SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended : JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from __________________________ to
__________________________
Commission File Number: 0-26001
HUDSON CITY BANCORP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3640393
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
West 80 Century Road
Paramus, New Jersey 07652
------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(201)967-1900
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of July 13, 1999, there were 115,638,300 shares of common stock, $0.01
par value, outstanding.
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
Contents of Report
Page No.
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements of Hudson City Savings Bank
Statements of Condition - June 30, 1999 (Unaudited) and
December 31, 1998................................................... 3
Statements of Income (Unaudited) - For the three and six months
ended June 30, 1999 and 1998........................................ 4
Statements of Cash Flows (Unaudited) - Six months ended
June 30, 1999 and 1998.............................................. 5
Notes to the Financial Statements................................... 6
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 8
Item 3. - Quantitative and Qualitative Disclosures About Market Risk......21
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings...............................................22
Item 2. - Changes in Securities and Use of Proceeds.......................23
Item 3. - Defaults Upon Senior Securities.................................23
Item 4. - Submission of Matters to a Vote of Security Holders.............23
Item 5. - Other Information...............................................23
Item 6. - Exhibits and Reports on Form 8-K................................23
SIGNATURES....................................................................24
Explanatory Note: This Form 10-Q contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
may be identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential". 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. and Hudson City Savings Bank that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include: changes in general, economic and market conditions, and
legislative and regulatory conditions, or the development of an interest rate
environment that adversely affects the Bank's interest rate spread or other
income anticipated from the Bank's operations and investments.
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
<TABLE>
<CAPTION>
HUDSON CITY SAVINGS BANK
STATEMENTS OF CONDITION
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
(In thousands)
ASSETS:
- ------
<S> <C> <C>
Cash and due from banks............................................$ 59,183 87,075
Federal funds sold................................................. 62,500 69,800
---------- ----------
Total cash and cash equivalents.............................. 121,683 156,875
Investment securities held to maturity, market value of
$1,385 at June 30, 1999 and $1,402 at December 31, 1998............ 1,379 1,393
Investment securities available for sale, at market value.......... 1,045,046 785,031
Mortgage-backed securities held to maturity, market value of
$3,122,817 at June 30, 1999 and $3,106,369 at December 31, 1998.... 3,105,597 3,070,931
Loans.............................................................. 3,847,218 3,659,407
Less:
Deferred loan fees............................................. 10,627 11,146
Allowance for loan losses...................................... 18,836 17,712
---------- ----------
Net loans ................................................... 3,817,755 3,630,549
Foreclosed real estate, net........................................ 587 1,026
Accrued interest receivable........................................ 52,492 49,041
Banking premises and equipment, net................................ 28,478 29,064
Other assets ...................................................... 37,949 28,350
---------- ----------
Total Assets $8,210,966 $7,752,260
========== ==========
LIABILITIES AND EQUITY:
- ----------------------
Deposits:
Interest-bearing.................................................$6,908,572 6,494,278
Noninterest-bearing.............................................. 319,220 313,061
---------- ---------
Total deposits ................................................ 7,227,792 6,807,339
Accrued expenses and other liabilities............................. 44,002 44,315
---------- ---------
Total liabilities ............................................. 7,271,794 6,851,654
---------- ---------
Retained earnings.................................................. 949,125 899,933
Accumulated other comprehensive (loss)income....................... (9,953) 673
---------- ---------
Total equity .................................................. 939,172 900,606
---------- ---------
Total Liabilities and Equity................................$8,210,966 $7,752,260
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Hudson City Savings Bank
Statements of Income
(Unaudited)
For the three months For the six months
ended June 30, ended June 30,
1999 1998 1999 1998
--------- -------- --------- ---------
(In thousands)
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on first mortgage loans.............. $ 67,105 $ 64,530 $133,038 $128,757
Interest and fees on consumer and other loans.......... 1,765 1,787 3,490 3,652
Interest on mortgage-backed securities................. 47,642 49,890 95,876 100,729
Interest on investment securities held to maturity:
Taxable............................................ 15 19 30 29
Exempt from federal taxes.......................... 7 9 14 24
Interest and dividends on investment securities
available for sale - taxable.......................... 13,667 13,539 27,156 25,606
Interest on federal funds sold......................... 598 556 1,263 1,317
-------- -------- -------- --------
Total interest income......................... 130,799 130,330 260,867 260,114
Interest expense on deposits................................ 74,911 78,073 149,701 154,825
-------- -------- -------- --------
Net interest income................................ 55,888 52,257 111,166 105,289
Provision for loan losses................................... 550 600 1,150 1,200
-------- -------- -------- --------
Net interest income after provision for loan losses..... 55,338 51,657 110,016 104,089
-------- -------- -------- --------
Non-interest income:
Service charges and other income................... 1,141 1,186 2,347 2,339
Gains on net securities transactions............... 1 0 1 0
-------- -------- -------- --------
Total non-interest income..................... 1,142 1,186 2,348 2,339
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits..................... 10,807 10,158 21,722 20,862
Net occupancy expense.............................. 2,930 2,843 5,876 5,582
Federal deposit insurance assessment............... 197 198 397 395
Amortization of goodwill........................... 360 402 720 805
Computer and related services...................... 319 257 606 531
Other expense...................................... 2,332 2,143 4,851 4,481
-------- -------- -------- --------
Total non-interest expense.................... 16,945 16,001 34,172 32,656
-------- -------- -------- --------
Income before income tax expense.............. 39,535 36,842 78,192 73,772
Income tax expense.......................................... 14,600 13,775 29,000 26,950
-------- -------- -------- --------
Net income.................................... $ 24,935 $ 23,067 $ 49,192 $ 46,822
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Hudson City Savings Bank
Statements of Cash Flows
(Unaudited)
For the six month period
ended
June 30,
1999 1998
---------- ---------
(In thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income........................................................ $ 49,192 $ 46,822
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, accretion and amortization expense............... 4,084 2,488
Provision for loan losses...................................... 1,150 1,200
Gains on net securities transactions.......................... (1) -
Deferred tax benefit........................................... (1,220) (1,765)
Net proceeds from foreclosed real estate....................... 1,511 1,639
Increase in accrued interest receivable........................ (3,451) (5,168)
Increase in other assets....................................... (2,586) (2,109)
(Decrease) increase in accrued expenses and other liabilities.. (313) 2,929
--------- ---------
Net Cash Provided by Operating Activities............................ 48,366 46,036
--------- --------
Cash Flows from Investing Activities:
Net increase in loans.......................................... (139,566) (69,547)
Purchases of loans............................................. (48,129) (6,753)
Principal collection of mortgage-backed securities............. 627,232 535,008
Purchases of mortgage-backed securities............. .......... (665,727) (572,612)
Proceeds from maturities and calls of investment
securities held to maturity.............................. 15 35
Purchases of investment securities held to maturity............ - (404)
Proceeds from maturities and calls of
investment securities available for sale................ 423,630 234,836
Purchases of investment securities available for sale.......... (700,350) (366,896)
Purchases of premises and equipment, net....................... (1,116) (1,940)
--------- --------
Net Cash Used in Investing Activities................................ (504,011) (248,273)
--------- --------
Cash Flows from Financing Activities:
Net increase in deposits....................................... 420,453 186,998
--------- --------
Net Cash Provided by Financing
Activities........................................................... 420,453 186,998
--------- --------
Net Decrease in Cash and Cash Equivalents............................ (35,192) (15,239)
Cash and Cash Equivalents at Beginning of Period..................... 156,875 95,674
Cash and Cash Equivalents at End of Period........................... $ 121,683 $ 80,435
========= ========
Supplemental Disclosures:
Interest paid.................................................. $ 149,414 $155,262
========= ========
Income taxes paid.............................................. $ 31,796 $ 32,442
========= ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
HUDSON CITY SAVINGS BANK
NOTES TO THE FINANCIAL STATEMENTS
1. - BASIS OF PRESENTATION
Hudson City Bancorp, Inc. ("Company") is a Delaware corporation organized
in March 1999 by Hudson City Savings Bank ("Bank") in connection with the
conversion and reorganization of the Bank from a New Jersey mutual savings bank
into a two-tiered mutual savings bank holding company structure
("Reorganization"), as described more fully in Note 2. As of June 30, 1999 the
Company had not yet issued any stock, had no assets and no liabilities and had
not conducted any business other than of an organizational nature. Accordingly,
the unaudited financial statements, notes to the financial statements and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented are for the Bank. No pro forma effect has been given to the
sale of the Company's common stock in the Reorganization.
