<PAGE> 1
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: MARCH 31, 2000
--------------
[ ] 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 May 5, 2000, the registrant had 115,433,300 shares of common
stock, $0.01 par value, outstanding. Of such shares outstanding, 61,288,300
shares were held by Hudson City, MHC, the registrant's mutual holding company
and 54,145,000 shares were held by the public and directors, officers and
employees of the registrant.
<PAGE> 2
Hudson City Bancorp, Inc.
Form 10-Q
Page 25
Contents of Report
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
-----------
<S> <C> <C> <C>
Item 1. - Financial Statements
Consolidated Statements of Financial Condition -
March 31, 2000 (Unaudited) and December 31, 1999................. 3
Consolidated Statements of Income (Unaudited) - For
the three months ended March 31, 2000 and 1999................... 4
Consolidated Statements of Cash Flows (Unaudited) -
For the three months ended March 31, 2000 and 1999............... 5
Notes to Consolidated Financial Statements....................... 6
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
Item 3. - Quantitative and Qualitative Disclosures About Market Risk..... 19
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings.............................................. 21
Item 2. - Changes in Securities and Use of Proceeds...................... 22
Item 3. - Defaults Upon Senior Securities................................ 22
Item 4. - Submission of Matters to a Vote of Security Holders............ 22
Item 5. - Other Information.............................................. 22
Item 6. - Exhibits and Reports on Form 8-K............................... 22
SIGNATURES....................................................................... 23
</TABLE>
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. 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, legislative and regulatory conditions,
or the development of an interest rate environment that adversely affects Hudson
City Bancorp's interest rate spread or other income anticipated from operations
and investments. As used in this Form 10-Q, "we" and "us" and "our" refer to
Hudson City Bancorp, Inc. and its consolidated subsidiary Hudson City Savings
Bank, depending on the context.
Page 2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -------------
(Unaudited)
(In thousands)
<S> <C> <C>
Assets
- ------
Cash and due from banks ................................................. $ 69,136 $ 84,239
Federal funds sold ...................................................... 51,300 116,600
----------- -----------
Total cash and cash equivalents ................................. 120,436 200,839
Investment securities held to maturity, market value of $1,605 at
March 31, 2000 and $1,348 at December 31, 1999 .................. 1,631 1,379
Investment securities available for sale, at market value ............... 839,033 812,058
Mortgage-backed securities held to maturity, market value of
$3,247,320 at March 31, 2000 and $3,085,596 at December 31, 1999 3,256,667 3,097,072
Loans ................................................................... 4,458,702 4,305,875
Less:
Deferred loan fees ......................................... 10,900 10,631
Allowance for loan losses .................................. 20,613 20,010
----------- -----------
Net loans ............................................ 4,427,189 4,275,234
Foreclosed real estate, net ............................................. 580 367
Accrued income receivable ............................................... 52,119 51,970
Banking premises and equipment, net ..................................... 31,779 31,200
Other assets ............................................................ 48,339 48,746
----------- -----------
Total Assets ......................................... $ 8,777,773 $ 8,518,865
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits:
Interest-bearing ................................................. $ 6,328,904 $ 6,379,929
Noninterest-bearing .............................................. 332,888 308,115
----------- -----------
Total deposits ....................................... 6,661,792 6,688,044
Borrowed funds .......................................................... 600,000 300,000
Accrued expenses and other liabilities .................................. 68,920 51,781
----------- -----------
Total liabilities .................................... 7,330,712 7,039,825
----------- -----------
Common stock, $0.01 par value, 800,000,000 shares authorized, 115,638,300
issued and outstanding at March 31, 2000 and December 31, 1999 .. 1,156 1,156
Additional paid-in capital .............................................. 526,607 526,619
Retained earnings ....................................................... 1,023,861 1,001,337
Unallocated common stock held by the employee stock
ownership plan .................................................. (50,074) (22,109)
Unearned common stock held by the recognition and
retention plan .................................................. (27,819) -
Accumulated other comprehensive loss, net of tax ........................ (26,670) (27,963)
----------- -----------
Total stockholders' equity ........................... 1,447,061 1,479,040
----------- -----------
Total Liabilities and Stockholders' Equity ........... $ 8,777,773 $ 8,518,865
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-----------------------------------------------
2000 1999
-------------------- -----------------
(In thousands, except for share data)
Interest Income:
<S> <C> <C>
Interest and fees on first mortgage loans ............................ $ 76,813 $ 65,933
Interest and fees on consumer and other loans ........................ 2,266 1,725
Interest on mortgage-backed securities ............................... 50,050 48,234
Interest on investment securities held to maturity:
Taxable ......................................................... 16 15
Exempt from federal taxes ....................................... 7 7
Interest on investment securities available for sale-taxable ......... 13,656 13,489
Interest on federal funds sold ....................................... 1,249 665
-------- --------
Total interest income ..................................... 144,057 130,068
-------- --------
Interest Expense:
Interest on deposits ................................................. 74,307 74,790
Interest on borrowed funds ........................................... 6,378 -
-------- --------
Total interest expense .................................... 80,685 74,790
-------- --------
Net interest income ................................. 63,372 55,278
-------- --------
Provision for loan losses .................................................... 600 600
-------- --------
Net interest income after provision for loan losses.. 62,772 54,678
-------- --------
Non-Interest Income:
Service charges and other income ...................................... 1,100 1,206
-------- --------
Total non-interest income ................................. 1,100 1,206
-------- --------
Non-Interest Expense:
Salaries and employee benefits ........................................ 11,892 10,915
Net occupancy expense ................................................. 3,209 2,946
Federal deposit insurance assessment .................................. 366 200
Amortization of goodwill .............................................. - 360
Computer and related services ......................................... 220 287
Other expense ......................................................... 3,177 2,519
-------- --------
Total non-interest expense ................................ 18,864 17,227
-------- --------
Income before income tax expense .................... 45,008 38,657
Income tax expense ........................................................... 16,702 14,400
-------- --------
Net income .......................................... $ 28,306 $ 24,257
======== ========
Basic earnings per share ..................................................... $ 0.25 $ -
======== ========
Diluted earnings per share ................................................... $ 0.25 $ -
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------------------
2000 1999
------------- ---------------
(In thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income ..................................................................... $ 28,306 $ 24,257
Adjustments to reconcile net income to net cash provided
By operating activities:
