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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2001
[ ] 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)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements or any amendment to this Form 10-K.
Yes [ ] No [X]
As of March 25, 2002, the registrant had 115,638,300 shares of common
stock, $0.01 par value, issued and 98,541,910 shares outstanding. Of such
shares outstanding, 61,288,300 shares were held by Hudson City, MHC, the
registrant's mutual holding company and 37,253,610 shares were held by the
public and directors, officers and employees of the registrant. The aggregate
market value of voting stock held by non-affiliates of the registrant as of
March 25, 2002 was $961,755,000. This figure was based on the closing price by
the Nasdaq National Market for a share of the registrant's common stock, which
was $31.50 as reported in the Wall Street Journal on March 26, 2002.
Documents Incorporated by Reference: Portions of the definitive Proxy
Statement dated April 10, 2002 in connection with the Annual Meeting of
Stockholders to be held on May 10, 2002 and any adjournment thereof and which is
expected to be filed with the Securities and Exchange Commission on or about
April 10, 2002, are incorporated by reference into Part III.
HUDSON CITY BANCORP, INC.
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1 Business ................................................... 2
Item 2 Properties ................................................. 44
Item 3 Legal Proceedings .......................................... 44
Item 4 Submission of Matters to a Vote of Security Holders ........ 44
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters..................................................... 45
Item 6 Selected Financial Data .................................... 46
Item 7 Management's Discussion and Analysis of Financial Condition
and Results Of Operations .................................. 48
Item 7a Quantitative and Qualitative Disclosures About Market
Risk ....................................................... 70
Item 8 Financial Statements and Supplementary Data ................ 71
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 102
PART III
Item 10 Directors and Executive Officers of the Registrant ......... 102
Item 11 Executive Compensation ..................................... 102
Item 12 Security Ownership of Certain Beneficial Owners and
Management ................................................. 102
Item 13 Certain Relationships and Related Transactions ............. 103
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K ........................................................ 104
SIGNATURES ................................................................ 107
Page 1
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains certain "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, 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, and 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-K, "we" and
"us" and "our" refer to Hudson City Bancorp, Inc. and its consolidated
subsidiary, Hudson City Savings Bank, depending on the context.
PART I
ITEM 1. BUSINESS.
Hudson City Bancorp is a Delaware corporation organized in 1999 and is
registered as a bank holding company with the Federal Reserve Board ("FRB").
Hudson City Bancorp serves as the holding company of its only subsidiary, Hudson
City Savings Bank. A majority of the outstanding shares of Hudson City Bancorp's
common stock are owned by Hudson City, MHC. Hudson City Bancorp's executive
offices are located at West 80 Century Road, Paramus, New Jersey 07652 and our
telephone number is (201) 967-1900.
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 and became a wholly-owned subsidiary of Hudson City
Bancorp. Hudson City Bancorp sold 54,350,000 shares of its common stock to the
public, representing 47% of the then outstanding shares, at $10.00 per share and
received net proceeds of $527.6 million. Hudson City Bancorp contributed 50% of
the net proceeds from the initial public offering ("IPO") to Hudson City
Savings. An additional 61,288,300 shares, or 53% of the then outstanding shares
of Hudson City Bancorp, were issued to Hudson City, MHC. At December 31, 2001,
as a result of stock repurchases, Hudson City, MHC owned 61.8% of Hudson City
Bancorp.
As part of our reorganization in structure, Hudson City Savings organized
Hudson City, MHC as a New Jersey chartered mutual savings bank holding company
which is registered as a bank holding company with the Federal Reserve Board.
Hudson City, MHC's principal assets are the shares of common stock of Hudson
City Bancorp it received in the reorganization, the $200,000 it received as its
initial capitalization and the cash dividends it receives on the shares of
Hudson City Bancorp common stock it owns. Hudson City, MHC does not engage in
any business activity other than its investment in a majority of the common
stock of Hudson City Bancorp and the management of any cash dividends received
from Hudson City Bancorp. Federal and state law and regulations require that as
long as Hudson City, MHC is in existence it must own a majority of Hudson City
Bancorp's common stock.
Hudson City Savings is a New Jersey chartered stock savings bank,
chartered in 1868. We are the largest savings bank by asset size headquartered
in New Jersey. Our deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"). We are examined and regulated by the Department of
Banking and Insurance of the State of New Jersey and the FDIC.
Page 2
Hudson City Savings is a community and customer-oriented retail savings
bank offering traditional deposit products, residential real estate mortgage
loans and consumer loans. In addition, Hudson City Savings purchases mortgages,
mortgage-backed securities, securities issued by the U.S. government and
agencies and other investments permitted by applicable laws and regulations.
Except for community-related investments, we have not recently originated or
invested in commercial real estate loans, loans secured by multi-family
residences or commercial/industrial business loans, although we have the legal
authority to make such loans. We retain substantially all of the loans we
originate.