In our opinion, all the adjustments (consisting of normal and recurring
adjustments) necessary for a fair presentation of the financial condition and
results of operations for the unaudited periods presented have beenincluded. The
results of operations and other data presented for the three and six month
periods ended June 30, 1999 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 1999. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission for the preparation of the Form 10-Q. The financial
statements presented should be read in conjunction with the Bank's audited
December 31, 1998 financial statements and notes to the financial statements
included in the Company's Prospectus dated May 14, 1999, which is a part of the
Company's Registration Statement on Form S-1, as amended (Registration No.
333-74383).
2. - PLAN OF REORGANIZATION
On February 11, 1999, the Board of Managers of the Bank adopted a Plan of
Reorganization and Stock Issuance ("Plan"), whereby the Bank converted and
reorganized from a New Jersey-chartered mutual savings bank into a two-tiered
mutual savings bank holding company structure. The transactions contemplated by
the Plan were completed on July 13, 1999. Under the terms of the Plan, the Bank
became a wholly-owned subsidiary of the Company and received 50% of the net
proceeds from the initial public offering of the Company's common stock. The
Company became a majority-owned subsidiary of Hudson City, MHC, a New
Jersey-chartered mutual savings bank holding company ("MHC").
The Company sold 54,350,000 shares of its common stock, representing 47% of
the outstanding shares of the Company, at $10.00 per share. The Company received
net proceeds of $527,335,022. The number of shares of common stock sold and the
price for such shares was determined by the Board of Managers based upon an
appraisal of the Bank made by an independent appraisal firm. An additional
61,288,300 shares, or 53% of the outstanding shares of the Company, have been
issued to the MHC. The Company's common stock commenced trading on July 13, 1999
on the Nasdaq National Market under the symbol "HCBK."
6
<PAGE>
HUDSON CITY SAVINGS BANK
NOTES TO THE FINANCIAL STATEMENTS
3. - COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on
securities available for sale.
Total comprehensive income during the periods indicated is as follows:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1999 1998 1999 1998
--------- ---------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Net income................................... $ 24,935 $23,067 $ 49,192 $ 46,822
Other comprehensive income:
Unrealized holding (loss) gain on
securities available for sale..... (6,653) 6 (10,626) (408)
-------- -------- -------- --------
Total comprehensive income................... $ 18,282 $ 23,073 $ 38,566 $ 46,414
======== ======== ======== ========
</TABLE>
7
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
At June 30, 1999, the Company had not yet issued any stock, had no assets
and no liabilities and had not conducted any business other than of an
organizational nature. Accordingly, the following discussion relates to the
financial statements of the Bank included herein. Effective upon the closing of
the reorganization of the Bank on July 13, 1999 described in Note 2 to the
unaudited financial statements, the Company owns all of the issued and
outstanding capital stock of the Bank.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998
The Bank's total assets increased $458.7 million, or 5.9%, to $8.21 billion
at June 30, 1999 from $7.75 billion at December 31, 1998. This increase is
primarily due to the receipt by the Company of approximately $303.6 million for
the purchase of common stock of the Company, in connection with the Company's
initial public offering, which funds were deposited in the Bank pending
completion of the offering. The increase also reflects our growth through
internal expansion.
Loans increased $187.8 million, or 5.1%, to $3.85 billion at June 30, 1999
from $3.66 billion at December 31, 1998. Investment securities available for
sale increased $260.0 million, or 33.1%, to $1.05 billion at June 30, 1999 from
$785.0 million at December 31, 1998. Mortgage-backed securities, which
represented 37.8% of total assets at June 30, 1999, increased $34.7 million, or
1.1%, to $3.11 billion from $3.07 billion at December 31, 1998. These increases
reflected our emphasizing the origination of one- to four-family mortgage loans
supplemented by the purchase of investment securities, mortgage-backed
securities and mortgage loans. In addition, the funds received in the initial
public offering of the Company and deposited in the Bank were primarily invested
in short term securities, which resulted in the increase in investment
securities available for sale. These increases were partially funded by a shift
from total cash and cash equivalents to these higher-yielding assets as cash and
due from banks decreased $27.9 million, or 32.0%, to $59.2 million at June 30,
1999 from $87.1 million at December 31, 1998. Federal funds sold, which is the
investment of over-night liquidity, decreased $7.3 million, or 10.5%, to $62.5
million at June 30, 1999 from $69.8 million at December 31, 1998. We believe the
decline in cash and cash equivalents did not adversely impact our overall
liquidity position at June 30, 1999.
