordance with their terms and the borrower had no affiliation with Hudson City Savings.
Interagency Guidance on Nontraditional Mortgage Product Risks.
On October 4, 2006, the OTS and
other federal bank regulatory authorities published the Interagency Guidance on Nontraditional
Mortgage Product Risks, or the Guidance. The Guidance describes sound practices for managing risk,
as well as marketing, originating and servicing nontraditional mortgage products, which include,
among other things, interest only loans. The Guidance sets forth supervisory expectations with
respect to loan terms and underwriting standards, portfolio and risk management practices and
consumer protection. For example, the Guidance indicates that originating interest only loans with
reduced documentation is considered a layering of risk and that institutions are expected to
demonstrate mitigating factors to support their underwriting decision and the borrowers repayment
capacity.
On June 29, 2007, the OTS and other federal bank regulatory agencies issued a final Statement on
Subprime Mortgage Lending (the Statement) to address the growing concerns facing the sub-prime
mortgage market, particularly with respect to rapidly rising sub-prime default rates that may
indicate borrowers do not have the ability to repay adjustable-rate sub-prime loans originated by
financial institutions. In particular, the Agencies express concern in the Statement that current
underwriting practices do not take into account that many subprime borrowers are not prepared for
payment shock and that the current subprime lending practices compound risk for financial
institutions. The Statement describes the prudent safety and soundness and consumer protection
standards that financial institutions should follow to ensure borrowers obtain loans that they can
afford to repay. The Statement also reinforces the April 17, 2007 Interagency Statement on Working
with Mortgage Borrowers, in which the federal bank regulatory agencies encouraged institutions to
work constructively with residential borrowers who are financially unable or reasonably expected to
be unable to meet their contractual payment obligations on their home loans.
Currently, we originate both interest-only and interest-only limited documentation loans. We also
purchase interest-only loans. We do not originate or purchase sub-prime loans, negative
amortization loans or option ARM loans. During 2009, originations of interest-only loans totaled
$1.32 billion, of which all were one-to-four family loans. At December 31, 2009, our mortgage loan
portfolio included $4.59 billion of interest-only loans, all of which were one- to four-family
loans. See Residential Mortgage Lending.
40
We have evaluated the Guidance and the Statement to determine our compliance and, as necessary,
modified our risk management practices, underwriting guidelines and consumer protection standards.
The Guidance does not apply to all mortgage lenders with whom we compete for loans. We do not
believe the Guidance will have a material adverse impact on our loan origination volumes in future
periods.
Guidance on Commercial Real Estate Lending.
In late 2006, the OTS adopted guidance entitled
Concentrations in Commercial Real Estate (CRE) Lending, Sound Risk Management Practices, or the
CRE Guidance, to address concentrations of commercial real estate loans in savings associations.
The CRE Guidance reinforces and enhances the OTSs existing regulations and guidelines for real
estate lending and loan portfolio management, but does not establish specific commercial real
estate lending limits. Rather, the CRE Guidance seeks to promote sound risk management practices
that will enable savings associations to continue to pursue commercial real estate lending in a
safe and sound manner. The CRE Guidance applies to savings associations with an accumulation of
credit concentration exposures and asks that the associations quantify the additional risk such
exposures may pose. We do not have a concentration in commercial real estate and, although we
added a commercial real estate lending platform as a result of the Acquisition, commercial real
estate loans have not become a material component of our loan portfolio or resulted in a
concentration.
On October 30, 2009, the Agencies adopted a policy statement supporting CRE loan workouts, or the
CRE Policy Statement. The CRE Policy Statement provides guidance for examiners, and for financial
institutions that are working with CRE borrowers who are experiencing diminished operating cash
flows, depreciated collateral values, or prolonged delays in selling or renting commercial
properties. The CRE Policy Statement details risk-management practices for loan workouts that
support prudent and pragmatic credit and business decision-making within the framework of financial
accuracy, transparency, and timely loss recognition. Financial institutions that implement prudent
loan workout arrangements after performing comprehensive reviews of borrowers financial conditions
will not be subject to criticism for engaging in these efforts, even if the restructured loans have
weaknesses that result in adverse credit classifications. In addition, performing loans, including
those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will
not be subject to adverse classification solely because the value of the underlying collateral
declined. The CRE Policy Statement reiterates existing guidance that examiners are expected to
take a balanced approach in assessing institutions risk-management practices for loan workout
activities.
Qualified Thrift Lender (QTL) Test.
The HOLA requires federal savings banks to meet a QTL test.
Under the QTL test, a savings bank is required to maintain at least 65% of its portfolio assets
(total assets less (1) specified liquid assets up to 20% of total assets, (2) intangibles,
including goodwill, and (3) the value of property used to conduct business) in certain qualified
thrift investments (primarily residential mortgages and related investments, including certain
mortgage-backed securities, credit card loans, student loans, and small business loans) on a
monthly basis during at least 9 out of every 12 months. As of December 31, 2009, Hudson City
Savings held 90.3% of its portfolio assets in qualified thrift investments and had more than 75% of
its portfolio assets in qualified thrift investments for each of the 12 months ending December 31,
2009. Therefore, Hudson City Savings qualified under the QTL test.
A savings bank that fails the QTL test and does not convert to a bank charter generally will be
prohibited from: (1) engaging in any new activity not permissible for a national bank, (2) paying
dividends not permissible under national bank regulations, and (3) establishing any new branch
office in a location not permissible for a national bank in the institutions home state. In
addition, if the institution does not requalify under the QTL test within three years after failing
the test, the institution would be prohibited from engaging in any activity not permissible for a
national bank.
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Limitation on Capital Distributions.
The OTS regulations impose limitations upon certain
capital distributions by federal savings banks, such as certain cash dividends, payments to
repurchase or otherwise acquire its shares, payments to shareholders of another institution in a
cash out merger and other distributions charged against capital.
The OTS regulates all capital distributions by Hudson City Savings directly or indirectly to Hudson
City Bancorp, including dividend payments. As the subsidiary of a savings and loan holding
company, Hudson City Savings currently must file a notice with the OTS at least 30 days prior to
each capital distribution. However, if the total amount of all capital distributions (including
each proposed capital distribution) for the applicable calendar year exceeds net income for that
year to date plus the retained net income for the preceding two years, then Hudson City Savings
must file an application to receive the approval of the OTS for a proposed capital distribution.
Hudson City Savings may not pay dividends to Hudson City Bancorp if, after paying those dividends,
it would fail to meet the required minimum levels under risk-based capital guidelines and the
minimum leverage and tangible capital ratio requirements, or the OTS notifies Hudson City Savings
Bank that it is in need of more than normal supervision. Under the FDIA, an insured depository
institution such as Hudson City Savings is prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution would become
undercapitalized (as such term is used in the FDIA). Payment of dividends by Hudson City Savings
also may be restricted at any time at the discretion of the appropriate regulator if it deems the
payment to constitute an unsafe and unsound banking practice.
In addition, Hudson City Savings may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause shareholders equity to be reduced below
the amounts required for the liquidation account which was established as a result of Hudson City
Savings conversion to a stock holding company structure.
Liquidity.
Hudson City Savings maintains sufficient liquidity to ensure its safe and sound
operation, in accordance with OTS regulations.
Assessments.
OTS charges assessments to recover the cost of examining federal savings banks and
their affiliates. These assessments are based on three components: the size of the institution on
which the basic assessment is based; the institutions supervisory condition, which results in an
additional assessment based on a percentage of the basic assessment for any savings institution
with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and the
complexity of the institutions operations, which results in an additional assessment based on a
percentage of the basic assessment for any savings institution that managed over $1.00 billion in
trust assets, serviced for others loans aggregating more than $1.00 billion, or had certain
off-balance sheet assets aggregating more than $1.00 billion. Hudson City Savings paid an
assessment of $5.5 million in 2009 based on the size of the Bank.