Our revenues are derived principally from interest on our mortgage loans
and mortgage-backed securities and interest and dividends on our investment
securities. Our primary sources of funds are deposits, borrowings, scheduled
amortization and prepayments of loan principal and mortgage-backed securities,
maturities and calls of investment securities and funds provided by operations.
MARKET AREA
We conduct our operations out of our executive office in Paramus, Bergen
County, New Jersey, and 81 branches located in 14 counties throughout the State
of New Jersey: Atlantic, Bergen, Burlington, Camden, Essex, Gloucester, Hudson,
Middlesex, Monmouth, Morris, Ocean, Passaic, Union and Warren. We operate in
three primary markets: northern New Jersey, the New Jersey shore, and
southwestern New Jersey in the suburbs of Philadelphia. Overall, the counties in
which we operate reflect approximately 80% of the entire population of New
Jersey, providing us with access to a large base of potential customers.
Our market areas provide distinct differences in demographics and economic
characteristics. The northern New Jersey market (including Bergen, Essex,
Hudson, Middlesex, Morris, Passaic, Union and Warren Counties) represents the
greatest concentration of population, deposits and income in the State. The
combination of these counties represents more than half of the entire New Jersey
population and more than half of New Jersey households. The northern New Jersey
market also represents the greatest concentration of Hudson City Savings retail
operations - both lending and deposit gathering -- and based on its high level
of economic activity, we believe that the northern New Jersey market provides
significant opportunities for future growth. The New Jersey shore market
(including Atlantic, Monmouth and Ocean counties) represents a strong
concentration of population and income, and is an increasingly popular resort
and retirement economy -- providing healthy opportunities for deposit growth and
residential lending. The southwestern New Jersey market (including Burlington,
Camden and Gloucester counties) consists of communities adjacent to the
Philadelphia metropolitan area and represents the smallest concentration of
deposits for Hudson City Savings.
Our future growth opportunities will be influenced by the growth and
stability of the statewide and regional economies, other demographic population
trends and the competitive environment. The slower economic conditions and
periods of recession experienced during 2001 did not impact our recent loan
demand or growth opportunities, but has moderately affected our loan
delinquencies. We believe that we have developed lending products and marketing
strategies to address the diverse credit-related needs of the residents in our
market area.
Page 3
COMPETITION
We face intense competition both in making loans and attracting deposits.
New Jersey has a high concentration of financial institutions, many of which are
branches of large money center and regional banks which have resulted from the
consolidation of the banking industry in New Jersey and surrounding states. Some
of these competitors have greater resources than we do and may offer services
that we do not provide such as insurance products, trust services or investment
services. Customers who seek "one stop shopping" may be drawn to these
institutions.
Our competition for loans comes principally from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies and brokerage and investment banking firms. Our most
direct competition for deposits has historically come from commercial banks,
savings banks, savings and loan associations and credit unions. We face
additional competition for deposits from short-term money market funds and other
corporate and government securities funds and from brokerage firms and insurance
companies.
LENDING ACTIVITIES
Loan Portfolio Composition. Our loan portfolio primarily consists of
one-to four-family residential first mortgage loans. To a lesser degree, the
loan portfolio includes consumer and other loans, including home equity credit
lines and fixed-rate second mortgage loans. We have not originated commercial
real estate loans or loans secured by multi-family residences since the early
1980's and we do not originate construction loans. We stopped originating
commercial/industrial business loans in 1993, although we have the legal
authority to make such loans. From time-to-time, we purchase participation
interests in multi-family and commercial first mortgage loans, and commercial
loans through community-based organizations. These loans amounted to $2.5
million at December 31, 2001.
At December 31, 2001, we had total loans of $5.97 billion, of which $5.82
billion, or 97.5%, were first mortgage loans. Of residential mortgage loans
outstanding at that date, 72.2% were fixed-rate mortgage loans and 27.8% were
variable-rate, or ARM, loans. Commercial real estate and multi-family mortgage
loans outstanding at December 31, 2001 totaled $2.5 million, or 0.04% of total
loans. The remainder of our loans at December 31, 2001, amounting to $149.4
million, or 2.5% of total loans, consisted of consumer and other loans,
primarily fixed-rate second mortgage loans and home equity credit lines. We also
offer guaranteed student loans through the Student Loan Marketing Association
("SallieMae") "Loan Referral Program."
Our loans are subject to federal and state laws and regulations. The
interest rates we charge on loans are affected principally by the demand for
loans, the supply of money available for lending purposes and the interest rates
offered by our competitors. These factors are, in turn, affected by general and
local economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
Page 4
The following table presents the composition of our loan portfolio in
dollar amounts and in percentages of the total portfolio at the dates indicated.