Depreciation, accretion and amortization expense .......................... 2,331 1,943
Provision for loan losses ................................................. 600 600
Allocation of shares for employee benefit plans ........................... 1,293 -
Net proceeds from sale of foreclosed real estate .......................... 231 593
(Increase) decrease in accrued interest receivable ........................ (149) 647
Increase in other assets .................................................. (385) (725)
Increase in accrued expenses and other liabilities ........................ 17,139 13,574
--------- ---------
Net Cash Provided by Operating Activities .............................................. 49,366 40,889
--------- ---------
Cash Flows from Investing Activities:
Net increase in loans .......................................................... (132,193) (41,484)
Purchases of loans ............................................................. (20,310) (44,561)
Principal collection of mortgage-backed securities ............................. 147,282 327,025
Purchases of mortgage-backed securities ........................................ (308,972) (364,488)
Purchases of investment securities held to maturity ............................ (252) -
Proceeds from maturities and calls of investment securities available for sale.. 150 374,023
Purchases of investment securities available for sale .......................... (25,000) (455,749)
Purchases of premises and equipment, net ....................................... (1,351) (471)
--------- ---------
Net Cash Used in Investment Activities ................................................. (340,646) (205,705)
--------- ---------
Cash Flows from Financing Activities:
Net (decrease) increase in deposits ............................................ (26,252) 93,790
Proceeds from borrowed funds ................................................... 300,000 -
Dividends paid ................................................................. (5,782) -
Purchase of stock by the employee stock ownership plan ......................... (28,451) -
Purchase of stock by the recognition and retention plan ........................ (28,638) -
--------- ---------
Net Cash Provided by Financing Activities .............................................. 210,877 93,790
--------- ---------
Net Decrease in Cash and Cash Equivalents .............................................. (80,403) (71,026)
Cash and Cash Equivalents at Beginning of Period ....................................... 200,839 156,875
--------- ---------
Cash and Cash Equivalents at End of Period ............................................. $ 120,436 $ 85,849
========= =========
Supplemental Disclosures:
Interest paid ................................................................... $ 79,067 $ 74,992
========= =========
Income taxes paid ............................................................... $ 1,791 $ 361
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 6
Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. - BASIS OF PRESENTATION
Hudson City Bancorp, Inc. is a Delaware corporation organized in
March 1999 by Hudson City Savings Bank in connection with the conversion and
reorganization of Hudson City Savings from a New Jersey mutual savings bank into
a two-tiered mutual savings bank holding company structure, referred to as the
reorganization, as described more fully in Note 2. Prior to July 13, 1999,
Hudson City Bancorp had not 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 for periods prior to July 13, 1999 are
solely for Hudson City Savings.
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
been included. The results of operations and other data presented for the three
month period ended March 31, 2000 are not necessarily indicative of the results
of operations that may be expected for the year ending December 31, 2000.
Certain information and note disclosures usually included in financial
statements prepared in accordance with generally accepted accounting principles
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
consolidated financial statements presented should be read in conjunction with
Hudson City Bancorp's audited consolidated financial statements and notes to
consolidated financial statements included in Hudson City Bancorp's December 31,
1999 Annual Report on Form 10-K.
Statements of Cash Flow. For the purposes of reporting cash flows,
cash and cash equivalents includes cash on hand, amounts due from banks and
federal funds sold. Transfers of loans to foreclosed real estate of $432,000 and
$877,000 for the three month periods ended March 31, 2000 and 1999,
respectively, did not result in cash receipts or cash payments.
2. - REORGANIZATION
On July 13, 1999, Hudson City Savings converted and reorganized from
a New Jersey-chartered mutual savings bank into a two-tiered mutual savings bank
holding company structure pursuant to a Plan of Reorganization and Stock
Issuance. Under the terms of the Plan, Hudson City Savings became a wholly-owned
subsidiary of Hudson City Bancorp and received 50% of the net proceeds from the
initial public offering of Hudson City Bancorp's common stock. Hudson City
Bancorp became a majority-owned subsidiary of Hudson City, MHC, a New
Jersey-chartered mutual savings bank holding company, referred to as the MHC.
Hudson City Bancorp sold 54,350,000 shares of its common stock to
the public, representing 47% of the outstanding shares, at $10.00 per share.
Hudson City Bancorp received net proceeds of $527.6 million. An additional
61,288,300 shares, or 53% of the outstanding shares of Hudson City Bancorp, were
issued to Hudson City, MHC. Additionally, Hudson City Bancorp has 200,000,000
shares, $0.01 par value, of preferred stock authorized but unissued.
Page 6
<PAGE> 7
Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated 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 ended
March 31,
---------------------------------------------------
2000 1999
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Net income ......................................... $ 28,306 $ 24,257
Other comprehensive income:
Unrealized holding gain (loss) on securities
available for sale ................. 1,293 (3,973)
-------- --------
Total comprehensive income ......................... $ 29,599 $ 20,284
======== ========
</TABLE>
4. - EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock (such as stock
options) were exercised or resulted in the issuance of common stock. These
potentially dilutive shares would then be included in the weighted average
number of shares outstanding for the period using the treasury stock method.
Shares issued and shares reacquired during any period are weighted for the
portion of the period that they were outstanding.
In computing both basic and diluted earnings per share, the weighted
average number of common shares outstanding includes all 61,288,300 shares
issued to Hudson City, MHC. Also included are the employee stock ownership plan
("ESOP") shares previously allocated to participants, shares committed to be
released for allocation to ESOP participants and shares vested for the Hudson
City Bancorp, Inc. 2000 Recognition and Retention Plan ("RRP") participants.
ESOP shares that have been purchased but have not been committed to be released
and RRP shares that have been purchased but have not been vested have not been
considered in computing basic and diluted earnings per share.
Page 7
<PAGE> 8
Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The following is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 2000
--------------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net income ...................................... $28,306
=======
Basic earnings per share:
Income available to common shareholders... $28,306 112,264 $ 0.25
=======
Effect of dilutive common stock equivalents ..... - 39
------- -------
Diluted earnings per share:
Income available to common shareholders... $28,306 112,303 $ 0.25
======= ======= =======
</TABLE>
5. - EMPLOYEE STOCK BENEFIT PLANS
The ESOP is authorized to purchase up to 8%, or 4,348,000 shares,
of Hudson City Bancorp common stock that was sold in the reorganization. Through
March 31, 2000, the ESOP had purchased 3,882,375 shares at an average cost of
$13.40 per share.
The stockholders of Hudson City Bancorp, at a Special Meeting of
Stockholders held on January 13, 2000, approved the adoption of the Hudson City
Bancorp, Inc. 2000 Stock Option Plan and the Hudson City Bancorp, Inc. 2000
Recognition and Retention Plan.