Branching.
The OTS regulations authorize federally chartered savings banks to branch nationwide to
the extent allowed by federal statute. This permits federal savings and loan associations to more
easily diversify their loan portfolios and lines of business geographically. OTS authority
preempts any state law purporting to regulate branching by federal savings associations.
Anti-Money Laundering and Customer Identification
Hudson City Savings is subject to OTS regulations implementing the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or
the USA PATRIOT Act. The USA PATRIOT Act gives the federal government powers to address terrorist
threats through enhanced domestic security measures, expanded surveillance powers, increased
information sharing, and broadened anti-money laundering requirements. By way of amendments to the
Bank Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to encourage information
sharing among bank regulatory
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agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative
obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers,
credit unions, money transfer agents and parties registered under the Commodity Exchange Act.
Title III of the USA PATRIOT Act and the related OTS regulations impose the following requirements
on financial institutions:
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Establishment of anti-money laundering programs.
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Establishment of a program specifying procedures for obtaining identifying
information from customers seeking to open new accounts, including verifying the
identity of customers within a reasonable period of time.
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Establishment of enhanced due diligence policies, procedures and controls
designed to detect and report money-laundering.
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Prohibitions on correspondent accounts for foreign shell banks and compliance
with record keeping obligations with respect to correspondent accounts of foreign
banks.
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Bank regulators are directed to consider a holding companys effectiveness in
combating money laundering when ruling on Federal Reserve Act and Bank Merger Act
applications.
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Federal Home Loan Bank System
Hudson City Savings is a member of the Federal Home Loan Bank system, which consists of twelve
regional Federal Home Loan Banks, each subject to supervision and regulation by the Federal Housing
Finance Board, or FHFB. The Federal Home Loan Bank provides a central credit facility primarily
for member thrift institutions as well as other entities involved in home mortgage lending. It is
funded primarily from proceeds derived from the sale of consolidated obligations of Federal Home
Loan Banks. It makes loans to members (i.e., advances) in accordance with policies and procedures,
including collateral requirements, established by the respective boards of directors of the Federal
Home Loan Banks. These policies and procedures are subject to the regulation and oversight of the
FHFB. All long-term advances are required to provide funds for residential home financing. The
FHFB has also established standards of community or investment service that members must meet to
maintain access to such long-term advances.
Hudson City Savings, as a member of the FHLB, is currently required to acquire and hold shares of
FHLB Class B stock. The Class B stock has a par value of $100 per share and is redeemable upon
five years notice, subject to certain conditions. The Class B stock has two subclasses, one for
membership stock purchase requirements and the other for activity-based stock purchase
requirements. The minimum stock investment requirement in the FHLB Class B stock is the sum of the
membership stock purchase requirement, determined on an annual basis at the end of each calendar
year, and the activity-based stock purchase requirement, determined on a daily basis. For Hudson
City Savings, the membership stock purchase requirement is 0.2% of the Mortgage-Related Assets, as
defined by the FHLB, which consists principally of residential mortgage loans and mortgage-backed
securities, including CMOs and REMICs, held by Hudson City Savings. The activity-based stock
purchase requirement for Hudson City Savings is equal to the sum of: (1) 4.5% of outstanding
borrowings from the FHLB; (2) 4.5% of the outstanding principal balance of Acquired Member Assets,
as defined by the FHLB, and delivery commitments for Acquired Member Assets; (3) a specified dollar
amount related to certain off-balance sheet items, which for Hudson City Savings is zero; and (4) a
specified percentage ranging from 0 to 5% of the carrying value on the FHLBs balance sheet of
derivative contracts between the FHLB and its members, which for Hudson City Savings is also zero.
The FHLB can adjust the specified percentages and dollar amount from time to time within the ranges
established by the FHLB capital plan. At December 31, 2009, the amount of FHLB stock held by us
satisfies the requirements of the FHLB capital plan.
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Federal Reserve System
FRB regulations require federally chartered savings banks to maintain non-interest-earning cash
reserves against their transaction accounts (primarily NOW and demand deposit accounts). A reserve
of 3% is to be maintained against net transaction accounts between $10.7 million and $55.2 million
(subject to adjustment by the FRB) plus a reserve of 10% (subject to adjustment by the FRB between
8% and 14%) against that portion of total transaction accounts in excess of $55.2 million. The
first $10.7 million of otherwise reservable balances (subject to adjustment by the FRB) is exempt
from the reserve requirements. Hudson City Savings is in compliance with the foregoing
requirements. Because required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account as defined by the
FRB, the effect of this reserve requirement is to reduce Hudson City Savings interest-earning
assets. Federal Home Loan Bank system members are also authorized to borrow from the Federal
Reserve discount window, but FRB regulations require institutions to exhaust all Federal Home
Loan Bank sources before borrowing from a Federal Reserve Bank.
Pursuant to the Emergency Economic Stabilization Act of 2008 (EESA), the FRB announced on October
6, 2008, that the Federal Reserve Banks will begin to pay interest on depository institutions
required and excess reserve balances. Paying interest on required reserve balances should
essentially eliminate the opportunity cost of holding required reserves, promoting efficiency in
the banking sector. The interest rate paid on required reserve balances is currently the average
target federal funds rate over the reserve maintenance period. The rate on excess balances will be
set equal to the lowest Federal Open Market Committee of the FRB (FOMC) target rate in effect
during the reserve maintenance period. The payment of interest on excess reserves will permit the
Federal Reserve to expand its balance sheet as necessary to provide the liquidity necessary to
support financial stability.
Federal Holding Company Regulation
Hudson City Bancorp is a unitary savings and loan holding company within the meaning of HOLA. As
such, Hudson City Bancorp is registered with the OTS and is subject to OTS regulation, examination,
supervision and reporting requirements. In addition, the OTS has enforcement authority over Hudson
City Bancorp and its savings bank subsidiary. Among other things, this authority permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to the subsidiary
savings bank.
Restrictions Applicable to New Savings and Loan Holding Companies.
Gramm-Leach also restricts the
powers of new unitary savings and loan holding companies. Under Gramm-Leach, all unitary savings
and loan holding companies formed after May 4, 1999, such as Hudson City Bancorp, are limited to
financially related activities permissible for bank holding companies, as defined under
Gramm-Leach. Accordingly, Hudson City Bancorps activities are restricted to:
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furnishing or performing management services for the savings institution
subsidiary of such holding company;
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conducting an insurance agency or escrow business;
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holding, managing, or liquidating assets owned or acquired from the savings
institution subsidiary of such holding company;
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holding or managing properties used or occupied by the savings institution
subsidiary of such holding company;
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acting as trustee under a deed of trust;
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any other activity (i) that the FRB, by regulation, has determined to be
permissible for bank holding companies under Section 4(c) of the Bank Holding
Company Act of 1956 (the BHC Act), unless the Director of the OTS, by regulation,
prohibits or limits any such activity for savings and loan holding companies, or
(ii) which multiple savings and loan holding companies were authorized by regulation
to directly engage in on March 5, 1987;
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purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such holding company is
approved by the Director of the OTS; and
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any activity permissible for financial holding companies under section 4(k) of
the BHC Act.