AT DECEMBER 31,
-----------------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
FIRST MORTGAGE LOANS:
One- to
four-family .......... $5,664,973 94.93% $4,607,891 94.56% $4,126,153 95.82%
FHA/VA ............... 151,203 2.53 112,937 2.32 66,150 1.54
Multi-family and
commercial ....... 2,548 0.04 2,380 0.05 2,131 0.05
--------- --------- --------- --------- --------- ---------
Total first
mortgage
loans ......... 5,818,724 97.50 4,723,208 96.93 4,194,434 97.41
--------- --------- --------- --------- --------- ---------
CONSUMER AND OTHER LOANS:
Fixed-rate second
mortgages ........ 115,244 1.93 118,319 2.43 82,913 1.93
Home equity credit
lines ............ 32,715 0.55 29,119 0.60 26,321 0.61
Guaranteed student ... -- -- -- -- 146 --
Other ................ 1,488 0.02 2,094 0.04 2,061 0.05
--------- --------- --------- --------- --------- ---------
Total consumer and
other loans ... 149,447 2.50 149,532 3.07 111,441 2.59
--------- --------- --------- --------- --------- ---------
Total loans ... 5,968,171 100.00% 4,872,740 100.00% 4,305,875 100.00%
========= ========= =========
LESS:
Deferred loan fees ... 12,060 9,555 10,631
Allowance for loan
losses ........... 24,010 22,144 20,010
------ ------ ------
Net loans ........ $5,932,101 $4,841,041 $4,275,234
=========== ========== ==========
AT DECEMBER 31,
-----------------------------------------------
1998 1997
--------------------- ---------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
FIRST MORTGAGE LOANS:
One- to
four-family .......... $3,516,947 96.10% $3,327,371 96.07%
FHA/VA ............... 52,958 1.45 45,868 1.32
Multi-family and
commercial ....... 2,911 0.08 3,553 0.10
--------- --------- --------- ---------
Total first
mortgage
loans ......... 3,572,816 97.63 3,376,792 97.49
--------- --------- --------- ---------
CONSUMER AND OTHER LOANS:
Fixed-rate second
mortgages ........ 56,118 1.53 50,198 1.45
Home equity credit
lines ............ 28,045 0.77 30,211 0.87
Guaranteed student ... 216 0.01 4,315 0.12
Other ................ 2,212 0.06 2,287 0.07
--------- --------- --------- ---------
Total consumer and
other loans ... 86,591 2.37 87,011 2.51
--------- --------- --------- ---------
Total loans ... 3,659,407 100.00% 3,463,803 100.00%
========= =======
LESS:
Deferred loan fees ... 11,146 12,076
Allowance for loan
losses ........... 17,712 15,625
------ ------
Net loans ........ $3,630,549 $3,436,102
========== ==========
Page 5
Loan Maturity. The following table presents the contractual maturity of
our loans at December 31, 2001. The table does not include the effect of
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on first mortgage loans totaled $1.28 billion for 2001,
$475.9 million for 2000 and $720.7 million for 1999.
AT DECEMBER 31, 2001
-----------------------------------------
FIRST MORTGAGE CONSUMER AND
LOANS OTHER LOANS TOTAL
----- ----------- -----
(IN THOUSANDS)
AMOUNTS DUE:
One year or less ......... $ 1,254 $ 953 $ 2,207
------------ ------------ ------------
After one year:
One to three years ... 6,282 8,409 14,691
Three to five years .. 17,220 15,113 32,333
Five to ten years .... 409,587 38,464 448,051
Ten to twenty years .. 950,323 86,508 1,036,831
Over twenty years .... 4,434,058 -- 4,434,058
------------ ------------ -----------
Total due after one
year ............... 5,817,470 148,494 5,965,964
------------ ------------ -----------
Total loans ....... $ 5,818,724 $ 149,447 5,968,171
============ ============
LESS:
Deferred loan fees ....... 12,060
Allowance for loan losses 24,010
------------
Net loans ......... $ 5,932,101
============
The following table presents, as of December 31, 2001, the dollar
amount of all loans due after December 31, 2002, and whether these loans have
fixed interest rates or adjustable interest rates.
DUE AFTER DECEMBER 31, 2002
-------------------------------------
FIXED ADJUSTABLE TOTAL
---------- ---------- ----------
(IN THOUSANDS)
First mortgage loans ................... $4,197,913 $1,619,557 $5,817,470
Consumer and other loans ............... 115,025 33,469 148,494
---------- ---------- ----------
Total loans due after one year $4,312,938 $1,653,026 $5,965,964
========== ========== ==========
Page 6
The following table presents our loan originations, purchases, sales
and principal payments for the periods indicated.