Under the Stock Option Plan, Hudson City Bancorp has reserved
5,435,000 shares of Hudson City Bancorp common stock for issuance upon the
exercise of options under the plan. As of March 31, 2000, total options of
4,497,000 had been granted under the plan. Options granted may be incentive
stock options that qualify for special federal income tax treatment or
non-qualified stock options that do not qualify for special federal income tax
treatment. Incentive stock options are subject to additional restrictions under
the Internal Revenue Code and the plan.
Each option granted entitles the holder to purchase one share of
Hudson City Bancorp's common stock at an exercise price of $13.875, equal to the
fair market value on January 13, 2000, the date of grant. We expect that there
will be no compensation cost attributable to these options as Hudson City will
use the intrinsic value based method of accounting as the exercise price equaled
the common stock price at the date of grant. These options will vest primarily
over a five year period and will expire no later than ten years following the
grant date.
Under the RRP, Hudson City Bancorp established a trust to which it
contributed certain amounts of money or property. The trustee invested the
assets of the trust primarily in shares of Hudson City Bancorp's common stock
that were used to make restricted stock awards. The stock purchases were made on
the open market. The trust is authorized to purchase not more than 2,174,000
shares of Hudson City Bancorp common stock. As of March 31, 2000, the trust has
purchased and awarded 1,966,100 shares.
Page 8
<PAGE> 9
Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As a general rule, these restricted stock grants are held in trust
for the benefit of the award recipient until vested. Compensation cost
attributable to these restricted stock awards was determined on January 13,
2000, the grant date of the awards. The compensation cost that was measured on
the grant date will generally be expensed ratably over the five year vesting
period.
Any employee of Hudson City or any affiliate approved by the Board
of Directors may be selected to receive option grants and restricted stock
awards. Directors of Hudson City or any affiliate approved by the Board of
Directors who are not employees or officers may also be selected to receive
option grants and restricted stock awards. A committee of outside directors
administers both the stock option plan and the RRP.
6. - STOCKHOLDERS' EQUITY
On March 28, 2000, Hudson City Bancorp received the necessary
regulatory approval to repurchase up to 5,781,915 shares of its common stock.
This represents 5% of the total shares of common stock that are issued and
outstanding. Under the approved stock repurchase program, Hudson City Bancorp
will purchase the shares of common stock in the open market and other
transactions from time-to-time, depending on market conditions. The repurchased
shares are expected to be held as treasury stock for general corporate use. As
of March 31, 2000 no shares had been repurchased under the program.
7. - SUBSEQUENT EVENT
On April 13, 2000, the Board of Directors of Hudson City Bancorp
declared a quarterly cash dividend of seven cents ($0.07) per common share
outstanding. The dividend is payable on June 1, 2000 to shareholders of record
at the close of business on May 12, 2000.
Page 9
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Hudson City Bancorp, Inc.
Form 10-Q
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Hudson City Savings completed the reorganization, as described in
Note 2 to the unaudited financial statements, on July 13, 1999. Prior to July
13, 1999, Hudson City Bancorp 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, comparative information prior to the reorganization relates
to the financial statements of Hudson City Savings included herein. Effective
upon the closing of the reorganization, Hudson City Bancorp acquired all of the
issued and outstanding capital stock of Hudson City Savings.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER 31, 1999
Our total assets increased $258.9 million, or 3.0%, to $8.78
billion at March 31, 2000 from $8.52 billion at December 31, 1999. This
increase, primarily funded by an increase in borrowed funds, was generally
invested in mortgage loans and mortgage-backed securities.
Loans increased $152.8 million, or 3.5%, to $4.46 billion at March
31, 2000 from $4.31 billion at December 31, 1999. For the three months ended
March 31, 2000, we originated and purchased first mortgage loans of
approximately $242.8 million. These originations and purchases were concentrated
in one-to four-family residential mortgage loans. Mortgage-backed securities
increased $159.6 million, or 5.1%, to $3.26 billion at March 31, 2000 from $3.10
billion at December 31, 1999. Investment securities available for sale increased
$26.9 million, or 3.3%, to $839.0 million at March 31, 2000 from $812.1 million
at December 31, 1999. These increases reflect our emphasis on the origination
and purchase of one-to four-family first mortgage loans supplemented by the
purchase of mortgage-backed securities and investment securities.
These increases in interest-earning assets were partially offset by
an $80.4 million, or 40.0%, decrease in total cash and cash equivalents to
$120.4 million at March 31, 2000 from $200.8 million at December 31, 1999. The
decrease in total cash and cash equivalents reflects the reduction from the
higher level of planned liquidity that was maintained at December 31, 1999 for
possible deposit outflows due to the general public's concern over the Year 2000
computer issue. The corrective measures implemented by Hudson City Savings
resulted in a smooth transition to the new millennium for its computer systems
and the higher levels of liquidity were no longer required. Banking premises and
equipment, net increased $0.6 million, or 1.9%, to $31.8 million at March 31,
2000 from $31.2 million at December 31, 1999 primarily due to capital
expenditures incurred for the expansion of our branch network.
At March 31, 2000, total liabilities were $7.33 billion, an
increase of 4.1%, or $290.9 million, compared with $7.04 billion at December 31,
1999. Total deposits decreased $26.3 million, or 0.4%, to $6.66 billion at March
31, 2000 from $6.69 billion at December 31, 1999. Interest-bearing deposits
decreased $51.0 million, or 0.8%, to $6.33 billion at March 31, 2000 from $6.38
billion at December 31, 1999. The decrease in interest-bearing deposits reflects
a $40.7 million, or 0.8%, decrease in time deposits to $4.95 billion at March
31, 2000 from $4.99 billion at December 31, 1999 and a $9.8 million, or 2.1%,
decrease in money market accounts to $477.0 million at March 31, 2000 from
$486.8 million at December 31, 1999. We believe the decrease in interest-bearing
deposits is due in part to the continued investment by the public in equity
markets, particularly mutual funds, as an alternative to financial institution
deposits. The decrease in interest-bearing deposits was partially offset by an
Page 10
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Hudson City Bancorp, Inc.
Form 10-Q
increase in noninterest-bearing deposits, particularly bank checks, of $24.8
million, or 8.0%, to $332.9 million at March 31, 2000 from $308.1 million at
December 31, 1999. Borrowed funds, consisting entirely of securities sold under
agreements to repurchase, increased $300.0 million, or 100.0%, to $600.0 million
at March 31, 2000 from $300.0 million at December 31, 1999. These borrowed funds
were used to offset the decrease in total deposits as well as fund asset growth
through our capital management strategy. This strategy generated additional
earnings through a positive interest rate spread on the borrowed funds that were
invested.