The growth in assets was funded primarily by an increase of $420.5 million,
or 6.2%, in total deposits to $7.23 billion at June 30, 1999 from $6.81 billion
at December 31, 1998. Within the mix of deposits, interest-bearing deposits,
primarily short-term time deposits, increased $414.3 million, or 6.4%, to $6.91
billion at June 30, 1999 from $6.49 billion at December 31, 1998. Of this
increase in interest-bearing deposits, $303.6 million, or 73.3% of the increase,
is attributable to the receipt of funds in connection with the initial public
offering of the Company as discussed above. Time deposits increased $78.3
million, or 1.5%, to $5.13 billion at June 30, 1999 from $5.06 billion at
December 31, 1998. Regular savings deposits increased $32.3 million, or 3.9%, to
$865.1 million at June 30, 1999 from $832.8 million at December 31, 1998. The
growth in our interest-bearing time and savings deposit accounts also reflects
our offering of competitive interest rates on our deposit products.
8
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
Total equity increased $38.6 million, or 4.3%, to $939.2 million at June
30, 1999 from $900.6 million at December 31, 1998. This increase resulted from
net income of $49.2 million for the six months ended June 30, 1999, offset by a
decrease of $10.6 million in accumulated other comprehensive income due to a
decline in the market value of investment securities available for sale.
9
<PAGE>
HUDSON CITY BANCORP, INC.
AVERAGE BALANCE SHEET. The following tables present certain information
regarding the Bank's financial condition and net interest income for the three
and six month periods ended June 30, 1999 and 1998. The tables present the
annualized average yield on interest-earning assets and the annualized average
cost of interest-bearing liabilities. We derived the yields and costs by
dividing annualized income or expense by the average balance of
interest-earnings assets and interest-bearing liabilities, respectively, for the
periods shown. We derived average balances from daily balances over the periods
indicated. Interest income includes fees which we considered adjustments to
yields.
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIODS ENDED JUNE 30,
------------------------------------------------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
ASSETS: (Dollars in thousands)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans, net(1)................... $3,662,291 $ 67,105 7.33% $3,393,123 $ 64,530 7.61%
Consumer and other loans....................... 88,089 1,765 8.01 82,200 1,787 8.70
Federal funds sold............................. 53,401 598 4.49 40,990 556 5.44
Mortgage-backed securities..................... 3,093,812 47,642 6.16 3,011,197 49,890 6.63
Investment securities.......................... 879,829 13,689 6.22 805,440 13,567 6.74
---------- -------- ---------- --------
Total interest-earning assets................. 7,777,422 130,799 6.73 7,332,950 130,330 7.11
-------- --------
NON-INTEREST-EARNING ASSETS.......................... 162,420 170,571
---------- ---------
TOTAL ASSETS.................................. $7,939,842 $7,503,521
========== =========
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Savings accounts............................... $ 883,567 $ 5,800 2.63 $ 840,601 $ 5,829 2.78
Interest-bearing demand accounts............... 98,541 519 2.11 91,344 486 2.13
Money market accounts.......................... 504,147 3,488 2.78 498,691 3,635 2.92
Time deposits.................................. 5,155,118 65,104 5.07 4,886,648 68,123 5.59
---------- -------- ---------- --------
Total interest-bearing
liabilities................................... 6,641,373 74,911 4.53 6,317,284 78,073 4.96
---------- -------- ---------- --------
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits.................. 308,203 288,260
Other non-interest-bearing liabilities......... 55,627 54,512
---------- ----------
Total non-interest-bearing liabilities........ 363,830 342,772
---------- ----------
Total liabilities.............................. 7,005,203 6,660,056
Equity......................................... 934,639 843,465
---------- ----------
TOTAL LIABILITIES AND EQUITY.................. $7,939,842 $7,503,521
========== ==========
Net interest income/net interest rate spread(2)...... $ 55,888 2.20% $ 52,257 2.15%
======== ========
Net interest-earning assets/net interest margin(3)... $1,136,049 2.86% $1,015,666 2.84%
========== ==========
Ratio of interest-earnings assets to
interest-bearing liabilities.................. 1.17x 1.16x
</TABLE>
___________________________________________________
(1) Amount is net of deferred loan fees and allowance for loan losses and
includes non-performing loans.
(2) We determined net interest spread by subtracting the annualized weighted
average cost of average interest-bearing liabilities from the annualized
weighted average yield on average interest-earning assets.
(3) We determined net interest margin by dividing annualized net interest income
by average interest-earning assets.
10
<PAGE>
HUDSON CITY BANCORP, INC.
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIODS ENDED JUNE 30,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
ASSETS: (Dollars in thousands)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
First mortgage loans, net (1).............. $3,616,558 $133,038 7.36% $3,380,885 $128,757 7.62%
Consumer and other loans..................... 87,129 3,490 8.01 84,038 3,652 8.69
Federal funds sold........................... 56,837 1,263 4.48 49,417 1,317 5.37
Mortgage-backed securities................... 3,080,449 95,876 6.22 3,007,556 100,729 6.70
Investment securities........................ 866,177 27,200 6.28 757,107 25,659 6.78
---------- -------- ---------- --------
Total interest-earning assets............... 7,707,150 260,867 6.77 7,279,003 260,114 7.15
-------- --------
NON-INTEREST-EARNING ASSETS......................... 164,727 171,778
---------- ----------
TOTAL ASSETS................................ $7,871,877 $7,450,781
========== ==========
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Savings accounts.............................. $ 857,808 $ 11,191 2.63 $ 837,125 $ 11,543 2.78
Interest-bearing demand accounts.............. 97,800 1,025 2.11 90,903 956 2.12
Money market accounts......................... 503,190 6,927 2.78 498,333 7,226 2.92
Time deposits................................. 5,128,284 130,558 5.13 4,854,699 135,100 5.61
---------- -------- ---------- --------
Total interest-bearing
liabilities...................... 6,587,082 149,701 4.58 6,281,060 154,825 4.97
---------- -------- ---------- --------
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits................ 303,676 282,013
Other non-interest-bearing liabilities....... 56,970 55,717
---------- ----------
Total non-interest-bearing liabilities...... 360,646 337,730
---------- ----------
Total liabilities............................ 6,947,728 6,618,790
Equity....................................... 924,149 831,991
---------- ----------
TOTAL LIABILITIES AND EQUITY................ $7,871,877 $7,450,781
========== ==========
Net interest income/net interest rate spread(2)..... $111,166 2.19% $105,289 2.18%
======== ========
Net interest-earning assets/net interest margin(3).. $1,120,068 2.85% $ 997,943 2.86%
========== ==========
Ratio of interest-earnings assets to
interest-bearing liabilities................. 1.17x 1.16x
</TABLE>
____________________________________________________
(1) Amount is net of deferred loan fees and allowance for loan losses and
includes non-performing loans.
(2) We determined net interest spread by subtracting the annualized weighted
average cost of average interest-bearing liabilities from the annualized
weighted average yield on average interest-earning assets.(2) We determined net
interest spread by subtracting the annualized weighted average cost of average
interest-bearing liabilities from the annualized weighted average yield on
average interest-earning assets.