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
TOTAL LOANS:
Balance outstanding at beginning of period $4,872,740 $4,305,875 $3,659,407
---------- ---------- ----------
ORIGINATIONS:
First mortgage loans ..................... 1,523,192 895,074 1,268,875
Consumer and other loans ................. 64,238 73,799 59,687
---------- ---------- ----------
Total originations ................... 1,587,430 968,873 1,328,562
---------- ---------- ----------
PURCHASES:
One- to four-family first mortgage loans . 794,881 55,372 53,279
FHA/VA first mortgage loans .............. 62,356 54,931 21,528
Other first mortgage loans ............... 401 430 162
---------- ---------- ----------
Total purchases ...................... 857,638 110,733 74,969
---------- ---------- ----------
LESS:
Principal payments:
First mortgage loans ................. 1,281,989 475,905 720,671
Consumer and other loans ............. 64,323 35,447 34,468
---------- ---------- ----------
Total principal payments .......... 1,346,312 511,352 755,139
---------- ---------- ----------
Transfers to foreclosed real estate ...... 747 1,126 1,555
Loan sales ............................... 2,578 263 369
---------- ---------- ----------
Balance outstanding at end of period . $5,968,171 $4,872,740 $4,305,875
========== ========== ==========
Residential Mortgage Lending. Our primary lending emphasis is the
origination of first mortgage loans secured by one- to four-family properties
that serve as the primary or secondary residence of the owner. We do not allow
any borrower to have more than two outstanding first mortgage loans with us at
any one time. We do not offer loans secured by cooperative apartment units or
interests therein. Since the early 1980's, we have originated and purchased
substantially all of our one- to four-family first mortgage loans for retention
in our portfolio.
Late in 2000, we established a wholesale loan purchase program designed
principally to supplement our retail loan origination production, which is
currently being done solely within the state of New Jersey. An additional
benefit from the purchase of whole loans involves our desire to diversify assets
outside our local market area, thus providing a safeguard against economic
trends that might affect one particular area of the nation. Through this
program, we expect to obtain assets with a relatively low overhead cost,
minimize related servicing costs, and supplement loan demand in our local
lending areas. We have developed written standard operating guidelines relating
to the purchasing of these assets. These guidelines include the evaluation and
approval process of the various sellers, primarily large national mortgage loan
seller/servicers, from whom we choose to buy whole loans, the types of whole
loans, acceptable property locations and maximum interest rate variances. We
have also developed
Page 7
comprehensive due diligence procedures, which include substantially the same
underwriting standards employed in our own loan origination process, to be
utilized in evaluating the loan quality of the various packages.
The servicing of purchased loans are governed by the servicing
agreement entered into with each servicer. Oversight of the servicer is
maintained by us through review of all reports, remittances and non-performing
loan ratios with appropriate further action taken as required. These operating
guidelines should provide a means of evaluating and monitoring the quality of
mortgage loan purchases and the servicing abilities of the loan servicers. We
purchased first mortgage loans of $857.6 million in 2001.
Most of our loan originations are from existing or past customers,
members of our local communities or referrals from local real estate agents,
attorneys and builders. We believe that our extensive branch network is a
significant source of new loan generation. We also employ a small staff of
representatives who call on real estate professionals to disseminate information
regarding our loan programs and take applications directly from their clients.
These representatives are paid for each origination. In addition, we use the
services of licensed mortgage bankers and brokers for mortgage loan
originations.
We currently offer loans that conform to underwriting standards that
are based on standards specified by FannieMae ("conforming loans"),
non-conforming loans, and loans processed as limited documentation loans, as
described below. These loans may be fixed-rate one- to four-family mortgage
loans or adjustable-rate one- to four-family mortgage loans with maturities up
to 30 years. The non-conforming loans generally follow FannieMae guidelines
except for the loan amounts. FannieMae guidelines limit loans to $300,700; our
non-conforming loans may exceed such limits. The average size of our one- to
four-family mortgage loans originated in 2001 was approximately $298,000. The
overall average size of our one- to four-family first mortgage loans was
approximately $186,000 at December 31, 2001. We are an approved seller/servicer
for FannieMae and an approved servicer for FreddieMac. We generally hold loans
for our portfolio. However, from time to time, we have sold loans in the
secondary market. We sold $2.6 million of first mortgage loans in 2001.
Our originations of first mortgage loans amounted to $1.52 billion in
2001, $895.1 million in 2000 and $1.27 billion in 1999. In 2001 and 1999, a
significant number of our first mortgage loan originations were the result of
refinancing of our existing loans due to the relatively low interest rate levels
during those times. In 2000, with relatively higher interest rates, refinancing
of existing mortgages declined. Total refinancing of our existing first mortgage
loans were as follows:
PERCENT OF
FIRST MORTGAGE
AMOUNT LOAN ORIGINATIONS
-------------- -----------------
(IN MILLIONS)
2001........ $ 272.4 17.9%
2000........ 20.1 2.2
1999........ 212.3 16.7
In April 2001, we began to allow certain customers to modify their
existing mortgage loans with the intent of maintaining customer relationships in
periods of extensive refinancing due to a low interest rate environment. The
modification allows adjustment of the existing interest rate to the currently
offered fixed interest rate product with a similar term, for a fee, after past
payment performance is reviewed. In
Page 8
general, all other terms and conditions of the existing mortgage remain the
same. In 2001, we modified $169.5 million of existing mortgage loans.