Accrued expenses and other liabilities increased $17.1 million, or
33.0%, to $68.9 million at March 31, 2000 from $51.8 million at December 31,
1999. This increase is primarily due to an increase in accrued income taxes
payable due to the timing of estimated tax payments.
Total stockholders' equity decreased $32.0 million, or 2.2%, to
$1.45 billion at March 31, 2000 from $1.48 billion at December 31, 1999. The
decrease was primarily due to increases in common stock held by employee stock
benefit plans. Unallocated common stock held by the ESOP decreased stockholders'
equity $28.0 million primarily due to purchases of Hudson City Bancorp common
stock by the plan. The balance in unearned common stock held by the RRP was
$27.8 million at March 31, 2000 primarily due to purchases of Hudson City
Bancorp common stock by the plan. Stockholders' equity also decreased $5.8
million in the first quarter of 2000 due to the declaration and payment of a
cash dividend to common stockholders. These decreases to stockholders' equity
were partially offset by net income of $28.3 million for the first quarter of
2000 and a decrease of $1.3 million in accumulated other comprehensive loss due
to slight increases in the market values of our investment securities available
for sale.
At March 31, 2000, the ratio of total stockholders' equity to total
assets was 16.49% compared with 17.36% at December 31, 1999. For the three
months ended March 31, 2000, average stockholders' equity to average assets was
17.01% compared with 14.60% for the year ended December 31, 1999. Stockholders'
equity per common share was $13.16 at March 31, 2000 compared with $12.99 at
December 31, 1999.
Average Balance Sheet. The table on the following page presents
certain information regarding Hudson City Bancorp's financial condition and net
interest income for the three month periods ended March 31, 2000 and 1999. The
table presents the annualized average yield on interest-earning assets and the
annualized average cost of interest-bearing liabilities. We derived the yields
and costs by dividing annualized income or expense by the average balance of
interest-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. Yields on tax-exempt obligations were not computed on a tax equivalent
basis.
Page 11
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Hudson City Bancorp, Inc.
Form 10-Q
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
----------------------------------------------------------------------
2000
----------------------------------------------------------------------
Average Average
Balance Interest Yield/Cost
------------------- -------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
First mortgage loans, net (1)..................... $ 4,235,832 $ 76,813 7.25 %
Consumer and other loans.......................... 114,249 2,266 7.93
Federal funds sold................................ 90,091 1,249 5.58
Mortgage-backed securities........................ 3,157,298 50,050 6.34
Investment securities............................. 878,828 13,679 6.23
------------------- --------------
Total interest-earning assets................. 8,476,298 144,057 6.80
--------------
Noninterest-earning assets............................ 145,211
-------------------
Total assets.................................. $ 8,621,509
===================
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts.................................. $ 799,534 $ 5,040 2.54
Interest-bearing demand accounts.................. 96,689 507 2.11
Money market accounts............................. 480,731 3,201 2.68
Time deposits..................................... 4,960,578 65,559 5.32
------------------- --------------
Total deposits................................ 6,337,532 74,307 4.72
Borrowed funds.................................... 432,418 6,378 5.93
------------------- --------------
Total interest-bearing liabilities............ 6,769,950 80,685 4.79
------------------- --------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits...................... 311,636
Other noninterest-bearing liabilities............. 73,476
-------------------
Total noninterest-bearing liabilities......... 385,112
-------------------
Total liabilities................................. 7,155,062
Stockholders' equity.............................. 1,466,447
-------------------
Total liabilities and stockholders' equity.... $ 8,621,509
===================
Net interest income/net interest rate spread (2)...... $ 63,372 2.01 %
==============
Net interest-earning assets/net interest margin (3)... $ 1,706,348 2.97 %
===================
Ratio of interest-earning assets to
Interest-bearing liabilities...................... 1.25 X
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------------------------------------
1999
--------------------------------------------------------------------
Average Average
Balance Interest Yield/Cost
------------------ -------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
First mortgage loans, net (1)..................... $ 3,570,318 $ 65,933 7.39 %
Consumer and other loans.......................... 86,159 1,725 8.01
Federal funds sold................................ 60,311 665 4.47
Mortgage-backed securities........................ 3,066,938 48,234 6.29
Investment securities............................. 852,374 13,511 6.34
------------------ --------------
Total interest-earning assets................. 7,636,100 130,068 6.81
--------------
Noninterest-earning assets............................ 167,129
------------------
Total assets.................................. $ 7,803,229
==================
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts.................................. $ 831,763 $ 5,391 2.63
Interest-bearing demand accounts.................. 97,051 506 2.11
Money market accounts............................. 502,224 3,439 2.78
Time deposits..................................... 5,101,152 65,454 5.20
------------------ --------------
Total deposits................................ 6,532,190 74,790 4.64
Borrowed funds.................................... - - -
------------------ --------------
Total interest-bearing liabilities............ 6,532,190 74,790 4.64
------------------ --------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits...................... 299,093
Other noninterest-bearing liabilities............. 58,403
------------------
Total noninterest-bearing liabilities......... 357,496
------------------
Total liabilities................................. 6,889,686
Stockholders' equity.............................. 913,543
------------------
Total liabilities and stockholders' equity.... $ 7,803,229
==================
Net interest income/net interest rate spread (2)...... $ 55,278 2.17 %
==============
Net interest-earning assets/net interest margin (3)... $ 1,103,910 2.84 %
==================
Ratio of interest-earning assets to
Interest-bearing liabilities...................... 1.17 X
</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.
Page 12
<PAGE> 13
Hudson City Bancorp, Inc.
Form 10-Q
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
1999
General. Net income was $28.3 million for the three months ended
March 31, 2000, an increase of $4.0 million, or 16.5%, from net income of $24.3
million for the three months ended March 31, 1999. Basic and diluted earnings
per common share were $0.25 for the three months ended March 31, 2000. The
increase in net income was attributable to an increase of $14.0 million in
interest income, offset in part by increases of $5.9 million in interest
expense, $1.7 million in non-interest expense and $2.3 million in income tax
expense. Our annualized return on average assets for the three month period
ended March 31, 2000 was 1.31% compared with 1.24% for the three month period
ended March 31, 1999. Our annualized return on average equity for the first
quarter of 2000 was 7.72% compared with 10.62% for the first quarter of 1999
primarily due to the additional equity received in connection with the
reorganization.
Interest Income. Total interest income increased $14.0 million, or
10.8%, to $144.1 million for the three months ended March 31, 2000 compared with
$130.1 million for the three months ended March 31, 1999. Interest and fees on
first mortgage loans increased $10.9 million, or 16.5%, to $76.8 million for the
three months ended March 31, 2000 compared with $65.9 million for the three
months ended March 31, 1999. Interest on mortgage-backed securities increased
$1.9 million, or 3.9%, to $50.1 million for the three months ended March 31,
2000 compared with $48.2 million for the three months ended March 31, 1999.