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Activities permissible for financial holding companies under section 4(k) of the BHC Act include:
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lending, exchanging, transferring, investing for others, or safeguarding money or
securities;
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insurance activities or providing and issuing annuities, and acting as principal,
agent, or broker;
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financial, investment, or economic advisory services;
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issuing or selling instruments representing interests in pools of assets that a
bank is permitted to hold directly;
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underwriting, dealing in, or making a market in securities;
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activities previously determined by the FRB to be closely related to banking;
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activities that bank holding companies are permitted to engage in outside of the
U.S.; and
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portfolio investments made by an insurance company.
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In addition, Hudson City Bancorp cannot be acquired or acquire a company unless the acquirer or
target, as applicable, is engaged solely in financial activities.
Restrictions Applicable to All Savings and Loan Holding Companies.
Federal law prohibits a savings
and loan holding company, including Hudson City Bancorp, directly or indirectly, from acquiring:
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control (as defined under HOLA) of another savings institution (or a holding
company parent) without prior OTS approval;
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through merger, consolidation, or purchase of assets, another savings institution
or a holding company thereof, or acquiring all or substantially all of the assets of
such institution (or a holding company) without prior OTS approval; or
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control of any depository institution not insured by the FDIC (except through a
merger with and into the holding companys savings institution subsidiary that is
approved by the OTS).
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A savings and loan holding company may not acquire as a separate subsidiary an insured institution
that has a principal office outside of the state where the principal office of its subsidiary
institution is located, except:
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in the case of certain emergency acquisitions approved by the FDIC;
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if such holding company controls a savings institution subsidiary that operated a
home or branch office in such additional state as of March 5, 1987; or
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if the laws of the state in which the savings institution to be acquired is
located specifically authorize a savings institution chartered by that state to be
acquired by a savings institution chartered by the state where the acquiring savings
institution or savings and loan holding company is located or by a holding company
that controls such a state chartered association.
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If the savings institution subsidiary of a savings and loan holding company (SLHC) fails to meet
the QTL test set forth in Section 10(m) of HOLA and regulations of the OTS, the holding company
must register with the FRB as a bank holding company under the BHC Act within one year of the
savings institutions failure to so qualify.
The HOLA prohibits a savings and loan holding company (directly or indirectly, or through one or
more subsidiaries) from acquiring another savings association or holding company thereof without
prior written approval of the OTS; acquiring or retaining, with certain exceptions, more than 5% of
a non-subsidiary savings association, a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by HOLA; or acquiring or retaining control of a
depository institution that is not federally insured. In evaluating applications by holding
companies to acquire savings associations, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the community and
competitive factors.
In general, a SLHC, with the prior approval of the OTS, may engage in all activities that bank
holding companies may engage in under any regulation that the FRB has promulgated under Section
4(c) of the BHC Act. Current regulations limit such authority to those activities that the FRB
has, by regulation, determined to be permissible under Section 4(c)(8) of the BHC Act, as noted
above. Prior approval from the OTS is not required, however, if: (1) the SLHC received a rating of
satisfactory or above prior to January 1, 2008, or a composite rating of 1 or 2 thereafter, in
its most recent examination, and its not in troubled condition, and the holding company does not
propose to commence the activity by an acquisition of a going concern, or (2) the activity is
otherwise permissible under another provision of HOLA, for which prior notice to or approval from
the OTS is not required.
In addition, a SLHC is precluded from acquiring more than 5% of a non-subsidiary thrift unless the
SLHC receives prior approval from the OTS. No savings and loan holding company may, directly or
indirectly, or through one or more subsidiaries or through one or more transactions, acquire
control of an uninsured institution or retain, for more than one year after the date any savings
association subsidiary becomes uninsured, control of such association.
Federal Securities Law
Hudson City Bancorps securities are registered with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended. As such, Hudson City Bancorp is subject to the
information, proxy solicitation, insider trading, and other requirements and restrictions of the
Securities Exchange Act of 1934.
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Delaware Corporation Law
Hudson City Bancorp is incorporated under the laws of the State of Delaware, and is therefore
subject to regulation by the State of Delaware. In addition, the rights of Hudson City Bancorps
shareholders are governed by the Delaware General Corporation Law.
TAXATION
Federal
General.
The following discussion is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to Hudson City Savings or Hudson City
Bancorp. For federal income tax purposes, Hudson City Bancorp reports its income on the basis of a
taxable year ending December 31, using the accrual method of accounting, and is generally subject
to federal income taxation in the same manner as other corporations. Hudson City Savings and
Hudson City Bancorp constitute an affiliated group of corporations and are therefore eligible to
report their income on a consolidated basis. Hudson City Savings is not currently under audit by
the Internal Revenue Service and has not been audited by the Internal Revenue Service during the
past five years.
Distributions.
To the extent that Hudson City Savings makes non-dividend distributions to
Shareholders, such distributions will be considered to result in distributions from Hudson City
Savings unrecaptured tax bad debt reserve base year reserve, i.e., its reserve as of December
31, 1987, to the extent thereof and then from its supplemental reserve for losses on loans, and an
amount based on the amount distributed will be included in Hudson City Savings taxable income.
Non-dividend distributions include distributions in excess of Hudson City Savings current and
accumulated earnings and profits, distributions in redemption of stock and distributions in partial
or complete liquidation. However, dividends paid out of Hudson City Savings current or
accumulated earnings and profits, as calculated for federal income tax purposes, will not
constitute non-dividend distributions and, therefore, will not be included in Hudson City Savings
income.
The amount of additional taxable income created from a non-dividend distribution is equal to the
lesser of Hudson City Savings base year reserve and supplemental reserve for losses on loans or an
amount that, when reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, in certain situations, approximately one and one-half times the non-dividend
distribution would be included in gross income for federal income tax purposes, assuming a 35%
federal corporate income tax rate. Hudson City Savings does not intend to pay dividends that would
result in the recapture of any portion of its bad debt reserve.
Corporate Alternative Minimum Tax.
In addition to the regular corporate income tax,
corporations generally are subject to an alternative minimum tax, or AMT, in an amount equal to 20%
of alternative minimum taxable income, to the extent the AMT exceeds the corporations regular
income tax. The AMT is available as a credit against future regular income tax. We do not expect to
be subject to the AMT.
Elimination of Dividends; Dividends Received Deduction.
Hudson City Bancorp may exclude from
its income 100% of dividends received from Hudson City Savings because Hudson City Savings is a
member of the affiliated group of corporations of which Hudson City Bancorp is the parent.
State
New Jersey State Taxation.
Hudson City Savings files New Jersey Corporate Business income tax
returns. Generally, the income of savings institutions in New Jersey, which is calculated based on
federal taxable income, subject to certain adjustments, is subject to New Jersey tax at a rate of
9.00%. Savings institutions must also calculate, as part of their corporate tax return, an
Alternative Minimum Assessment (AMA), which for Hudson City Savings is based on New Jersey gross
receipts. Hudson City Savings must calculate its corporate business tax and the AMA, then pay the
higher amount. In future years, if the corporate business tax is greater
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than the AMA paid in prior years, Hudson City Savings may apply the prepaid AMA against its
corporate business taxes (up to 50% of the corporate business tax, subject to certain limitations).
Hudson City Savings is not currently under audit with respect to its New Jersey income tax returns
and Hudson City Savings state tax returns have not been audited for the past five years.
Hudson City Bancorp is required to file a New Jersey income tax return and will generally be
subject to a state income tax at a 9.00% rate. However, if Hudson City Bancorp meets certain
requirements, it may be eligible to elect to be taxed as a New Jersey Investment Company, which
would allow it to be taxed at a rate of 3.60%. Further, investment companies are not subject to
the AMA. If Hudson City Bancorp does not qualify as an investment company, it would be subject to
taxation at the higher of the 9.00% corporate business rate on taxable income or the AMA.
Delaware State Taxation.