(3) We determined net interest margin by
dividing annualized net interest income by average interest-earning assets.(3)
We determined net interest margin by dividing annualized net interest income by
average interest-earning assets.
11
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1999 AND 1998
GENERAL. Net income for the quarter ended June 30, 1999 was $24.9 million,
an increase of $1.8 million, or 7.8%, compared to $23.1 million for the quarter
ended June 30, 1998. This increase was primarily attributable to a decrease in
interest expense on deposits of $3.2 million, offset in part by increases of
$0.9 million in total non-interest expense and $0.8 million in income tax
expense. Our return on average assets for the quarter ended June 30, 1999 was
1.26% compared to 1.23% for the quarter ended June 30, 1998 and our return on
average equity for the quarter ended June 30, 1999 was 10.67% compared to 10.94%
for the quarter ended June 30, 1998.
INTEREST INCOME. Total interest income remained relatively stable,
increasing $0.5 million, or 0.4%, to $130.8 million for the quarter ended June
30, 1999 compared to $130.3 million for the corresponding prior year quarter.
Interest and fees on first mortgage loans increased $2.6 million, or 4.0%, to
$67.1 million from $64.5 million for the quarters ended June 30, 1999 and 1998,
respectively. Interest on mortgage-backed securities offset this increase by
decreasing $2.3 million, or 4.6%, to $47.6 million for the quarter ended June
30, 1999 compared to $49.9 million for the corresponding quarter in the prior
year.
The average balance of total interest-earning assets increased $444.5
million, or 6.1%, to $7.78 billion for the quarter ended June 30, 1999 compared
to $7.33 billion for the corresponding quarter of the prior year. This increase
was primarily attributable to a $269.2 million, or 7.9%, increase in the average
balance of first mortgage loans, net, to $3.66 billion for the second quarter of
1999 compared to $3.39 billion for the second quarter of 1998. Also, for the
quarter ended June 30, 1999, the average balance of mortgage-backed securities
increased $82.6 million, or 2.7%, to $3.09 billion and the average balance of
investment securities increased $74.4 million, or 9.2%, to $879.8 million. These
increases reflected internal growth by primarily originating first mortgage
loans, supplemented by purchases of mortgage-backed securities and investment
securities to manage interest rate risk.
The impact on interest income due to the growth in the average balance of
total interest-earning assets was offset by a decrease in the annualized average
yield on interest-earning assets of 38 basis points to 6.73% for the quarter
ended June 30, 1999 from 7.11% for the corresponding prior year quarter. The
annualized average yield on first mortgage loans decreased 28 basis points to
7.33% from 7.61% for the quarters ended June 30, 1999 and 1998, respectively.
For mortgage-backed securities, the annualized average yield decreased 47 basis
points to 6.16% for the quarter ended June 30, 1999 from 6.63% for the
corresponding prior year period. The annualized averageyield for investment
securities decreased 52 basis points to 6.22% from 6.74% for the quarters ended
June 30, 1999 and 1998, respectively. These decreases reflect a lower overall
interest rate environment in the quarter ended June 30, 1999 when compared to
the quarter ended June 30, 1998 which continued to result in the downward
repricing of many of our interest-sensitive assets. Additionally, the yield on
first mortgage loans, net, was impacted by the refinancing of many of our
existing customers' mortgage loans to loans with lower interest rates.
INTEREST EXPENSE. Interest expense on deposits decreased $3.2 million, or
4.1%, to $74.9 million for the quarter ended June 30, 1999 compared to $78.1
million for the quarter ended June 30, 1998. Interest expense on time deposits,
which represented 86.9% of interest expense on deposits and
12
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
93.8% of the decrease for the quarter, decreased $3.0 million, or 4.4%, to $65.1
million for the quarter ended June 30, 1999 from $68.1 million for the quarter
ended June 30, 1998.
The decrease in interest expense was primarily due to a 43 basis point
decrease in the annualized average cost of total interest-bearing liabilities to
4.53% for the quarter ended June 30, 1999 compared to 4.96% for the
corresponding prior year quarter. Among the various deposit account types, the
largest decrease in the annualized average cost occurred in time deposits which
decreased 52 basis points to 5.07% from 5.59% for the quarters ended June 30,
1999 and 1998, respectively. The decrease in the annualized average cost of
interest-bearing liabilities reflects the overall lower interest rate
environment during the three months ended June 30, 1999 when compared to the
three months ended June 30, 1998. The impact of the decrease in the annualized
average of total interest-bearing liabilities was partially offset by an
increase in the average balance of such liabilities. The average balance of
total interest-bearing liabilities increased $324.1 million, or 5.1%, to $6.64
billion for the quarter ended June 30, 1999 compared to $6.32 billion for the
quarter ended June 30, 1998. Of this increase, $268.5 million, which accounts
for 82.8% of the increase, can be attributed to a 5.5% increase in the average
balance of time deposits to $5.16 billion for the quarter ended June 30, 1999
from $4.89 billion for the quarter ended June 30, 1998. The increase in the
average balance of total interest-bearing liabilities reflects our offering of
competitive rates to fund our internal growth.
NET INTEREST INCOME. Net interest income increased $3.6 million, or 6.9%,
to $55.9 million for the quarter ended June 30, 1999 compared to $52.3 million
for the quarter ended June 30, 1998 primarily due to the decrease in the
annualized average cost of deposits. Our annualized net interest spread
increased 5 basis points to 2.20% for the quarter ended June 30, 1999 compared
to 2.15% for the corresponding prior year quarter. The annualized net interest
margin remained relatively stable increasing 2 basis points to 2.86% for the
quarter ended June 30, 1999 compared to 2.84% for the quarter ended June 30,
1998.
PROVISION FOR LOAN LOSSES. Our provision for loan losses was $0.55 million
for the quarter ended June 30, 1999 compared to $0.60 million for the quarter
ended June 30, 1998. The current level of the provision for loan losses is
primarily due to the continued growth in the loan portfolio. The allowance for
loan losses at June 30, 1999 increased $1.1 million, or 6.2%, to $18.8 million
compared to $17.7 million at December 31, 1998. Non-performing loans were $13.0
million at June 30, 1999, a decrease of $2.3 million compared to $15.3 million
at December 31, 1998.
At June 30, 1999, non-performing loans to total loans were 0.34% compared
to 0.42% at December 31, 1998. The allowance for loan losses to non-performing
loans was 144.48% at June 30, 1999 compared to 115.47% at December 31, 1998,
while the allowance for loan losses to total loans was 0.49% and 0.48% at June
30, 1999 and December 31, 1998, respectively.
NON-INTEREST INCOME. Total non-interest income, consisting of service fees
and other income, decreased $0.1 million, or 8.3%, to $1.1 million for the
quarter ended June 30, 1999 compared to $1.2 million for the corresponding prior
year quarter.