The increase in total interest income was primarily due to the
average balance of total interest-earning assets increasing $840.2 million, or
11.0%, to $8.48 billion for the three month period ended March 31, 2000 compared
with $7.64 billion for the three month period ended March 31, 1999. This
increase was primarily attributable to a $665.5 million, or 18.6%, increase in
the average balance of first mortgage loans, net to $4.24 billion for the three
month period ended March 31, 2000 compared with $3.57 billion for the three
month period ended March 31, 1999. The average balance of consumer and other
loans increased $28.0 million, or 32.5%, to $114.2 million for the three month
period ended March 31, 2000 compared with $86.2 million for the three month
period ended March 31, 1999. The average balance of mortgage-backed securities
increased $90.4 million, or 2.9%, to $3.16 billion for the three month period
ended March 31, 2000 compared with $3.07 billion for the corresponding 1999
period. The average balance of investment securities for the three month period
ended March 31, 2000 was $878.8 million, an increase of $26.4 million, or 3.1%,
from the average balance of $852.4 million for the corresponding three month
period in 1999. The increases in the average balances of these interest-earning
assets reflect the use of the net new cash received during the reorganization
and the decline of prepayment activity, year-to-year, primarily due to the
increase in interest rates experienced during 1999 and the first quarter of
2000. These increases also reflect internal growth, financed by borrowed funds
and consistent with our capital management strategy to originate and purchase
first mortgage loans and consumer and other loans, while purchasing 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 slightly offset by a decrease in
the annualized average yield on interest-earning assets to 6.80% for the three
month period ended March 31, 2000 compared with 6.81% for the corresponding 1999
period. The annualized average yield on first mortgage loans, net decreased 14
basis points to 7.25% for the first quarter of 2000 compared with 7.39% for the
first quarter of 1999. The annualized average yield on mortgage-backed
securities increased to 6.34% for the three month period ended March 31, 2000
compared with 6.29% for the three month period ended March 31, 1999. The
Page 13
<PAGE> 14
Hudson City Bancorp, Inc.
Form 10-Q
annualized average yield on investment securities decreased 11 basis points to
6.23% for the three month period ended March 31, 2000 compared with 6.34% for
the corresponding 1999 period. The decreased annualized average yield on first
mortgage loans, net reflects the origination of primarily fixed rate mortgage
loans during late 1998 through most of 1999 at lower interest rates due to the
prevailing market rate conditions during that time period. The slight increase
in the annualized average yield on mortgage-backed securities reflects the
interest rate adjustments in late 1999 and the first quarter of 2000 due to the
increasing market rate environment. The decrease in the annualized average yield
of investment securities was primarily due to the reinvestment, at lower market
interest rates, of the proceeds resulting from the significant amount of calls
and maturities of such securities during the first half of 1999.
Interest Expense. Total interest expense increased $5.9 million, or
7.9%, to $80.7 million for the three month period ended March 31, 2000 compared
with $74.8 million for the three month period ended March 31, 1999. Interest
expense on deposits decreased $0.5 million, or 0.7%, to $74.3 million for the
three months ended March 31, 2000 compared with $74.8 million for the three
months ended March 31, 1999. Interest expense on borrowed funds for the quarter
ended March 31, 2000 was $6.4 million. There were no borrowed funds during the
first quarter of 1999.
The increase in interest expense was in part attributable to an
increase in the average balance of interest-bearing liabilities of $237.8
million, or 3.6%, to $6.77 billion for the three months ended March 31, 2000
compared with $6.53 billion for the corresponding 1999 period. The decrease in
interest expense on deposits is reflective of a decrease in the average balance
of interest-bearing deposits of $194.7 billion, or 3.0%, to $6.34 billion for
the three month period ended March 31, 2000 compared with $6.53 billion for the
three month period ended March 31, 1999. Within the interest-bearing deposit
mix, the average balance of time deposits decreased $140.6 million, or 2.8%, to
$4.96 billion for the first quarter of 2000 compared with $5.10 billion for the
first quarter of 1999. The decrease in the average balance of interest-bearing
deposits primarily reflects the use by our depositors of approximately $110.0
million of funds on deposit with Hudson City Savings Bank to fund their Hudson
City Bancorp common stock purchases during the reorganization and the continued
investment by the public in equity markets, particularly mutual funds, as an
alternative to financial institution deposits. The increase in the overall
average balance of total interest-bearing liabilities resulted from the $432.4
million increase in the average balance of borrowed funds for the quarter ended
March 31, 2000, as there were no borrowed funds outstanding during the first
quarter of 1999. Borrowed funds are being used to offset the decrease in the
average balance of interest-bearing deposits and to fund asset growth consistent
with our capital management strategy.
The increase in interest expense was also attributable to a 15
basis point increase in the annualized average cost of interest-bearing
liabilities to 4.79% for the quarter ended March 31, 2000 from 4.64% for the
corresponding 1999 quarter. The annualized average cost of interest-bearing
deposits increased 8 basis points to 4.72% for the three month period ended
March 31, 2000 compared with 4.64% for the three month period ended March 31,
1999. Within the interest-bearing deposit mix, the annualized average cost of
time deposits increased 12 basis points to 5.32% for the first quarter of 2000
compared with 5.20% for the corresponding 1999 quarter. The increase in the
annualized average cost of interest-bearing deposits reflects the rising market
rate environment during 1999 and the first quarter of 2000 and the fact that the
majority of our time deposits can reprice within one year. The annualized
average cost of borrowed funds for the first quarter of 2000 was 5.93%. Since
our borrowed funds had a higher average cost than our deposits, our increase in
borrowings added to the overall increase in our annualized average cost of
interest-bearing liabilities.
Page 14
<PAGE> 15
Hudson City Bancorp, Inc.
Form 10-Q
Net Interest Income. Net interest income increased $8.1 million, or
14.6%, to $63.4 million for the three month period ended March 31, 2000 compared
with $55.3 million for the three month period ended March 31, 1999. This
increase primarily reflects the increase in the average balance of first
mortgage loans, net and our other investments due to the use of the net proceeds
from the reorganization and the additional earnings generated on the borrowed
funds that were invested. Our net interest rate spread, the difference between
the annualized average yield on average total interest-earning assets and the
annualized average cost of total interest-bearing liabilities, decreased 16
basis points to 2.01% for the three month period ended March 31, 2000 compared
with 2.17% for the corresponding 1999 period. Our net interest margin,
represented by net interest income divided by average total interest-earning
assets, increased 13 basis points to 2.97% for the first quarter of 2000
compared with 2.84% for the first quarter of 1999. The decrease in the net
interest rate spread reflects the rising market rate environment during 1999 and
the first quarter of 2000 and the fact that our interest-bearing liabilities
reprice faster than our interest-earning assets. The increase in the net
interest margin reflects the increase in the average balance of interest-earning
assets due to the investment of the net cash proceeds from the reorganization.