As a Delaware holding company not earning income in Delaware, Hudson
City Bancorp is exempt from Delaware corporate income tax but is required to file annual returns
and pay annual fees and a franchise tax to the State of Delaware.
New York State Taxation.
New York State imposes an annual franchise tax on banking corporations,
based on net income allocable to New York State, at a rate of 7.1%. If, however, the application
of an alternative minimum tax (based on taxable assets allocated to New York, alternative net
income, or a flat minimum fee) results in a greater tax, an alternative minimum tax will be
imposed. In addition, New York State imposes a tax surcharge of 17.0% of the New York State
Franchise Tax, calculated using an annual franchise tax rate of 9.00% (which represents the 2000
annual franchise tax rate), allocable to business activities carried on in the Metropolitan
Commuter Transportation District. These taxes apply to Hudson City Savings.
Connecticut State Taxation.
Connecticut imposes an income tax based on net income allocable to the
State of Connecticut, at a rate of 7.5%.
New York City Taxation.
Hudson City Savings is also subject to the New York City Financial
Corporation Tax calculated, subject to a New York City income and expense allocation, on a similar
basis as the New York State Franchise Tax. A significant portion of Hudson City Savings entire
net income is derived from outside the New York City jurisdiction which has the effect of
significantly reducing the New York City taxable income of Hudson City Savings.
Item 1A. Risk Factors
The Geographic Concentration Of Our Loan Portfolio And Lending Activities Makes Us
Vulnerable To A Downturn In The Economy.
Originating loans secured by residential real estate is
our primary business. Our financial results may be adversely affected by changes in prevailing
economic conditions, either nationally or in our local New Jersey and metropolitan New York market
areas, including decreases in real estate values, adverse employment conditions, the monetary and
fiscal policies of the federal and state government and other significant external events. As a
result of our lending practices, we have a concentration of loans secured by real property located
primarily in New Jersey, New York and Connecticut. At December 31, 2009, approximately 73.8% of
our total loans are in the New York metropolitan area.
Financial institutions continue to be affected by the sharp declines in the real estate market that
occurred over the last three years as well as the effects of the recent recessionary economy. Declines in
real estate values, home sales volumes and financial stress on borrowers as a result of the
uncertain economic environment, including job losses, have had and
may continue to have an adverse effect on our borrowers
or their customers, which could adversely affect our financial condition and results of operations.
In addition, decreases in real estate values have adversely affected the value of property used as
collateral for our loans and result in higher loss experience on our non-performing
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loans. Adverse changes in the economy, particularly in employment conditions, may also have a
negative effect on the ability of our borrowers to make timely repayments of their loans, which
would have an adverse impact on our earnings. If poor economic conditions result in decreased
demand for real estate loans, our profits may decrease because our investment alternatives may earn
less income for us than real estate loans.
We continued to see increases in loan delinquencies and charge-offs in 2009. Non-performing loans, defined as
non-accruing loans and accruing loans delinquent 90 days or more, amounted to $627.7 million at
December 31, 2009 and $217.6 million at December 31, 2008. The ratio of non-performing loans to
total loans was 1.98% at December 31, 2009 compared with 0.74% at December 31, 2008. The provision
for loan losses amounted to $137.5 million at December 31, 2009 as compared to $19.5 million at
December 31, 2008. Net charge-offs amounted to $47.2 million for 2009 as compared to net
charge-offs of $4.4 million for 2008. Further deterioration in local economic conditions in our
markets could drive losses beyond that which is provided for in our allowance for loan losses and
result in the following other consequences: loan delinquencies, problem assets and foreclosures may
increase; demand for our products and services may decline; deposits may decrease, which would
adversely impact our liquidity position; and collateral for our loans, especially real estate, may
decline in value, in turn reducing customers borrowing power, and reducing the value of assets and
collateral associated with our existing loans which may result in increased levels of loan loss
provisions.
Proposed tax on liabilities could adversely affect our financial
condition.
On January 14, 2010, President Obama announced his proposal to Congress for a Financial Crisis Responsibility Fee that would require
financial firms to repay the projected cost of the Troubled Asset Relief Program (TARP). The
proposed fee, which would go into effect on June 30, 2010, would apply to banks, thrifts, bank
holding companies, thrift holding companies and insurance or other companies that own insured
depository institutions, in each case with more than $50 billion in consolidated assets. The
proposed fee would equal approximately 15 basis points (0.15%) of covered liabilities per year.
Covered liabilities are equal to assets minus Tier 1 capital minus FDIC assessed deposits (and/or
insurance policy reserves, as appropriate). The fee would remain in place for ten years, and is
expected to raise $90 billion over the next ten years, but would remain in force longer if all costs
of the TARP have not been recovered at that time. After the first five years, the United States
Treasury Department (the Treasury), would report on the effectiveness of the fee.
The fee would be
collected by the Internal Revenue Service. The outcome of final legislation by Congress on this proposal cannot be determined at this time.
If the fee is adopted as proposed by President Obama,
Hudson City would be assessed a fee of approximately $46.4 million for 2010.
The potential adoption of significant aspects of proposed regulatory reform legislation may have a
material effect on our operations.
On December 11, 2009, the House of Representatives passed H.R.
4173, the Wall Street Reform and Consumer Protection Act of 2009, or the Reform Bill. The Reform
Bill is intended to address perceived weaknesses in the U.S. financial regulatory system and
prevent future economic and financial crises. The Reform Bill, among other things, creates three
new governmental agencies: the Financial Services Oversight Council, the Federal Insurance Office
and the Consumer Financial Protection Agency, or the CFPA. The CFPA will have the authority to
implement and enforce a variety of existing consumer protection statutes and to issue new
regulations. In addition, the Reform Bill amends the HOLA to abolish the OTS and transfer its
functions and personnel to a newly created Division of Thrift Supervision within the OCC. The
Reform Bill preserves the thrift charter for thrifts, such as Hudson City Savings. Most
significantly for us, the Reform Bill contains provisions which would result in thrift holding
companies, such as Hudson City Bancorp, becoming bank holding companies subject to consolidated
capital requirements, BHC Act limitations and supervision by the FRB. Similar legislation is being
currently considered by the Senates Banking Committee. The Senates proposed legislation,
however, contemplates elimination of the federal thrift charter with federal thrifts being
regulated by a proposed new federal banking agency. In addition, although the Reform Bill purports
to broaden federal preemption of state consumer protection laws the current Senate version
virtually eliminates federal preemption of state consumer protection laws.
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The exact requirements and timing of any final legislation cannot be determined at this time. If
the more significant provisions of the Reform Bill or the Senates proposed legislation become
final, our operations could be significantly affected.
The impact on us of recently enacted and proposed legislation and government programs to stabilize
the financial markets cannot be predicted at this time.
During 2008 and 2009, there was
unprecedented government intervention in response to the financial crises affecting the banking
system and financial markets, including:
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The enactment of the Emergency Economic Stabilization Act of 2008, or EESA, in October
2008, which gave the Treasury the authority to, among other things, purchase up to $700
billion of troubled assets from financial institutions;
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The announcements shortly thereafter by the Treasury, the FDIC and the FRB,
respectively, of (i) the Capital Purchase Program, or CPP, a $250 billion voluntary capital
purchase program under which qualifying financial institutions were given the ability to
sell preferred shares to the Treasury, (ii) the TLGP and (iii) further details of the
Commercial Paper Funding Facility, or CPFF, which provides a broad backstop for the
commercial paper market;
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The announcement by the Treasury in February 2009 of the Capital Assistance Program, or
CAP, under which qualifying financial institutions were provided access to contingent
common equity provided by the U.S. government as a bridge to private capital in the future;
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The announcement by the federal banking regulators of the Supervisory Capital Assessment
Program, under which the federal banking regulators measured how much of an additional
capital buffer, if any, each of the 19 largest U.S. bank holding companies would need to
establish to ensure that it would have sufficient capital to comfortably exceed minimum
regulatory requirements at December 31, 2010, as a result of which many of the nineteen
institutions underwent capital raising or restructuring transactions to improve their
capital base; and
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The announcement by the Treasury in March 2009, in conjunction with the FDIC and the
FRB, of the Public-Private Investment Program, or PPIP, which consists of two discrete
components: (1) the Legacy Loan Program, which was designed to facilitate the sale of
commercial and residential whole loans and other assets currently held by U.S. banks, and
(2) the Legacy Securities Program, which was designed to facilitate the sale of legacy
residential mortgage backed securities and commercial mortgage backed securities initially
rated AAA and currently held by Financial Institutions (as defined under the EESA).