13
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
NON-INTEREST EXPENSE. Total non-interest expense, consisting primarily of
salaries and employee benefits and net occupancy expense, increased $0.9
million, or 5.6%, to $16.9 million from $16.0 million for the quarters ended
June 30, 1999 and 1998, respectively. The increase in total non-interest expense
is attributable to routine increases in salaries and employee benefits and net
occupancy expense.
Our efficiency ratio for the second quarter of 1999 was 29.7% compared to
29.9% for the second quarter of 1998. Our annualized ratio of non-interest
expense to average assets was 0.85% for the quarters ended June 30, 1999 and
1998.
INCOME TAXES. Income tax expense increased $0.8 million, or 5.8%, to $14.6
million for the quarter ended June 30, 1999 compared to $13.8 million for the
quarter ended June 30, 1998. This increase is due primarily to an increase in
income before income tax expense.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
GENERAL. Net income was $49.2 million for the six months ended June 30,
1999, an increase of $2.4 million, or 5.1%, compared to $46.8 million for the
six months ended June 30, 1998. The increase was primarily attributable to a
$5.1 million decrease in interest expense on deposits, offset in part by a $1.5
million increase in total non-interest expense and a $2.0 million increase in
income tax expense. Our return on average assets for the first six months of
1999 was 1.25% compared to 1.26% for the first six months of 1998 and our return
on average equity for the first six months of 1999 was 10.65% compared to 11.26%
for the first six months of 1998.
INTEREST INCOME. Total interest income increased $0.8 million, or 0.3%, to
$260.9 million for the six months ended June 30, 1999 compared to $260.1 million
for the corresponding period in 1998. Interest and fees on first mortgage loans
for the six months ended June 30, 1999 was $133.0 million, an increase of $4.2
million, or 3.3%, compared to $128.8 million for the six months ended June 30,
1998. Interest on investment securities available for sale increased $1.6
million, or 6.3%, to $27.2 million for the six months ended June 30, 1999
compared to $25.6 million for the corresponding period in 1998. Offsetting these
increases in total interest income was a decrease in interest income on
mortgage-backed securities of $4.8 million, or 4.8%, to $95.9 million for the
six month period ended June 30, 1999 compared to $100.7 million for the six
month period ended June 30, 1998.
The average balance of total interest-earning assets increased $428.1
million, or 5.9%, to $7.71 billion for the six month period ended June 30, 1999
compared to $7.28 billion for the corresponding period of 1998. This increase
was primarily attributable to a $235.7 million, or 7.0%, increase in first
mortgage loans, net, to $3.62 billion for the six months ended June 30, 1999
compared to $3.38 billion for the corresponding prior year period. The average
balance of investment securities increased $109.1 million, or 14.4%, to $866.2
million for the six months ended June 30, 1999 compared to $757.1 million for
the six months ended June 30, 1998. In addition, the average balance of
mortgage-backed securities increased $72.9 million, or 2.4%, to $3.08 billion
for the six month period ended June 30, 1999 compared to $3.01 billion for the
corresponding prior year period. These increases reflected
14
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
internal growth by primarily originating first mortgage loans, while using
investment securities and mortgage-backed securities to manage interest rate
risk.
The impact on interest income from the growth in the average balance of
total interest-earning assets was offset by a 38 basis point decrease in the
annualized average yield of interest-earning assets to 6.77% for the six months
ended June 30, 1999 compared to 7.15% for the six months ended June 30, 1998.
The annualized average yield on first mortgage loans, net, decreased 26 basis
points to 7.36% for the six months ended June 30, 1999 compared to 7.62% for the
corresponding prior year period. The annualized average yield on investment
securities decreased 50 basis points to 6.28% from 6.78% for the six month
periods ended June 30, 1999 and 1998, respectively. The annualized average yield
on mortgage-backed securities decreased 48 basis points to 6.22% for the six
months ended June 30, 1999 compared to 6.70% for the six months ended June 30,
1998. These decreases reflect a lower overall interest rate environment in the
first six months of 1999 when compared to the first six months of 1998 which
continued to result in the downward repricing of our interest-sensitive assets.
Additionally, the yield on first mortgage loans, net, was impacted by the
refinancing of many of our existing customers' mortgage loans to loans with
lower interest rates.
INTEREST EXPENSE. Interest expense decreased $5.1 million, or 3.3%, to
$149.7 million for the six months ended June 30, 1999 compared to $154.8 million
for the corresponding prior year period. Interest expense on time deposits,
which accounted for 87.2% of total interest expense on deposits, decreased $4.5
million, or 3.3%, to $130.6 million for the six months ended June 30, 1999
compared to $135.1 million for the six months ended June 30, 1998.
The decrease in interest expense was primarily due to a decrease of 39
basis points in the annualized average cost of total interest-bearing
liabilities to 4.58% for the six months ended June 30, 1999 from 4.97% for the
six months ended June 30, 1998. Among the interest-bearing liability mix, the
most significant decrease was a 48 basis point decline in the annualized average
cost of time deposits to 5.13% from 5.61% for the six month periods ended June
30, 1999 and 1998, respectively. The decrease in the annualized average cost of
total interest-bearing liabilities reflects the overall lower interest rate
environment in the first six months of 1999 when compared to the first six
months of 1998. The impact of the decrease in the annualized average cost of
total interest-bearing liabilities was partially offset by an increase in the
average balance of such liabilities. The average balance of total
interest-bearing liabilities increased $306.0 million, or 4.9%, to $6.59 billion
for the six months ended June 30, 1999 compared to $6.28 billion for the
corresponding period of the prior year. Of the increase in the average balance
of total interest-bearing liabilities, $273.6 million, or 89.4% of the increase,
can be attributed to a 5.6% increase in the average balance of time deposits to
$5.13 billion from $4.85 billion for the six month periods ended June 30, 1999
and 1998, respectively. The increase in the average balance of total
interest-bearing liabilities reflects our offering of competitive rates to fund
our internal growth.
NET INTEREST INCOME. Net interest income for the first six months of 1999
increased $5.9 million, or 5.6%, to $111.2 million from $105.3 million for the
first six months of 1998. This increase was primarily due to the decrease in
interest expense. Our annualized net interest spread increased slightly to 2.19%
for the six month period ended June 30, 1999 compared to 2.18% for the
15
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
corresponding prior year period. The annualized net interest margin decreased
slightly to 2.85% from 2.86% for the six months ended June 30, 1999 and 1998,
respectively.
PROVISION FOR LOAN LOSSES. Our provision for loan losses was $1.15 million
for the six months ended June 30, 1999 compared to $1.20 million for the
corresponding prior year period. The current level of the provision for loan
losses is primarily due to the continued growth in the loan portfolio.