Provision for Loan Losses. Our provision for loan losses for the
first quarter of both 2000 and 1999 was $0.6 million. The allowance for loan
losses increased $0.6 million, or 3.0%, to $20.6 million at March 31, 2000 from
$20.0 million at December 31, 1999. Non-performing loans, defined as
non-accruing loans and accruing loans delinquent 90 days or more, increased $1.2
million, or 8.6%, to $15.2 million at March 31, 2000 from $14.0 million at
December 31, 1999. There were no loan charge-offs during the first quarter of
2000. The current level of the provision for loan losses and the increase in the
allowance for loan losses reflects the growth of the loan portfolio and the
increase in non-performing loans.
At March 31, 2000, the ratio of non-performing loans to total loans
was 0.34% compared with 0.33% at December 31, 1999. The ratio of the allowance
for loan losses to non-performing loans was 135.44% at March 31, 2000 compared
with 142.65% at December 31, 1999. The ratio of non-performing assets to total
assets was 0.18% at March 31, 2000 compared with 0.17% at December 31, 1999. The
ratio of the allowance for loan losses to total loans was 0.46% at March 31,
2000 and December 31, 1999.
Future provisions for loan losses will continue to be based upon
our assessment of the overall loan portfolio and the underlying collateral,
trends in non-performing loans, current economic conditions and other relevant
factors in order to maintain the allowance for loan losses at adequate levels to
provide for estimated losses.
Non-Interest Income. Total non-interest income, consisting
primarily of service fees and other income, decreased $0.1 million, or 8.3%, to
$1.1 million for the three month period ended March 31, 2000 compared with $1.2
million for the corresponding 1999 period. This decrease is primarily due to a
decrease in fees received for insurance purchased by our customers on their
mortgage loans.
Non-Interest Expense. Total non-interest expense increased $1.7
million, or 9.9%, to $18.9 million for the three months ended March 31, 2000
compared with $17.2 million for the three months ended March 31, 1999. Salaries
and employee benefits increased $1.0 million, or 9.2%, to $11.9 million for the
quarter ended March 31, 2000 compared with $10.9 million for the quarter ended
Page 15
<PAGE> 16
Hudson City Bancorp, Inc.
Form 10-Q
March 31, 1999, primarily due to expense recognized in 2000 for the ESOP and
RRP. There was no comparable expense recognized in the first quarter of 1999.
Net occupancy expense increase $0.3 million, or 10.3%, to $3.2
million for the quarter ended March 31, 2000 compared with $2.9 million for the
corresponding 1999 quarter. The increase is primarily due to increases in
maintenance and repairs of banking premises and equipment.
The federal deposit insurance assessment increased primarily due to
an industry wide increase in the premiums charged for deposit insurance by the
FDIC. Goodwill was fully amortized as of December 31, 1999, resulting in no
amortization expense for the quarter ended March 31, 2000.
Other expenses increased $0.7 million, or 28.0%, to $3.2 million
for the quarter ended March 31, 2000 compared with $2.5 million for the
corresponding 1999 quarter. The increase was primarily due to operating expenses
incurred in the first quarter of 2000 related to our existence as a public
company, such as increased fees for professional services and expense related to
the RRP allocation of common stock to non-officer directors. There were no
comparable expenses in the first quarter of 1999.
Our efficiency ratio, which we determined by dividing non-interest
expense by the sum of net interest income and non-interest income, excluding net
gains on securities transactions, was 29.26% for the first quarter of 2000
compared with 30.50% for the first quarter of 1999. Our ratio of non-interest
expense to average assets was 0.88% for the first quarter of both 2000 and 1999.
These favorable ratios reflect our continuing efforts to control operating
costs.
Income Taxes. Income tax expense increased $2.3 million, or 16.0%,
to $16.7 million for the three month period ended March 31, 2000 compared with
$14.4 million for the three month period ended March 31, 1999. The increase is
primarily due to an increase in income before income tax expense of $6.3
million, or 16.3%. The effective tax rate remained relatively stable at 37.1%
for the three month period ended March 31, 2000 compared with 37.3% for the
corresponding 1999 period.
Page 16
<PAGE> 17
Hudson City Bancorp, Inc.
Form 10-Q
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, borrowed funds 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. We have recently
been approved for membership in the FHLB-NY, which will provide us access to
additional sources of borrowed funds. Membership in the FHLB-NY will require the
purchase of FHLB stock.
Scheduled loan repayments and maturing investment securities are a
relatively predictable source of funds. However, deposit flows, calls of
investment securities and borrowed funds, and prepayments of loans and
mortgage-backed securities are strongly influenced by interest rates, general
and local economic conditions and competition in the marketplace. These factors
reduce the predictability of the 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. We
originated and purchased loans of approximately $259.1 million during the first
quarter of 2000 compared with $332.8 million during the first quarter of 1999.
The decrease is primarily due to the increasing interest rate environment which
caused a decrease in prepayments and refinancings. Purchases of mortgage-backed
securities during the first quarter of 2000 were $309.0 million compared with
$364.5 million for the first quarter of 1999. Purchases of investment securities
were $25.3 million and $455.7 for the first quarters of 2000 and 1999,
respectively. During the first quarter of 1999, the high volume of calls of
investment securities necessitated the reinvestment of the proceeds, which
resulted in the high level of purchases during the period.
These investing activities are generally funded by principal
payments on mortgage loans and mortgage-backed securities, calls and maturities
on investment securities, funds provided by our operating activities, borrowings
and deposits. Principal repayments on loans and mortgage-backed securities
totaled $253.0 million during the first quarter of 2000 compared to $573.3
million during the first quarter of 1999. Maturities and calls of investment
securities totaled $0.2 million during the first quarter of 2000 compared with
$374.0 million during the first quarter of 1999 due to the lower interest rate
environment during 1999. During the first quarter of 2000, we borrowed
additional funds of $300.0 million through the use of securities sold under
agreements to repurchase. These borrowings are being used to offset the decrease
in deposits as well as fund asset growth through our capital management
strategy.