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We currently do not participate in the TLGP and we did not participate in the CPP, the CPFF or the
CAP, and we do not expect to participate in either PPIP program.
Although it appears that there has been some stabilization of the U.S. financial markets as a
result of the foregoing programs and other actions taken by the U.S. government, there can be no
assurance as to the actual impact that such programs or any other governmental program will have on
the financial markets and the economy in the future. The financial market and economic conditions
that existed during 2008 and 2009 have had, and to the extent that such conditions continue or
worsen, will continue to have, an adverse effect on our financial condition and results of
operations and could also materially and adversely affect our business, access to credit or the
trading price of our common stock. In addition, we expect to face increased regulation and
supervision of our industry as a result of the financial crisis in the banking and financial
markets, and, to the extent that we participate in any of the programs established or to be
established by the Treasury or by the federal bank regulatory agencies, there will be additional
requirements and conditions imposed on us. Such
additional regulation and supervision may increase our costs and limit our ability to pursue
business opportunities.
50
The FDICs restoration plan and the related increased assessment rate schedule may have a further
material effect on our results of operations.
In February 2009, the FDIC adopted a final rule
which set the initial base assessment rates beginning April 1, 2009 and provided for the following
adjustments to an institutions assessment rate: (1) a decrease for long-term unsecured debt,
including most senior and subordinated debt, specifically, an institutions base assessment rate
will be reduced from the initial rate using the institutions ratio of long-term unsecured debt to
domestic deposits, though any such decrease will be limited to 5 basis points; (2) an increase for
secured liabilities above a threshold amount, specifically, if an institutions ratio of secured
liabilities to domestic deposits is greater than 25 percent, the institutions assessment rate will
increase, but the resulting base assessment rate will be no more than 50 percent greater than it
was before the adjustment; and (3) for non-Risk Category I institutions, an increase for brokered
deposits above a threshold amount, specifically, if an institution has a ratio of brokered deposits
to domestic deposits that is greater than 10 percent, the institutions assessment rate will be
increased, though never by more than 10 basis points. Our federal deposit insurance premiums
totaled $35.1 million for the year ended December 31, 2009, compared to $4.3 million for the year
ended December 31, 2008.
The FDIC also adopted a final rule in May 2009 imposing a five basis point special assessment on
each insured depository institutions assets minus Tier 1 capital as of June 30, 2009, which was
collected on September 30, 2009. Our FDIC special assessment totaled $21.1 million for the year
ended December 31, 2009.
On September 29, 2009, the FDIC adopted an amendment to the restoration plan that increases the
deposit insurance assessment rate uniformly across all four risk categories by three basis points
(annualized) of insured deposits beginning January 1, 2011. In addition, on November 17, 2009, the
FDIC adopted a final rule which required insured depository institutions to prepay their quarterly
deposit insurance assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012 on
December 30, 2009, together with their regular deposit insurance assessment for the third quarter
of 2009. Our payment on December 30, 2009 totaled $162.5 million.
There is no guarantee that the higher premiums, special assessment and assessment prepayment
described above will be sufficient for the DIF to meet its funding requirements, which may
necessitate further special assessments or increases in deposit insurance premiums. Any such
future assessments or increases could have a further material impact on our results of operations.
Changes in interest rates could adversely affect our results of operations and financial condition.
Our earnings may be adversely impacted by an increase in interest rates because the majority of
our interest-earning assets are long-term, fixed-rate mortgage-related assets that will not reprice
as long-term interest rates increase. In contrast, a majority of our interest-bearing liabilities
are expected to reprice as interest rates increase. At December 31, 2009, 69.03% of our loans with
contractual maturities of greater than one year had fixed rates of
interest, and 99.62% of our
total loans had contractual maturities of five or more years. Overall, at December 31, 2009,
98.6% of our total interest-earning assets had contractual maturities of more than five years.
Conversely, our interest-bearing liabilities generally have much shorter contractual maturities. A
portion of our deposits as of December 31, 2009, including $7.13 billion in interest-bearing demand
accounts and money market accounts, have no contractual maturities and are likely to reprice
quickly as short-term interest rates increase. As of December 31, 2009, 81.4% of our time deposits
will mature within one year. In the past we funded our asset growth using callable borrowings.
If we experience a rising interest rate environment where interest rates increase above the
interest rate for the borrowings, these borrowings will likely be called at their next call date
and our cost to replace these borrowings would likely increase. As of December 31, 2009, 74.23% of
our borrowed funds may be called by the lenders within one year. Therefore, in a significantly
increasing rate environment, our cost of funds is expected to increase more rapidly than the yields
earned on our
51
loan portfolio and securities portfolio. An increasing rate environment is expected to cause a
narrowing of our net interest rate spread and a decrease in our earnings.
The Federal Open Market Committee of the Board of Governors of the Federal Reserve System (the
FOMC) noted that economic activity has continued to improve during the fourth quarter of 2009.
The FOMC also noted that the housing sector has shown signs of improvement. However, the national
unemployment rate increased to 10.0% in December 2009 as compared to 9.8% in September 2009 and
7.4% in December 2008. Lower household wealth and tight credit conditions in addition to the
increase in the national unemployment rate has resulted in the FOMC maintaining the overnight
lending rate at zero to 0.25% during 2009. As a result, short-term market
interest rates have remained at low levels during 2009. This allowed us to
continue to re-price our short-term deposits thereby reducing our cost of funds. While longer-term
market interest rates increased during 2009, rates on mortgage-related assets declined slightly,
although to a lesser extent than the decline in our cost of funds. As a result, our net interest
rate spread and net interest margin increased for 2009 as compared to 2008.
We expect the operating environment to remain very challenging as the Federal Reserve Board
continues to focus their efforts on the economy. Interest rates will continue to fluctuate, and we
cannot predict future Federal Reserve Board actions or other factors that will cause rates to
change.
If the yield curve were to flatten, the spread between our cost of funds and the interest received
on our loan and securities portfolios would shrink. The yield curve would begin to flatten in the
event that long term interest rates declined or if short term market interest rates were to begin
to increase through the actions of the FOMC without a corresponding increase in long term rates.
In the case of an inverted yield curve, the cost of funds would be higher than the earnings
generated from these portfolios. As a result of the decreased spread from a flat or inverted yield
curve, our net interest income would decrease.
Also impacting our net interest income and net interest rate spread is the level of prepayment
activity on our mortgage-related assets. Mortgage prepayment rates will vary due to a number of
factors, including the regional economy where the mortgage loan or the underlying mortgages of the
mortgage-backed security were originated, seasonal factors and demographic variables. However, the
major factors affecting prepayment rates are the prevailing market 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 market interest rate. In a rising interest rate environment,
prepayment rates tend to decrease and, therefore, the yield earned on our existing mortgage-related
assets will remain constant instead of increasing. This would adversely affect our net interest
margin and, therefore, our net interest income.