NON-INTEREST INCOME. Total non-interest income, consisting of service fees
and other income, was $2.3 million for both the six month periods ended June 30,
1999 and 1998.
NON-INTEREST EXPENSE. Total non-interest expense increased $1.5 million, or
4.6%, to $34.2 million for the six month period ended June 30, 1999 compared to
$32.7 million for the corresponding prior year period. Salaries and employee
benefits increased $0.8 million, or 3.8%, to $21.7 million from $20.9 million
for the six months ended June 30, 1999 and 1998, respectively. Net occupancy
expense increased $0.3 million, or 5.4%, to $5.9 million for the six month
period ended June 30, 1999 compared to $5.6 million for the corresponding prior
year period. These increases represent routine increases in salaries, employee
benefits and net occupancy expenses.
Our efficiency ratio for the six month period ended June 30, 1999 was 30.1%
compared to 30.3% for the corresponding prior year period. Our annualized ratio
of non-interest expense to average assets decreased slightly to 0.87% from 0.88%
for the six months ended June 30, 1999 and 1998, respectively.
INCOME TAXES. Income tax expense increased $2.0 million, or 7.4%, to $29.0
million for the six month period ended June 30, 1999 compared to $27.0 million
for the six month period ended June 30, 1998. This increase was primarily due to
an increase in income before income tax expense for the first six months of 1999
compared to the first six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES.
The term "liquidity" refers to our ability to generate adequate amounts of
cash to fund loan originations, loan purchases, deposit withdrawals and
operating expenses. Our primary sources of funds are deposits, scheduled
amortization and prepayments of loan principal and mortgage-backed securities,
maturities and calls of investment securities and funds provided by our
operations. We also have a written agreement that allows us to borrow up to
$25.0 million in federal funds from a correspondent bank. In addition, we may
enter into reverse repurchase agreements with approved broker-dealers. Reverse
repurchase agreements are agreements which allow us to borrow money using our
securities as collateral. At June 30, 1999, we had no outstanding borrowings.
Loan repayments and maturing investment securities are a relatively
predictable source of funds. However, deposit flows, calls of investment
securities and prepayments of loans and mortgage-backed securities are strongly
influenced by interest rates, general and local economic
16
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
conditions and competition in the marketplace. These factors reduce the
predictability of the timing of these sources of funds.
Our primary investing activities are the origination and purchase of one-
to four-family real estate loans, the purchase of mortgage-backed securities,
and to a lesser extent, the purchase of investment securities. For the six month
periods ended June 30, 1999 and 1998, we originated and purchased loans of
approximately $647.4 million and $455.1 million, respectively. Purchases of
mortgage-backed securities through June 30, 1999 were $665.7 million and through
June 30, 1998 were $572.6 million, while purchases of investment securities
through June 30, 1999 were $700.4 million and through June 30, 1998 were $367.3
million.
These investing activities were funded by deposit growth, principal
payments on mortgage loans and mortgage-backed securities, calls and maturities
on investment securities, and funds provided by our operating activities.
Principal repayments on loans and mortgage-backed securities totaled $1.09
billion for the six month period ended June 30, 1999 compared to $908.7 million
for the six month period ended June 30, 1998. Maturities and calls of investment
securities totaled $423.6 million through June 30, 1999 compared to $234.9
through June 30, 1998.
At June 30, 1999, Hudson City Savings had outstanding loan commitments to
borrowers of approximately $195.9 million and available home equity and
overdraft lines of credit of approximately $55.2 million. Commitments to
purchase mortgage-backed securities were approximately $231.3 million at June
30, 1999. Time deposit accounts scheduled to mature within one year were $4.85
billion at June 30, 1999. Based on our deposit retention experience and current
pricing strategy, we anticipate that a significant portion of these time
deposits will remain with Hudson City Savings.
We monitor our liquidity position on a daily basis. We anticipate that we
will have sufficient funds to meet current funding commitments. We do not
anticipate any material capital expenditures, nor do we have any balloon or
other payments due on any long-term obligations or any off-balance sheet items
other than the commitments and unused lines of credit noted above. Currently, we
are planning to open three new branch locations. The expenditures related to
their establishment are not expected to have a material impact on our financial
position or results of operations.
At June 30, 1999, we exceeded each of the applicable regulatory capital
requirements. Our leverage (tier 1) capital was $948.4 million, or 12.05%, at
June 30, 1999. In order to be classified as "well-capitalized" by the FDIC we
were required to have leverage (tier 1) capital of $393.6 million, or 5.00%. To
be classified as a well-capitalized bank by the FDIC, we must also have a
risk-based total capital ratio of 10.00%. At June 30, 1999, we had a risk-based
total capital ratio of 39.07%.
YEAR 2000 ISSUES
GENERAL. A significant challenge that is confronting the business
community, including the Bank and its competitors, centers on the inability of
many computer systems and software applications to recognize the Year 2000
(referred to as the "Y2K issue"). Many existing computer systems and software
applications originally were programmed to provide only two digits to identify
the calendar
17
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
year. With the Year 2000 ("Y2K") approaching, these systems and
applications may recognize "00" as the Year 1900 rather than the Year 2000.
Failure by federally-regulated institutions, such as the Bank, to
adequately address the Y2K issue may result in supervisory action by bank
regulatory authorities, including the reduction of the institution's supervisory
rating, the denial of applications for approval of mergers or acquisitions, the
denial of applications for approval of new branch openings, or the imposition of
civil money penalties.
RISK. Similar to other financial institutions and companies that utilize
computer technology, our operations may be significantly affected by the Y2K
issue because of our reliance on electronic data processing technology and
date-sensitive information. The Y2K issue also impacts other aspects of our
non-technical business processes. If the Y2K issue is not adequately addressed,
and systems are not modified to properly identify the Year 2000, computer
systems and software applications may fail or create erroneous information. We
may not be able to process withdrawals or deposits, prepare bank statements, or
engage in any of the many transactions that constitute our normal operations.
Our inability to adequately address the Y2K issue could also have a significant
adverse affect on our suppliers and service providers. Should we experience a
Y2K failure that cannot readily be fixed, it may result in a significant adverse
impact on our financial condition and results of operations.
STATE OF READINESS. The Board of Directors and senior management have
consistently supported investment in established and proven technologies.
Because of this philosophy, the Board of Directors and senior management have
been actively engaged in managing the Year 2000 project. Management has
consistently allocated both human and fiscal resources to this project to
achieve the objectives and time frames mandated by Federal Financial
Institutions Examination Council (FFIEC). As discussed below, we believe that we
have considered all material Y2K issues and that we have taken proper action to
address them.
The core of our computer processing system is an in-house,
vendor-maintained and supported main frame computer and a vendor-maintained and
supported integrated financial systems software package. We completed our
conversion to the current system in 1993. We believe that many of our
applications critical to daily operations have been Y2K compliant for some time.