We offer a variety of variable-rate and fixed-rate one- to four-family
mortgage loans with maximum loan-to-value ratios that depend on the type of
property and the size of loan involved. The loan-to-value ratio is the loan
amount divided by the appraised value of the property. The loan-to-value ratio
is a measure commonly used by financial institutions to determine exposure to
risk. Except for loans to low- to moderate-income home mortgage applicants,
described below, loans on owner-occupied one-to four-family homes of up to
$500,000 are subject to a maximum loan-to-value ratio of 80%. However, we make
loans in amounts up to $400,000 with a 95% loan-to-value ratio and loans in
excess of $400,000 and less than $500,000 with a 90% loan-to-value ratio if the
borrower obtains private mortgage insurance. Loan-to-value ratios of 80% or less
are also required for one- to four-family loans in excess of $500,000 and less
than $750,000. Loans in excess of $750,000 and up to $1,000,000 are subject to a
maximum 70% loan-to-value ratio. Loan-to-value ratios of 60% or less are
required for one- to four-family loans in excess of $1,000,000 and less than
$1,500,000.
We currently offer fixed-rate mortgage loans in amounts up to $1.5
million with a maximum term of 30 years secured by one- to four-family
residences. We price our interest rates on fixed rate loans to be competitive in
light of market conditions.
We currently offer a variety of ARM loans secured by one- to
four-family residential properties that initially adjust after one year, five
years or ten years. After the initial adjustment period, ARM loans adjust on an
annual basis. The ARM loans that we currently originate have a maximum 30-year
amortization period and are subject to the same loan-to-value ratios applicable
to fixed-rate mortgage loans described above. The interest rates on ARM loans
fluctuate based upon a fixed spread above the monthly average yield on United
States treasury securities, adjusted to a constant maturity of one year
("constant treasury maturity index") and generally are subject to a maximum
increase of 2% per adjustment period and a limitation on the aggregate
adjustment of 5% over the life of the loan. In the current rate environment,
where the yield curve is relatively steep, the ARM loans we offer have initial
interest rates above the fully indexed rate. The loans originated with initial
interest rates above the fully indexed rate may reprice down at their initial
interest reset date, which could adversely effect our net interest income. As of
December 31, 2001, the initial offered rate on these loans was 125 to 200 basis
points above the current fully indexed rate. We originated $152.4 million of
one- to four-family ARM loans in 2001. At December 31, 2001, 27.8% of our one-
to four-family mortgage loans consisted of ARM loans.
The retention of ARM loans in our loan portfolio helps reduce our
exposure to increases in interest rates. However, ARM loans can pose credit
risks different from the risks inherent in fixed-rate loans, primarily because
as interest rates rise, the underlying payments of the borrower may rise, which
increases the potential for default. The marketability of the underlying
property also may be adversely affected. In order to minimize risks, we evaluate
borrowers of one-year ARM loans based on their ability to repay the loans at the
higher of the initial interest rate or the fully indexed rate. All other loan
products are evaluated at the offered rate. In an effort to further reduce
interest rate risk, we have not in the past, nor do we currently, originate ARM
loans which provide for negative amortization of principal.
In addition to our full documentation loan program, we process some
loans as limited documentation loans. We have originated these loans for over 10
years. Loans eligible for limited documentation processing are ARM loans and
15-, 20- and 30-year fixed-rate loans to owner-occupied primary and second home
applicants. These loans are available in amounts up to 75% of the lower of the
appraised value or purchase price of the property. The maximum loan amount for
limited documentation
Page 9
loans is $500,000. We do not charge borrowers additional fees for limited
documentation loans. We require applicants for limited documentation loans to
complete a FreddieMac/FannieMae loan application and request income, assets and
credit history information from the borrower. Additionally, we obtain credit
reports from outside vendors on all borrowers. We also look at other information
to ascertain the credit history of the borrower. Applicants with delinquent
credit histories usually do not qualify for the limited documentation
processing, although relatively minor delinquencies which are adequately
explained will not prohibit processing as a limited documentation loan. We
reserve the right to verify income and asset information and verify such
information where we believe circumstances require verification.
Limited documentation loans involve higher risks compared to loans with
full documentation as there is a greater opportunity for borrowers to falsify
their income and ability to service their debt. We believe that the limited
documentation program has not had a material adverse effect on our asset
quality. See "-- Asset Quality." Unseasoned limited documentation loans are not
readily salable in the secondary market as whole loans. In addition, these loans
may not readily be pooled or securitized. We do not believe that an inability to
sell such loans will have a material adverse impact on our liquidity needs,
because internally generated sources of liquidity are expected to be sufficient
to meet our liquidity needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "-- Sources of Funds."
In addition to our standard mortgage and consumer credit products,
since 1992, we have developed mortgage programs designed to address the credit
needs of low- to moderate-income home mortgage applicants, first-time home
buyers and low- to moderate-income home improvement loan applicants. We define
low- to moderate-income applicants as borrowers residing in low- to
moderate-income census tracts or households with income not greater than 80% of
the median income in the county where the subject property is located. Our low-
to moderate-income home improvement loans are discussed under "-- Consumer
Loans." Among the features of the low- to moderate-income home mortgage and
first-time home buyer's programs are reduced rates, lower down payments, reduced
fees and closing costs, and generally less restrictive requirements for
qualification compared with our traditional one- to four-family mortgage loans.