We monitor interest rate risk sensitivity through analysis of the change in net interest income and
net portfolio value, or NPV. NPV is defined as the net present value of the expected future cash
flows of an entitys assets and liabilities. The Board of Directors of Hudson City Savings has
adopted an interest rate risk policy that defines the permissible range for the change in NPV under
certain interest rate shock scenarios. NPV is analyzed using a model that estimates changes in NPV
and net interest income in response to a range of assumed changes in market interest rates. The
OTS uses a similar model to monitor interest rate risk of all OTS-regulated institutions. If the
OTS, using its model, were to determine that our IRR is significantly higher than our internal
estimates indicate, the OTS may seek to have us operate at higher regulatory capital ratios than we
anticipate under our current growth strategy. Should that occur, we may not be able to continue
our historical pace of stock repurchases and our anticipated future growth could be limited. We
expect the OTS will continue to closely monitor the interest rate risk of Hudson City Savings.
Because we compete primarily on the basis of the interest rates we offer depositors and the terms
of loans we offer borrowers, our margins could decrease if we were required to increase deposit
rates or lower interest rates on loans in response to competitive pressures.
We face intense
competition
52
both in making loans and attracting deposits. The New Jersey and metropolitan New York market
areas have a high concentration of financial institutions, many of which are branches of large
money-center and regional banks. National competitors have significantly greater resources than we
do and may offer services that we do not provide such as trust and investment services. Customers
who seek one stop shopping may be drawn to these institutions.
We compete primarily on the basis of the rates we pay on deposits and the rates and other terms we
charge on the mortgage loans we originate or purchase, as well as the quality of our customer
service. Our competition for loans comes principally from mortgage banking firms, commercial
banks, savings institutions, credit unions, finance companies, insurance companies and brokerage
and investment banking firms operating locally and elsewhere. In addition, we purchase a
significant volume of mortgage loans in the wholesale markets, and our competition in these markets
also includes many other types of institutional investors located throughout the country. Price
competition for loans might result in us originating fewer loans or earning less on our loans.
During 2009, the Federal Reserve continued to purchase securities issued by Fannie Mae or Freddie
Mac to provide these government-sponsored enterprises with a source of liquidity and thereby reduce
the interest rates they offer on mortgage loans. While the intent of these actions was to
stimulate the housing market, it also resulted in additional price competition for mortgage loans
which are our primary lending product.
Our most direct competition for deposits comes from commercial banks, savings banks, savings and
loan associations and credit unions. There are large money-center and regional financial
institutions operating throughout our market area, and we also face strong competition from other
community-based financial institutions.
We may not be able to successfully implement our plans for growth.
Since our initial public offering in 1999, we have experienced rapid and significant
growth. Our assets have grown from $8.52 billion at December 31, 1999 to $60.27 billion at
December 31, 2009. We acquired a significant amount of capital from the second-step conversion,
which we have used to continue implementing our growth strategy of building our core banking
business by originating and purchasing mortgage loans and funding this growth with customer
deposits and borrowings.
We also plan to continue with our de novo branching strategy and will consider expansion
opportunities through the acquisition of branches and other financial institutions. There can be
no assurance, however, that we will continue to experience such rapid growth, or any growth, in the
future. Significant changes in interest rates or the competition we face may make it difficult to
attract the level of customer deposits needed to fund our internal growth at projected levels. In
addition, we may have difficulty finding suitable sites for de novo branches. Our expansion plans
may result in our opening branches in geographic markets in which we have no previous experience,
and, therefore, our ability to grow effectively in those markets will be dependent on our ability
to identify and retain management personnel familiar with the new markets. Furthermore, any future
acquisitions of branches or of other financial institutions would present many challenges
associated with integrating merged institutions and expanding operations. There can be no
assurance that we will be able to adequately and profitably implement our possible future growth,
particularly in the current economic environment, or that we will not have to incur additional expenditures
beyond current projections to support such growth.
We operate in a highly regulated industry, which limits the manner and scope of our business
activities.
We are subject to extensive supervision, regulation and examination by the OTS and by
the FDIC. As a result, we are limited in the manner in which we conduct our business, undertake new
investments and activities and obtain financing. This regulatory structure is designed primarily
for the protection of the deposit insurance funds and our depositors, and not to benefit our
shareholders. This regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination policies, including
policies with respect to capital levels, the timing and amount of dividend payments, the
classification of assets and the establishment of adequate loan loss reserves for regulatory
53
purposes. In addition, we must comply with significant anti-money laundering and anti-terrorism
laws. Government agencies have substantial discretion to impose significant monetary penalties on
institutions which fail to comply with these laws.
We expect to face increased regulation and supervision of our industry as a result of the existing
financial crisis, and there will be additional requirements and conditions imposed on us to the
extent that we participate in any of the programs established or to be established by the Treasury
under the EESA or by the Agencies. Such additional regulation and supervision may increase our
costs and limit our ability to pursue business opportunities.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
During 2009, we conducted our business through our two owned executive office buildings located in
Paramus, New Jersey, our leased operations center located in Glen Rock, New Jersey, and 131 branch
offices. At December 31, 2009, we owned 36 of our locations and leased the remaining 95. Our
lease arrangements are typically long-term arrangements with third parties that generally contain
several options to renew at the expiration date of the lease.
For additional information regarding our lease obligations, see Note 7 of Notes to Consolidated
Financial Statements in Item 8 Financial Statements and Supplementary Data.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter ended December 31, 2009 to a vote of security holders of
Hudson City Bancorp through the solicitation of proxies or otherwise
.
54
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Hudson City Bancorp common stock is traded on the Nasdaq Global Select Market under the
symbol HCBK. The table below shows the reported high and low sales prices of the common stock
during the periods indicated.
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Sales Price
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Dividend Information
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Amount
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High
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Low
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Per Share
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Date of Payment
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2008
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First quarter
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18.65
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13.28
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0.090
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March 1, 2008
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Second quarter
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19.78
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16.07
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0.110
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May 31, 2008
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Third quarter
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25.05
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15.55
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0.120
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August 29, 2008
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Fourth quarter
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19.41
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14.00
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0.130
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November 29, 2008
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2009
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First quarter
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15.89
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7.46
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0.140
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February 28, 2009
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Second quarter
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13.75
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11.22
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0.150
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May 30, 2009
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Third quarter
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14.77
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12.29
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0.150
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August 29, 2009
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Fourth quarter
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13.88
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12.65
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0.150
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November 27, 2009
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On January 19, 2010, the Board of Directors of Hudson City Bancorp declared a quarterly cash
dividend of $0.15 per common share outstanding that is payable on March 2, 2010 to shareholders
of record as of the close of business on February 5, 2010. The Board of Directors intends to
review the payment of dividends quarterly and plans to continue to maintain a regular quarterly
dividend in the future, dependent upon our earnings, financial condition and other relevant
factors.
As the principal asset of Hudson City Bancorp, Hudson City Savings provides the principal source of
funds for the payment of dividends by Hudson City Bancorp. Hudson City Savings is subject to
certain restrictions that may limit its ability to pay dividends. See Item 1 Business -
Regulation of Hudson City Savings Bank and Hudson City Bancorp Federally Chartered Savings Bank
Regulation Limitation on Capital Distributions.
As of February 19, 2010, there were approximately 29,370 holders of record of Hudson City Bancorp
common stock.
55
The following table reports information regarding repurchases of our common stock during the fourth
quarter of 2009 under the stock repurchase plans approved by our Board of Directors.