During the first quarter of 2000, purchases of common stock by the
employee stock benefit plans were $57.1 million. These plans were not in
existence in the first quarter of 1999 and were substantially funded as of March
31, 2000.
Total deposits decreased $26.3 million during the first quarter of
2000 compared with an increase of $93.8 million during the corresponding 1999
quarter. Deposit flows are affected by the level of interest rates, the interest
rates and products offered by competitors, including equity markets, and other
factors. Time deposit accounts scheduled to mature within one year were $4.20
billion at March 31, 2000. Based on our deposit retention experience and current
pricing strategy, we anticipate
Page 17
<PAGE> 18
Hudson City Bancorp, Inc.
Form 10-Q
that a significant portion of these time deposits will remain with Hudson City
Savings. We are committed to maintaining a strong liquidity position; therefore,
we monitor our liquidity position on a daily basis. We anticipate that we will
have sufficient funds to meet our current funding commitments.
At March 31, 2000, Hudson City Savings had outstanding loan
commitments to borrowers of approximately $158.5 million, and available home
equity and overdraft lines of credit of approximately $55.8 million. There were
commitments to purchase mortgage-backed securities at March 31, 2000 of $3.5
million. In addition to funding these commitments, we have $50.0 million of
borrowed funds maturing in each of the next six months.
On January 13, 2000, the Board of Directors declared a quarterly
cash dividend of five cents ($0.05) per common share outstanding for a dividend
payout ratio of 20.0%. The dividend was paid on March 31, 2000 to stockholders
of record at the close of business on March 17, 2000. On April 13, 2000, the
Board of Directors declared a quarterly cash dividend of seven cents ($0.07) per
common share. The dividend is payable on June 1, 2000 to stockholders of record
at the close of business on May 12, 2000.
During the first quarter of 2000, we opened a new branch location
in Ocean County. We plan to open three additional new branch locations during
2000. The expenditures related to their establishment are not expected to have a
material impact on our financial position or results of operations. 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.
On March 28, 2000, Hudson City Bancorp received the necessary
regulatory approval to repurchase up to 5,781,915 shares of its common stock.
This represents 5% of the total shares of common stock that are issued and
outstanding. Under the approved stock repurchase program, Hudson City Bancorp
will purchase the shares of common stock in the open market and other
transactions from time-to-time, depending on market conditions. The repurchased
shares are expected to be held as treasury stock for general corporate use. As
of March 31, 2000, no shares had been repurchased under the program.
At March 31, 2000, we exceeded each of the applicable regulatory
capital requirements of the FRB and the FDIC. Hudson City Bancorp's leverage
(Tier 1) capital was $1.47 billion, or 17.09%, at March 31, 2000 and its
risk-based total capital ratio was 54.47%. In addition, Hudson City Savings'
leverage (Tier 1) capital was $1.21 billion, or 13.97%, and its risk-based total
capital ratio was 44.78% at March 31, 2000. In order to be classified as
"well-capitalized" by the FDIC, we were required to have leverage (Tier 1)
capital of $432.5 million, or 5.00%. To be classified as a well-capitalized bank
by the FDIC and as a well-capitalized bank holding company by the FRB, we must
also have a Tier 1 risk-based capital ratio of 6.00% and a risk-based total
capital ratio of 10.00%.
Page 18
<PAGE> 19
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 as of December 31, 1999 in Hudson City Bancorp's Annual Report on Form
10-K. The following is an update of the discussion provided therein.
General. As a financial institution, our primary component of
market risk is interest rate volatility. 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 the first quarter of 2000 and did not have
any such hedging transactions in place at March 31, 2000. In the future, we may,
with approval of our Board of Directors, engage in hedging transactions
utilizing derivative instruments.
Interest Rate Risk Compliance. Hudson City Bancorp continues to
monitor the impact of interest rate volatility upon the present value of equity
in the same manner as at December 31, 1999. Assuming a 100 basis point interest
rate increase, the present value of equity would decrease $168.6 million, or
11.29%, at March 31, 2000 relative to the base (no rate change) scenario,
compared with a $146.0 million, or 9.33%, decrease at December 31, 1999 relative
to the base scenario. Assuming a 100 basis point interest rate decrease, the
present value of equity would increase $152.8 million, or 10.23%, at March 31,
2000 relative to the base scenario, compared with a $131.2 million, or 8.38%,
decrease at December 31, 1999 relative to the base scenario.
Page 19
<PAGE> 20
Hudson City Bancorp, Inc.
Form 10-Q
GAP Analysis. The following table presents the amounts of our interest-earning
assets and interest-bearing liabilities outstanding at March 31, 2000 which we
anticipate to reprice or mature in each of the future time periods shown. We
have excluded non-accrual loans from the table.
<TABLE>
<CAPTION>
At March 31, 2000
-----------------------------------------------
More than
Six months six months
or less to one year
------------------ -------------------
(Dollars in thousands)
<S> <C> <C>
Interest-earning assets:
First mortgage loans.................... $ 389,885 $ 390,531
Consumer and other loans................ 27,449 634
Federal funds sold...................... 51,300 -
Mortgage-backed securities.............. 1,281,887 1,123,911
Investment securities................... 249 25
------------------ -------------------
Total interest-earning assets...... 1,750,770 1,515,101
------------------ -------------------
Interest-bearing liabilities:
Savings accounts........................ 20,826 23,033
Interest-bearing demand accounts........ 2,498 2,498
Money market accounts................... 117,868 117,869
Time deposits........................... 3,067,982 1,117,862
Borrowed funds.......................... 300,000 -
------------------ -------------------
Total interest-bearing liabilities. 3,509,174 1,261,262
------------------ -------------------
Interest rate sensitivity gap............... $ (1,758,404) $ 253,839
================== ===================
Cumulative interest rate sensitivity
gap..................................... $ (1,758,404) $ (1,504,565)
================== ===================
Cumulative interest rate sensitivity gap
as a percent of total assets............ (20.03) % (17.14) %
Cumulative interest-earning assets
as a percent of interest-bearing
liabilities............................. 49.89 % 68.46 %
</TABLE>
<TABLE>
<CAPTION>
At March 31, 2000
--------------------------------------------------
More than
More than two years
one year to to three
two years years
------------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Interest-earning assets:
First mortgage loans.................... $ 491,823 $ 423,579
Consumer and other loans................ 1,536 2,867
Federal funds sold...................... - -