For instance, certain of these programs currently provide for loans with up to
95% loan-to-value ratios and rates which are 50 to 75 basis points lower than
our traditional mortgage loans. In 2001, we provided $80.2 million in mortgage
loans to home buyers under these programs.
Consumer Loans. At December 31, 2001, $149.4 million, or 2.5%, of our
total loans consisted of consumer and other loans, primarily home equity credit
lines and fixed-rate second mortgage loans. Consumer loans generally have
shorter terms to maturity, which reduces our exposure to changes in interest
rates. Consumer loans also carry higher rates of interest than do one- to
four-family residential mortgage loans. In addition, we believe that offering
consumer loan products helps to expand and create stronger ties to our existing
customer base by increasing the number of customer relationships and providing
cross-marketing opportunities.
We offer fixed-rate second mortgage loans in amounts up to $200,000
secured by owner-occupied one- to four-family residences for terms of up to 20
years. At December 31, 2001 these loans totaled $115.2 million, or 1.9% of total
loans. Interest rates on fixed-rate second mortgage loans are periodically set
by our Consumer Loan Department based on market conditions. The underwriting
standards applicable to these loans generally are the same as one- to
four-family first mortgage loans, except that the combined loan-to-value ratio,
including the balance of the first mortgage, cannot exceed 80% of the appraised
value of the property.
Page 10
We also offer fixed-rate second mortgage loans to low- to
moderate-income borrowers in amounts up to $20,000. The borrower must use a
portion of the loan proceeds for home improvements or the satisfaction of an
existing obligation. The underwriting standards under this program are similar
to those for standard second mortgage loans, except that the combined maximum
loan-to-value ratio is 90%.
Our home equity credit line loans, which totaled $32.7 million, or 0.6%
of total loans at December 31, 2001, are adjustable-rate loans secured by a
second mortgage on owner-occupied one-to four-family residences located in the
State of New Jersey. Current interest rates on home equity credit lines are
based on the "prime rate" as published in the "Money Rates" section of The Wall
Street Journal (the "Index"). Interest rates on home equity credit lines are
adjusted monthly based upon changes in the Index. Minimum monthly principal
payments on currently offered home equity lines of credit are based on 1/240th
of the outstanding principal balance or $100 whichever is greater. The maximum
credit line available is $200,000. The underwriting terms and procedures
applicable to these loans are substantially the same as for our fixed-rate
second mortgage loans.
In the past, we offered commercial/industrial loans primarily for
business investment, business expansion and working capital requirements,
generally to businesses located within our market areas. We do not originate
such loans, except occasionally to community-based organizations. At December
31, 2001 we had commercial/industrial loans totaling $393,000. Other consumer
loans totaled $1.1 million at December 31, 2001 and consisted of collateralized
passbook loans, overdraft protection loans, automobile loans and unsecured
personal loans. We no longer originate student loans, but offer guaranteed
student loans through the SallieMae "Loan Referral Program."
Loan Approval Procedures and Authority. Our lending policies provide
that loans up to $500,000 can be approved by two officers of the Mortgage
Origination department, one of whom must have the title of at least Vice
President. Loans in excess of $500,000 require the approval of two officers, one
of whom must have the title of at least Vice President, as well as our Senior
Vice President-Lending, Chief Executive Officer or Chief Operating Officer. Home
equity credit lines and fixed-rate second mortgage loans in principal amounts of
$25,000 or less are approved by one of our designated loan underwriters. Home
equity loans in excess of $25,000, up to the $200,000 maximum, are approved by
an underwriter and either our Consumer Loan Officer, Senior Vice
President-Lending, Chief Executive Officer or Chief Operating Officer. A listing
of loan approvals is entered into the minutes of the Executive Committee of the
Board of Directors.
The following describes our current lending procedures. Upon receipt of
a completed loan application from a prospective borrower, we order a credit
report and, except for loans originated as limited documentation loans, we
verify certain other information. If necessary, we obtain additional financial
or credit-related information. We require an appraisal for all mortgage loans,
except for some loans made to refinance existing mortgage loans. Appraisals may
be performed by our in-house appraisal department or by licensed or certified
third-party appraisal firms. Currently most appraisals are performed by
third-party appraisers and are reviewed by our in-house appraisal department. We
require title insurance on all mortgage loans, except for home equity credit
lines and fixed-rate second mortgage loans. For these loans, we require evidence
of previous title insurance. We require borrowers to obtain hazard insurance and
we may require borrowers to obtain flood insurance prior to closing. We require
borrowers to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage escrow account from which we make
disbursements for items such as real estate taxes, flood insurance and private
mortgage insurance premiums, if required.