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Maximum
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Total Number of
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Number of Shares
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Total
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Shares Purchased
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that May Yet Be
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Number of
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Average
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as Part of Publicly
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Purchased Under
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Shares
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Price Paid
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Announced Plans
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the Plans or
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Period
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Purchased
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per Share
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or Programs
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Programs (1)
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October 1-October 31, 2009
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$
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50,123,550
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November 1-November 30, 2009
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50,123,550
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December 1-December 31, 2009
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50,123,550
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Total
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(1)
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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.
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Item 6. Selected Financial Data
The Selected Consolidated Financial Information section of the Companys Annual Report to
Shareholders is incorporated herein by reference.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The Managements Discussion and Analysis of Financial Condition and Results of Operations
section of the Companys Annual Report to Shareholders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Managements Discussion and Analysis of Financial Condition and Results of Operations
section of the Companys Annual Report to Shareholders, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements identified in Item 15(a)(1) hereof are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure 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 (the Exchange Act)) as of December 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 is recorded, processed, summarized and
56
reported as and when required and that such information is accumulated and communicated to our
management as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the
fourth quarter of 2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting and we identified no material weaknesses
requiring corrective action with respect to those controls.
Management Report on Internal Control Over Financial Reporting
The management of Hudson City Bancorp is responsible for establishing and maintaining adequate
internal control over financial reporting. Hudson Citys internal control system is a process
designed to provide reasonable assurance to the Companys management and board of directors
regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of assets; provide reasonable assurances that transactions are recorded as necessary
to permit preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of Hudson City; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of Hudson
Citys assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Hudson Citys management assessed the effectiveness of the companys internal control over
financial reporting as of December 31, 2009. In making this assessment, we used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal
Control-Integrated Framework
. Based on our assessment we believe that, as of December 31, 2009,
the Companys internal control over financial reporting is effective based on those criteria.
Hudson Citys independent registered public accounting firm that audited the consolidated financial
statements has issued an audit report on the effectiveness of the Companys internal control over
financial reporting as of December 31, 2009 incorporated herein by reference to the Companys
Annual Report to Shareholders.
Item 9B. Other Information
None.
57
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding directors, executive officers and the corporate governance of the
Company is presented under the headings Proposal 1 Election of Directors -General, -Who Our
Directors Are, -Nominees for Election as Directors, -Continuing Directors, -Executive
Officers, -Section 16(a) Beneficial Ownership Reporting Compliance, and Corporate Governance
in the Companys definitive Proxy Statement for the 2010 Annual Meeting of Shareholders to be held
on April 21, 2010 and is incorporated herein by reference.
Audit Committee Financial Expert
Information regarding the audit committee of the Companys Board of Directors, including
information regarding the audit committee financial expert serving on the audit committee, is
presented under the heading Corporate Governance Meetings of the Board of Directors and its
Committees in the Companys definitive Proxy Statement for the 2010 Annual Meeting of Shareholders
to be held on April 21, 2010 and is incorporated herein by reference.
Code of Ethics
We have adopted a written code of ethics that applies to our principal executive officer and senior
financial officers, which is available on our website at
www.hcbk.com
, and will be provided free of
charge by contacting Susan Munhall, Investor Relations, at (201) 967-8290.
Item 11. Executive Compensation
Information regarding executive compensation is presented under the headings Compensation
Discussion and Analysis Key Elements of the Compensation Package, -Material Policies and
Procedures, -Compensation of Executive Officers and Directors- Executive Officer Compensation,
-Director Compensation, Corporate Governance Compensation Committee Interlocks and Insider
Participation and -Compensation Committee Report in the Companys definitive Proxy Statement for
the 2010 Annual Meeting of Shareholders to be held on April 21, 2010 and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information regarding security ownership of certain beneficial owners and management is
presented under the heading Security Ownership of Certain Beneficial Owners and Management in the
Companys definitive Proxy Statement for the 2010 Annual Meeting of Shareholders to be held on
April 21, 2010 and is incorporated herein by reference. Information regarding equity compensation
plans is presented under the heading Compensation of Executive Officers and Directors
Compensation Plans in the Companys definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders to be held on April 21, 2010 and incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence is
presented under the heading Certain Transactions with Members of our Board of Directors and
Executive Officers and
Corporate Governance in the Companys definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders to be held on April 21, 2010 and is incorporated herein by reference.
58
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services is presented under the heading
Proposal 3 Ratification of Appointment of Independent Registered Public Accounting Firm in
Hudson City Bancorps definitive Proxy Statement for the 2010 Annual Meeting of Shareholders to be
held on April 21, 2010 and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
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(a)
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List of Documents Filed as Part of this Annual Report on Form 10-K
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(1)
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The following consolidated financial statements are in Item 8 of
this annual report:
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Reports of Independent Registered Public Accounting Firm
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Consolidated Statements of Financial Condition as of December 31, 2009 and 2008
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Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007
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Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2009, 2008 and 2007
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Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
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Notes to Consolidated Financial Statements
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(2)
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Financial Statement Schedules have been omitted because they are
not applicable or the required information is shown in the Consolidated Financial
Statements or Notes.
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(b)
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Exhibits Required by Item 601 of Regulation S-K
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EXHIBIT
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DESCRIPTION
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2.1
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Amended and Restated Plan of Conversion and Reorganization of Hudson City, MHC, Hudson City
Bancorp, Inc. and Hudson City Savings Bank (1)
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2.2
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Agreement and Plan of Merger by and between Hudson City Bancorp, Inc. and Sound Federal
Bancorp, Inc. (2)
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3.1
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Certificate of Incorporation of
Hudson City Bancorp, Inc. (*)
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3.2
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Amended and Restated Bylaws of Hudson City Bancorp, Inc. (4)
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4.1
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Certificate of Incorporation of Hudson City Bancorp, Inc. (See Exhibit 3.1)
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4.2
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|
Amended and Restated Bylaws of Hudson City Bancorp, Inc. (See Exhibit 3.2)
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|
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4.3
|
|
Form of Stock Certificate of Hudson City Bancorp, Inc. (3)
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10.1
|
|
Employee Stock Ownership Plan of Hudson City Savings Bank (Incorporating amendments No.
1,2,3,4,5 and 6) (13)
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|
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10.2
|
|
Profit Incentive Bonus Plan of Hudson City Savings Bank (5)
|
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10.3
|
|
Form of Amended and Restated Two-Year Change in Control Agreement by and among Hudson City
Savings Bank and Hudson City Bancorp, Inc. and certain officers (together with Schedule
pursuant to Instruction 2 of Item 601 of Regulation S-K) (14)
|
|
|
|
10.4
|
|
Severance Pay Plan of Hudson City Savings Bank (3)
|
|
|
|
10.5
|
|
Hudson City Savings Bank Outside Directors Consultation Plan (3)
|
|
|
|
10.6
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|
Hudson City Bancorp, Inc. 2000 Stock Option Plan (6)
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59
|
|
|
EXHIBIT
|
|
DESCRIPTION
|
|
10.7
|
|
Hudson City Bancorp, Inc. 2000 Recognition and Retention Plan (6)
|
|
|
|
10.8
|
|
Hudson City Bancorp, Inc. Denis J. Salamone Stock Option Plan (7)
|
|
|
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10.9
|
|
Hudson City Bancorp, Inc. 2005 Employment Inducement Stock Program with Ronald E. Butkovich (8)
|
|
|
|
10.10
|
|
Hudson City Bancorp, Inc. 2005 Employment Inducement Stock Program with Christopher Nettleton
(8)
|
|
|
|
10.11
|
|
Amended and Restated Employment Agreement between Hudson City Bancorp, Inc. and Ronald E.