Mortgage-backed securities.............. 212,681 102,423
Investment securities................... 547 5,596
------------------- ------------------
Total interest-earning assets...... 706,587 534,465
------------------- ------------------
Interest-bearing liabilities:
Savings accounts........................ 199,121 238,945
Interest-bearing demand accounts........ 24,980 29,976
Money market accounts................... 119,252 119,558
Time deposits........................... 708,109 37,911
Borrowed funds.......................... - -
------------------- ------------------
Total interest-bearing liabilities. 1,051,462 426,390
------------------- ------------------
Interest rate sensitivity gap............... $ (344,875) $ 108,075
=================== ==================
Cumulative interest rate sensitivity
gap..................................... $ (1,849,440) $ (1,741,365)
=================== ==================
Cumulative interest rate sensitivity gap
as a percent of total assets............ (21.07) % (19.84) %
Cumulative interest-earning assets
as a percent of interest-bearing
liabilities............................. 68.23 % 72.13 %
</TABLE>
<TABLE>
<CAPTION>
At March 31, 2000
----------------------------------------------------------------------------
More than
three years
to five More than
years five years Total
--------------------- ------------------ ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
First mortgage loans.................... $ 560,824 $ 2,069,720 $ 4,326,362
Consumer and other loans................ 19,992 67,360 119,838
Federal funds sold...................... - - 51,300
Mortgage-backed securities.............. 88,569 447,196 3,256,667
Investment securities................... 453,811 380,436 840,664
------------------- ------------------ ------------------
Total interest-earning assets...... 1,123,196 2,964,712 8,594,831
------------------- ------------------ ------------------
Interest-bearing liabilities:
Savings accounts........................ 159,297 159,297 800,519
Interest-bearing demand accounts........ 19,984 19,985 99,921
Money market accounts................... 1,229 1,231 477,007
Time deposits........................... 19,593 - 4,951,457
Borrowed funds.......................... 50,000 250,000 600,000
------------------- ------------------ ------------------
Total interest-bearing liabilities. 250,103 430,513 6,928,904
------------------- ------------------ ------------------
Interest rate sensitivity gap............... $ 873,093 $ 2,534,199 $ 1,665,927
=================== ================== ==================
Cumulative interest rate sensitivity
gap..................................... $ (868,272) $ 1,665,927
=================== ==================
Cumulative interest rate sensitivity gap
as a percent of total assets............ (9.89) % 18.98 %
Cumulative interest-earning assets
as a percent of interest-bearing
liabilities............................. 86.64 % 124.04 %
</TABLE>
Page 20
<PAGE> 21
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
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 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 heard oral arguments on September 27,
1999. On December 9, 1999, the Supreme Court of New Jersey unanimously ruled
that lenders may charge borrowers an attorney review fee with regard to loan
documents prepared, or submitted by, or at the direction of the borrowers'
attorneys or the borrowers, whether or not the borrowers are represented by
counsel and regardless of whether such review is "extra work" for the lenders.
In addition, the Court unanimously held that the New Jersey statute regulating
such attorney review fees is preempted in the case of federally chartered
institutions by federal banking regulations. In response to the Court's
decision, the Smith action was dismissed with prejudice.
Page 21
<PAGE> 22
Hudson City Bancorp, Inc.
Form 10-Q
Item 2. - Changes in Securities and Use of Proceeds
Not applicable.
Item 3. - Defaults Upon Senior Securities
Not applicable.
Item 4. - Submission of Matters to a Vote of Security Holders
On January 13, 2000 a special meeting of stockholders of Hudson
City Bancorp, Inc. was held to consider and vote on certain matters. The results
are indicated below.
Proposal 1 - Approval of the Hudson City Bancorp, Inc. 2000 Stock
Option Plan
<TABLE>
<CAPTION>
Non-MHC Shares MHC Shares
-------------- ----------
<S> <C> <C>
For: 41,627,344 61,288,300
Against: 3,394,043 -
Abstained: 416,338 -
</TABLE>
Proposal 2 - Approval of the Hudson City Bancorp, Inc. 2000 Recognition
and Retention Plan
<TABLE>
<CAPTION>
Non-MHC Shares MHC Shares
-------------- ----------
<S> <C> <C>
For: 41,002,329 61,288,300
Against: 3,979,400 -
Abstained: 455,996 -
</TABLE>
Proposal 3 - Authorization of the Board of Directors, in its
discretion, to direct the vote of proxies upon such matters incident to the
conduct of the special meeting as may properly come before the special meeting,
and any adjournment or postponement thereof, including, without limitation, a
motion to adjourn the special meeting. Please note that at this time we are not
aware of any such business.
<TABLE>
<CAPTION>
Non-MHC Shares MHC Shares
-------------- ----------
<S> <C> <C>
For: 41,134,199 61,288,300
Against: 3,701,106 -
Abstained: 548,951 -
Note: There were 53,469 broker held non-voted shares represented at the Special
Meeting with respect to this matter.
</TABLE>
With respect to Proposal 1 and Proposal 2, which were required by
the FDIC to be approved by more than a majority of the outstanding shares of
Hudson City Bancorp that are not held by Hudson City, MHC, a majority of such
shares were voted FOR.
Item 5. - Other Information
Not applicable.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibit Number 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during
the quarter ended March 31, 2000.
Page 22
<PAGE> 23
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: May 8, 2000 By: /s/ Leonard S. Gudelski
-------------------------------------
Leonard S. Gudelski
Chairman and Chief Executive Officer
Date: May 8, 2000 By: /s/ Ronald E. Hermance, Jr.
-------------------------------------
Ronald E. Hermance, Jr.
President and Chief Operating Officer
Page 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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 69,136
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 51,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 839,033
<INVESTMENTS-CARRYING> 3,258,298
<INVESTMENTS-MARKET> 3,248,925
<LOANS> 4,458,702
<ALLOWANCE> 20,613
<TOTAL-ASSETS> 8,777,773
<DEPOSITS> 6,661,792
<SHORT-TERM> 0
<LIABILITIES-OTHER> 68,920
<LONG-TERM> 600,000
0
0
<COMMON> 1,156
<OTHER-SE> 1,445,905
<TOTAL-LIABILITIES-AND-EQUITY> 8,777,773
<INTEREST-LOAN> 79,079
<INTEREST-INVEST> 63,729
<INTEREST-OTHER> 1,249
<INTEREST-TOTAL> 144,057
<INTEREST-DEPOSIT> 74,307
<INTEREST-EXPENSE> 80,685
<INTEREST-INCOME-NET> 63,372
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 18,864
<INCOME-PRETAX> 45,008
<INCOME-PRE-EXTRAORDINARY> 45,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,306
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 2.97
<LOANS-NON> 12,502
<LOANS-PAST> 2,717
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,010
<CHARGE-OFFS> 0
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 20,613
<ALLOWANCE-DOMESTIC> 13,782
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,831
</TABLE>