Page 11
ASSET QUALITY
One of our key operating objectives has been and continues to be to
maintain a high level of asset quality. Through a variety of strategies,
including, but not limited to, borrower workout arrangements and aggressive
marketing of owned properties, we have been proactive in addressing problem and
non-performing assets. These strategies, as well as our concentration on one- to
four-family mortgage lending, our maintenance of sound credit standards for new
loan originations and relatively favorable real estate market conditions have
resulted in relatively low delinquency ratios. These factors have helped
strengthen our financial condition.
Delinquent Loans and Foreclosed Assets. When a borrower fails to make
required payments on a loan, we take a number of steps to induce the borrower to
cure the delinquency and restore the loan to a current status. In the case of
mortgage loans, our mortgage servicing department is responsible for collection
procedures from the 15th day up to the 90th day of delinquency. Specific
procedures include a late charge notice being sent at the time a payment is over
15 days past due. Telephone contact is attempted on approximately the 20th day
of the month to avoid a 30 day delinquency. A second written notice is sent at
the time the payment becomes 30 days past due. We send additional letters if no
contact is established by approximately the 45th day of delinquency. On the 60th
day of delinquency, we send another letter followed by continued telephone
contact. Between the 30th and the 60th day of delinquency, if telephone contact
has not been established, an independent contractor makes a physical inspection
of the property. When contact is made with the borrower at any time prior to
foreclosure, we attempt to obtain full payment or work out a repayment schedule
with the borrower in order to avoid foreclosure. It has been our experience that
most loan delinquencies are cured within 90 days and no legal action is taken.
We send foreclosure notices when a loan is 90 days delinquent and we
transfer the loan to the foreclosure/bankruptcy section for referral to legal
counsel. We commence foreclosure proceedings if the loan is not brought current
between the 90th and 120th day of delinquency unless specific limited
circumstances warrant an exception. We hold property foreclosed upon as
foreclosed real estate. We carry foreclosed real estate at the lower of fair
market value less estimated selling costs, or at cost. If a foreclosure action
is commenced and the loan is not brought current, paid in full or refinanced
before the foreclosure sale, we either sell the real property securing the loan
by a foreclosure sale, or sell the property as soon thereafter as practicable.
The collection procedures for Federal Housing Administration (FHA) and Veterans'
Administration (VA) one- to four-family mortgage loans follow the collection
guidelines outlined by those agencies.
The collection procedures for consumer and other loans include our
sending periodic late notices to a borrower once a loan is past due. We attempt
to make direct contact with a borrower once a loan becomes 30 days past due.
Supervisory personnel in our Consumer Loan Collection Department review loans 60
days or more delinquent on a regular basis. If collection activity is
unsuccessful after 90 days, we may refer the matter to our legal counsel for
further collection effort or charge-off the loan. Loans we deem to be
uncollectible are proposed for charge-off by our Collection Department.
Charge-offs of consumer loans require the approval of our Consumer Loan Officer
and our Chief Executive Officer or Chief Operating Officer.
Our policies require that management continuously monitor the status of
the loan portfolio and report to the Board of Directors on a monthly basis.
These reports include information on delinquent loans and foreclosed real
estate.
Page 12
At December 31, 2001, 2000 and 1999, loans delinquent 60 days to 89
days and 90 days or more were as follows:
2001 2000
------------------------------------------- ------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- ------------------- ------------------- -------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NO. OF BALANCE NO. OF BALANCE NO. OF BALANCE NO. OF BALANCE
LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS
------- --------- ------- --------- ------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
One- to four-family
first mortgages .......... 58 $ 7,289 72 $10,556 53 $ 5,552 89 $11,004
FHA/VA first mortgages ..... 36 2,402 55 5,007 28 1,544 36 1,941
Consumer and other loans ... -- -- 3 85 4 10 2 30
------- ------- ------- ------- ------- ------- ------- -------
Total delinquent loans
(60 days and over) ....... 94 $ 9,691 130 $15,648 85 $ 7,106 127 $12,975
======= ======= ======= ======= ======= ======= ======= =======
Delinquent loans (60 days
and over) to total loans . 0.16% 0.26% 0.15% 0.27%
1999
-----------------------------------------
60-89 DAYS 90 DAYS OR MORE
------------------ -------------------
PRINCIPAL PRINCIPAL
NO. OF BALANCE NO. OF BALANCE
LOANS OF LOANS LOANS OF LOANS
------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
One- to four-family
first mortgages .......... 49 $ 5,565 99 $11,955
FHA/VA first mortgages ..... 23 732 46 2,070
Consumer and other loans ... 2 8 1 2
------- ------- ------- -------
Total delinquent loans
(60 days and over) ....... 74 $ 6,305 146 $14,027
======= ======= ======= =======
Delinquent loans (60 days
and over) to total loans . 0.15% 0.33%
Page 13
Non-performing assets, which include foreclosed real estate, net,
non-accrual loans and accruing loans delinquent 90 days or more, increased
$2.5 million, or 18.7%, to $15.9 million at December 31, 2001 from $13.4 million
at December 31, 2000 primarily due to the growth of the loan portfolio and the
slower economy during 2001. The increase in accruing loans delinquent 90 days or
more is primarily due to the increase in purchases of FHA/VA loans. The accrual
of income on FHA/VA loans is generally not discontinued as they are guaranteed
by a federal agency. Our $15.6 million in loans delinquent 90 days or more at
December 31, 2001 were comprised primarily of 127 one- to four-family first
mortgage loans (including FHA/VA first mortgage loans). At December 31, 2001,
our largest loan delinquent 90 days or more had a balance of $478,000.