Hermance, Jr. (14)
|
|
|
|
10.12
|
|
Amended and Restated Employment Agreement between Hudson City Savings Bank and Ronald E.
Hermance, Jr. (14)
|
|
|
|
10.13
|
|
Amended and Restated Employment Agreement between Hudson City Bancorp, Inc. and Denis J.
Salamone (14)
|
|
|
|
10.14
|
|
Amended and Restated Employment Agreement between Hudson City Savings Bank and Denis J.
Salamone (14)
|
|
|
|
10.15
|
|
Executive Officer Annual Incentive Plan of Hudson City Savings Bank (9)
|
|
|
|
10.16
|
|
Amended and Restated Loan Agreement by and between Employee Stock Ownership Plan Trust of
Hudson City Savings Bank and Hudson City Bancorp, Inc. (9)
|
|
|
|
10.17
|
|
Amended and Restated Promissory Note between Employee Stock Ownership Plan Trust and Hudson
City Bancorp, Inc. (9)
|
|
|
|
10.18
|
|
Amended and Restated Pledge Agreement by and between Employee Stock Ownership Plan Trust of
Hudson City Savings Bank and Hudson City Bancorp, Inc. (9)
|
|
|
|
10.19
|
|
Form of Amended and Restated Assignment between Employee Stock Ownership Plan Trust and Hudson
City Bancorp, Inc. (9)
|
|
|
|
10.20
|
|
Loan Agreement by and between Employee Stock Ownership Plan Trust of Hudson City Savings Bank
and Hudson City Bancorp, Inc. (9)
|
|
|
|
10.21
|
|
Promissory Note between Employee Stock Ownership Plan Trust and Hudson City Bancorp, Inc. (9)
|
|
|
|
10.22
|
|
Pledge Agreement by and between Employee Stock Ownership Plan Trust of Hudson City Savings Bank
and Hudson City Bancorp, Inc. (9)
|
|
|
|
10.23
|
|
Form of Assignment between Employee Stock Ownership Plan Trust and Hudson City Bancorp, Inc. (9)
|
|
|
|
10.24
|
|
Hudson City Bancorp, Inc. 2006 Stock Incentive Plan (10)
|
|
|
|
10.25
|
|
Form of Hudson City Bancorp, Inc. 2006 Stock Incentive Plan Performance Stock Option Agreement
(11)
|
|
|
|
10.26
|
|
Form of Hudson City Bancorp, Inc. 2006 Stock Incentive Plan Retention Stock Option Agreement
(11)
|
|
|
|
10.27
|
|
Form of Hudson City Bancorp, Inc. 2006 Stock Incentive Plan Director Stock Option Agreement (11)
|
|
|
|
10.28
|
|
Benefit Maintenance Plan of Hudson City Savings Bank (14)
|
|
|
|
10.29
|
|
Summary of Material Terms of Directed Charitable Contribution Program (11)
|
|
|
|
10.30
|
|
Summary of Director Compensation (11)
|
|
|
|
10.31
|
|
Directors Deferred Compensation Plan of Hudson City Bancorp, Inc. (14)
|
|
|
|
10.32
|
|
Officers Deferred Compensation Plan of Hudson City Bancorp, Inc. (14)
|
|
|
|
10.33
|
|
Form of Hudson City Bancorp, Inc.
2006 Stock Incentive Plan Performance - Based Restricted Stock Award
Notice (15)
|
|
|
|
13.1
|
|
2010 Annual Report to Shareholders*
|
|
|
|
21.1
|
|
Subsidiaries of Hudson City Bancorp, Inc.*
|
|
|
|
23.1
|
|
Consent of KPMG LLP *
|
|
|
|
31.1
|
|
Certification of Disclosure of Ronald E. Hermance, Jr.*
|
|
|
|
31.2
|
|
Certification of Disclosure of James C. Kranz*
|
|
|
|
32.1
|
|
Statement Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350*
|
|
|
|
101
|
|
The following information from the Companys Annual Report on
Form 10-K for the year ended December 31, 2009, filed with the
Securities and Exchange Commission on February 26, 2010, has been formatted in eXtensible
Business Reporting Language: (i) Consolidated Statements of
Financial Condition at December 31, 2009 and 2008, (ii)
Consolidated Statements of Income for the years ended December
31, 2009, 2008 and 2007, (iii) Consolidated Statements of
Changes in Shareholders Equity for the years ended December
31, 2009, 2008 and 2007 , (iv) Consolidated Statements of Cash
Flows for the years ended December 31, 2009, 2008 and 2007 and
(v) Notes to the Unaudited Consolidated Financial Statements
(tagged as blocks of text). (16)
|
60
|
|
|
(1)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Registration Statement No. 333-122989 on Form
S-3 filed with the Securities and Exchange Commission on February 25, 2005, as amended.
|
|
(2)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 10, 2006.
|
|
(3)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Registration Statement No. 333-74383 on Form
S-1, filed with the Securities and Exchange Commission on March 15, 1999, as amended.
|
|
(4)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007 filed with the Securities and Exchange Commission on August 8, 2007 and the Registrants Current
Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008.
|
|
(5)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 filed with the Securities and Exchange Commission on February 25, 2005.
|
|
(6)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Registration Statement No. 333-95193 on Form
S-8, filed with the Securities and Exchange Commission on January 21, 2000.
|
|
(7)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 filed with the Securities and Exchange Commission on March 28, 2002.
|
|
(8)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Registration Statement No. 333-114536 on Form
S-8, filed with the Securities and Exchange Commission on April 16, 2004.
|
|
(9)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 filed with the Securities and Exchange Commission on March 16, 2006.
|
|
(10)
|
|
Incorporated herein by reference to the Proxy Statement No. 000-26001 filed with the Securities and Exchange
Commission on April 28, 2006.
|
|
(11)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2006 filed with the Securities and Exchange Commission on March 1, 2007.
|
|
(12)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007 filed with the Securities and Exchange Commission on August 8, 2007.
|
|
(13)
|
|
Incorporated herein by reference to the Exhibits to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2007 filed with the Securities and Exchange
Commission on February 29, 2008.
|
|
(14)
|
|
Incorporated herein by reference to the Exhibits to the
Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 filed with the Securities and Exchange
Commission on February 27, 2009.
|
|
(15)
|
|
Incorporated herein by reference to the Exhibits to the
Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 filed with the Securities and Exchange
Commission on May 8, 2009.
|
|
(16)
|
|
Pursuant to the rules of the Securities and Exchange
Commission, 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.
|
|
(*)
|
|
Filed herewith.
|
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Paramus, New Jersey, on February 26, 2010.
|
|
|
|
|
|
|
Hudson City Bancorp, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Ronald E. Hermance, Jr.
Ronald E. Hermance, Jr.
|
|
/s/ James C. Kranz
James C. Kranz
|
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
(Principal Financial Officer)
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
NAME
|
|
TITLE
|
|
DATE
|
|
/s/ Ronald E. Hermance, Jr.
Ronald E. Hermance, Jr.
|
|
Director, Chairman, President and
Chief
Executive Officer
(Principal Executive Officer)
|
|
February 26, 2010
|
/s/ Denis J. Salamone
Denis J. Salamone
|
|
Director, Senior Executive Vice President and
Chief
Operating Officer
(Principal Accounting Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Michael W. Azzara
Michael W. Azzara
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William G. Bardel
William G. Bardel
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Scott A. Belair
Scott A. Belair
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Victoria H. Bruni
Victoria H. Bruni
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William J. Cosgrove
William J. Cosgrove
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Donald O. Quest
Donald O. Quest
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Joseph G. Sponholz
Joseph G. Sponholz
|
|
Director
|
|
February 26, 2010
|
62
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