Calculations involving dates for maturities beyond 1999 on both savings and
mortgage instruments have been in place and functioning since the systems'
conversion in 1993.
Our Action Plan for the Year 2000, in accordance with regulatory guidance,
outlines our plans to achieve a successful transition to the Year 2000. The
following summarizes the various phases of the Y2K plan.
AWARENESS PHASE - This initial phase of the Y2K project involved the
appointment of the Y2K review team in August 1996 and the subsequent development
of a formal Action Plan in June 1997. The review team, through the development
of the Action Plan, identified the issues to be resolved, defined objectives to
be achieved and outlined an approach to resolve our Y2K issues.
18
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
ASSESSMENT PHASE - During this phase, the review team, with significant
input from department leaders, developed an inventory listing of all internal
computer systems and software applications, as well as third-party vendors and
suppliers upon whom we rely for goods and services. The Compliance Control Sheet
identifies and monitors Y2K readiness for all systems and applications
identified during this phase. Initially, we prioritized these items based on
their perceived business impact on our operations. For all systems or
applications identified as having Y2K issues, we decided to fix, upgrade,
replace or abandon them. Although we update the Compliance Control Sheet as we
acquire new items, and the status of individual items changes as systems go
through subsequent phases, the assessment phase of the project is complete.
We have also reviewed our customer base to determine whether they pose any
significant Y2K risks. Our customer base consists primarily of individual
depositors and residential mortgage loan borrowers. We do not anticipate any
significant Y2K risks posed by our potential borrowers as they are individuals
or families seeking residential mortgage loans which would be collateralized by
the underlying property. However, it is not possible at this time to evaluate
the indirect risks which could be faced if the employers of our individual
customers encounter unresolved Y2K issues.
RENOVATION PHASE - As previously discussed, our most mission critical
system is an integrated financial systems software package that includes our
loans, savings, general ledger, and other miscellaneous applications. This
integrated mainframe software system was developed by, and is currently
maintained and supported by, a recognized provider. The mainframe computer
system was also manufactured by, and is currently maintained by, a well-known
national computer hardware company.
By July 1998, the Y2K upgrade for our integrated financial systems software
package was put into current production without Y2K-related problems. Other
significant systems have been upgraded to Y2K compliant versions of
vendor-supported software. In certain situations, we have replaced existing
non-compliant systems with new Y2K compliant hardware and software. We have
relatively few data transmission interfaces with third-party servicers and all
of these systems have been renovated for Year 2000 compliance. We have no
mission critical systems that we have developed on our own.
The review team continues to monitor the Y2K progress of those
third-parties who provide us with services or products to ensure that they are
taking adequate measures in addressing the Y2K issue. We have received
assurances from these third-parties as to their current Year 2000 compliance or
that they are in the process of addressing the Y2K issue. However, we cannot
assure you that these third-parties will be prepared for the Y2K issue. The
failure of these third-parties to achieve Y2K compliance may have an adverse
impact on our operations.
VALIDATION/IMPLEMENTATION PHASES - In July 1998, after the Y2K compliant
version of the integrated financial systems software package was put into
current production, Y2K testing commenced by creating a separate test
environment dedicated to this task. After initial testing by our information
services department, we undertook a bank-wide testing initiative. The validation
phase of this mission critical system was completed by December 31, 1998 and it
will continue to be tested throughout 1999 as new, more routine, upgrades are
received. During the testing process to date, we
19
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
have not identified any significant Y2K problems relating to any upgraded
system. All Y2K compliant upgraded systems have been installed and put into
production.
USE OF RESOURCES. Managing the Year 2000 project has resulted in additional
direct and indirect costs. The costs of the Y2K project have not been
significant to date, and we believe that the total cost of the project will not
be material to our results of operations or financial condition in any one year.
Although we currently estimate that the total cost of the Y2K project, excluding
the reallocation of internal resources, will be approximately $1.0 million, of
which we have already incurred $0.8 million, we cannot guarantee that such costs
would not become material in the future.
CONTINGENCY PLANNING. Regulatory guidance provides that if a mission
critical application or system has been remediated, tested and implemented, a
remediation contingency plan is not required. Based on the overall results of
our Y2K project, specifically the testing and implementation results relative to
the integrated financial systems software package, our review team has concluded
that a remediation contingency plan is not required for mission critical
applications.
While we are in the process of completing our Y2K project in a timely
manner, we cannot guarantee that the systems of other companies with whom we
conduct business will also be completed in a timely manner. The failure of these
entities to adequately address the Y2K issue could adversely affect our ability
to conduct business.
To address the risks associated with the failure of mission-critical
systems at critical dates, we have developed a business resumption contingency
plan. We have developed contingency or alternate plans for our mission-critical
systems on a department-by-department basis in anticipation of potential
unplanned system difficulties or third-party failures at January 1, 2000 or
dates beyond. However, the review team understands that certain events beyond
our control may diminish our ability to provide minimum levels of service.
Management considers the worst-case scenario to be extended power outages and
loss of telecommunications. Failure of these services will affect companies,
individuals and the government, and cannot be remedied by anyone other than the
responsible party. We are preparing to provide minimum levels of service during
sporadic power outages and temporary telecommunications. However, during
extensive losses of power and/or telecommunications, we may temporarily close
our operations.
Overall, we do not anticipate any adverse material impact on our operations
as a result of the Y2K issue.
20
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosure about market risk is presented at
December 31, 1998 in Hudson City Bancorp's Registration Statement on Form S-1,
as amended (Registration No. 333-74383). The following is an update of the
discussion provided therein.
GENERAL. As a financial institution, our primary component of market risk
is interest rate volatility. Due to the nature of our operations, we are not
subject to foreign currency exchange or commodity price risk. Our real estate
loan portfolio, concentrated in New Jersey, is subject to risks associated with
the local economy. We do not own any trading assets. We did not engage in any
hedging transactions that use derivative instruments (such as interest rate
swaps and caps) during this three month period and did not have any such hedging
transactions in place at June 30, 1999. In the future, we may, with approval of
our Board of Directors, engage in hedging transactions utilizing derivative
instruments.
GAP ANALYSIS. At June 30, 1999, our interest-bearing liabilities maturing
or repricing within one year exceeded our interest-earning assets maturing or
repricing within the same period by $1.56 billion which represented a negative
cumulative one-year interest rate sensitivity gap as a percent of assets of
19.0%. At December 31, 1998, our interest-bearing liabilities maturing or
repricing within one year exceeded our interest-earning assets maturing or
repricing within the same period by $1.29 billion which represented a negative
cumulative one-year interest rate sensitivity gap as a percent of assets of
16.6%.
INTEREST RATE RISK COMPLIANCE. Hudson City Savings continues to monitor the
impact of interest rate volatility upon the present value of equity in the same
manner as at December 31, 1998. Assuming a 100 basis point interest rate
increase, the present value of equity would decrease $129.0 million, or 11.01%,
at June 30, 1999 relative to the base (no rate change) scenario, compared with a
$102.7 million, or 9.08%, decrease at December 31, 1998 relative to the base
scenario. Assuming a 100 basis point interest rate decrease, the present value
of equity would increase $94.2 million, or 8.04%, at June 30, 1999 relative to
the base scenario, compared with a $12.7 million, or 1.13%, decrease at December
31, 1998 relative to the base scenario.
21
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
Except for the cases described below, 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.
On October 2, 1997, a purported class action entitled JAMES W. SMITH, ET
AL. V. HUDSON CITY SAVINGS BANK (L-11184-97) was commenced in the Law Division
of the Superior Court of New Jersey, Essex County against Hudson City Savings on
behalf of persons who obtained loans from Hudson City Savings secured by
residential real property in New Jersey, and who paid an attorney review fee to
Hudson City Savings in connection with their loans. Plaintiffs allege that the
potential class includes thousands of borrowers and involves millions of dollars
in review fees. Plaintiffs claim that the attorney fees paid to Hudson City
Savings violate a provision of New Jersey law which prescribes circumstances
under which such fees can be charged by a lender and a provision of New Jersey
law prohibiting consumer fraud. Plaintiffs seek an injunction, an order
requiring a form of warning or public notice, compensatory damages, treble
damages, costs, attorneys' fees, an order requiring disgorgement, interest and
punitive damages. Hudson City Savings filed an answer denying liability. This
suit was voluntarily stayed by the parties on or about September 9, 1998 pending
the outcome of an appeal (the "Appeal") in certain other New Jersey attorney
review fee lawsuits involving different parties.
The Appeal, heard on a consolidated basis in the cases of KELLY V. CHASE
MANHATTAN MORTGAGE CORP., IVERSON V. COLLECTIVE BANK and TURNER V. FIRST UNION,
was decided by the Appellate Division of the Superior Court of New Jersey on or
about July 9, 1998. The Appellate Division ruled, among other things, that
lenders are permitted to charge attorney review fees for the review of loan
documents submitted by a borrower or by the borrower's attorney and clarified
the interpretation of part of the statute's language.
Following the Appellate Division's decision in the Appeal, the Supreme
Court of New Jersey granted a motion for leave to appeal on or about November
18, 1998 and a motion for leave to cross-appeal on or about January 27, 1999.
The Supreme Court of New Jersey will review the Appellate Division's ruling in
the Appeal. Meanwhile, the Smith action remains stayed. We believe that this
lawsuit is without merit and we intend to agressively defend our interest.
On or about April 30, 1998, a purported class action was commenced against
Hudson City Savings in the Law Division of Superior Court of New Jersey, Bergen
County entitled ELIZABETH C. BOGDANOWICZ, ET AL. V. HUDSON CITY SAVINGS BANK
(L-4110-98) on behalf of a putative class of persons who borrowed funds from
Hudson City from and after January 29, 1993. Plaintiffs allege that the putative
class consists of thousands of borrowers who were charged attorney review fees
by Hudson City Savings. Plaintiffs claim that the attorney review fee violated
the New Jersey fee statute.
22
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
Plaintiffs also assert claims for unjust enrichment. Plaintiffs seek
compensatory damages, costs, fees, injunctive relief and treble damages. This
action has been dismissed with prejudice.
Item 2. - Changes in Securities and Use of Proceeds
The Company's initial registration statement (No. 333-74383) on Form S-1
was declared effective on May 14, 1999. In connection with the issuance and
distribution of the Company's common stock, par value $0.01 per share (the
"Common Stock"), the subscription and community offerings commenced on May 21,
1999. The subscription and community offerings terminated on June 23, 1999
except that those individuals subscribing for the maximum number of shares in
the subscription offering were given the opportunity to increase their orders to
a new, higher maximum. This limited extension of the subscription offering
terminated on July 2. The syndicated community offering commenced on June 28,
1999 and was terminated on July 8, 1999. Ryan, Beck & Co., Inc., assisted the
Company on a best efforts basis in the offerings. The offerings resulted in the
sale of 54,350,000 of Common Stock to the public for gross proceeds of
$543,500,000. Through July 30, 1999, the Company incurred, in connection with
the issuance and distribution of securities registered, underwriting commissions
and expenses of $11,239,712., other expenses of $4,925,266. and total expenses
of $16,164,978. The Company received net proceeds of $527,335,022. Of such
proceeds, $258,667,511. was retained by the Company, $263,667,511. was paid to
the Bank and, as of July 30, 1999, $5,000,000. was loaned to the Bank's employee
stock ownership plan by the Company. The proceeds retained by the Company, and
deposited with the Bank, were primarily used to purchase short term securities.
The foregoing information as to expenses and net proceeds are reasonable
estimates of such items.
Item 3. - Defaults Upon Senior Securities
Not applicable.
Item 4. - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. - Other Information
Not applicable.
Item 6. - Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1999
<PAGE>
HUDSON CITY BANCORP, INC.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hudson City Bancorp, Inc.
Date: August 12, 1999 By: /s/ Leonard S. Gudelski
--------------------------------------
Leonard S. Gudelski
Chairman and Chief Executive Officer
Date: August 12, 1999 By: /s/ Ronald E. Hermance, Jr.
--------------------------------------
Ronald E. Hermance, Jr.
President and Chief Operating Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This statement contains summary financial information extracted from the
consolidated condensed statement of condition and consolidated condensed
statement of operations and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000921847
<NAME> HUDSON CITY BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 59183
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 62500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1045046
<INVESTMENTS-CARRYING> 3106976
<INVESTMENTS-MARKET> 3124202
<LOANS> 3847218
<ALLOWANCE> 18836
<TOTAL-ASSETS> 8210966
<DEPOSITS> 7227792
<SHORT-TERM> 0
<LIABILITIES-OTHER> 44002
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 939172
<TOTAL-LIABILITIES-AND-EQUITY> 8210966
<INTEREST-LOAN> 136528
<INTEREST-INVEST> 123076
<INTEREST-OTHER> 1263
<INTEREST-TOTAL> 260867
<INTEREST-DEPOSIT> 149701
<INTEREST-EXPENSE> 149701
<INTEREST-INCOME-NET> 111166
<LOAN-LOSSES> 1150
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 34172
<INCOME-PRETAX> 78192
<INCOME-PRE-EXTRAORDINARY> 78192
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49192
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.
<LOANS-NON> 11650
<LOANS-PAST> 1388
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17712
<CHARGE-OFFS> 34
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 18836
<ALLOWANCE-DOMESTIC> 12286
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6550
</TABLE>