The following table presents information regarding non-accrual mortgage
and consumer and other loans, accruing loans delinquent 90 days or more, and
foreclosed real estate as of the dates indicated.
AT DECEMBER 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Non-accrual first mortgage loans .......... $ 8,177 $10,422 $11,301 $13,212 $15,103
Non-accrual consumer and other loans ...... 85 30 2 4 325
Accruing loans delinquent 90 days or more . 7,386 2,523 2,724 2,123 706
------- ------- ------- ------- -------
Total non-performing loans .......... 15,648 12,975 14,027 15,339 16,134
Foreclosed real estate, net ............... 250 438 367 1,026 1,410
------- ------- ------- ------- -------
Total non-performing assets ......... $15,898 $13,413 $14,394 $16,365 $17,544
======= ======= ======= ======= =======
Non-performing loans to total loans ....... 0.26% 0.27% 0.33% 0.42% 0.47%
Non-performing assets to total assets ..... 0.14 0.14 0.17 0.21 0.24
The total amount of interest income received during the year on
non-accrual loans outstanding at December 31, 2001, 2000 and 1999 amounted to
$154,000, $179,000 and $242,000, respectively. Additional interest income
totaling $483,000, $652,000 and $625,000 on non-accrual loans would have been
recognized in 2001, 2000 and 1999, respectively, if interest on all such loans
had been recorded based upon original contract terms. We are not committed to
lend additional funds to borrowers on non-accrual status.
With the exception of first mortgage loans insured or guaranteed by the
FHA or VA or for which the borrower has obtained private mortgage insurance, we
stop accruing income on loans when interest or principal payments are 90 days in
arrears or earlier when the timely collectibility of such interest or principal
is doubtful. We designate loans on which we stop accruing income as non-accrual
loans and we reverse outstanding interest that we previously credited to income.
We may recognize income in the period that we collect it when the ultimate
collectibility of principal is no longer in doubt. We return a non-accrual loan
to accrual status when factors indicating doubtful collection no longer exist.
We define the population of impaired loans to be all non-accrual
commercial real estate and multi-family loans. Impaired loans are individually
assessed to determine whether a loan's carrying value is not in excess of the
fair value of the collateral or the present value of the loan's cash flows.
Smaller balance homogeneous loans that are collectively evaluated for
impairment, such as residential mortgage loans and consumer loans, are
specifically excluded from the impaired loan portfolio. We had no loans
classified as
Page 14
impaired at December 31, 2001 and 2000. In addition, at December 31, 2001 and
2000, we had no loans classified as troubled debt restructurings, as defined in
SFAS No. 15.
Foreclosed real estate consists of property we acquired through
foreclosure or deed in lieu of foreclosure. After foreclosure, foreclosed
properties held for sale are carried at the lower of fair value minus estimated
cost to sell, or at cost. A valuation allowance account is established through
provisions charged to income, which results from the ongoing periodic valuations
of foreclosed real estate properties. Fair market value is generally based on
recent appraisals.
Allowance for Loan Losses. The following table presents the activity in
our allowance for loan losses at or for the periods indicated.
AT OR FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Balance at beginning of period ... $ 22,144 $ 20,010 $ 17,712 $ 15,625 $ 13,045
-------- -------- -------- -------- --------
Provision for loan losses ........ 1,875 2,130 2,350 2,400 2,850
-------- -------- -------- -------- --------
Charge-Offs:
First mortgage loans ....... (6) (18) (64) (283) (288)
Consumer and other loans ... (14) -- (9) (53) (42)
-------- -------- -------- -------- --------
Total charge-offs ...... (20) (18) (73) (336) (330)
Recoveries ....................... 11 22 21 23 60
-------- -------- -------- -------- --------
Net (charge-offs) recoveries (9) 4 (52) (313) (270)
-------- -------- -------- -------- --------
Balance at end of period ......... $ 24,010 $ 22,144 $ 20,010 $ 17,712 $ 15,625
======== ======== ======== ======== ========
Net charge-offs to average loans . - % -% 0.001% 0.01% 0.01%
Allowance for loan losses to
total loans ................ 0.40 0.45 0.46 0.48 0.45
Allowance for loan losses to
non-performing loans ....... 153.44 170.67 142.65 115.47 96.85
The allowance for loan losses has been determined in accordance with
accounting principles generally accepted in the United States of America, under
which we are required to maintain adequate allowances for loan losses. We are
responsible for the timely and periodic determination of the amount of the
allowance required. We believe that our allowance for loan losses is adequate to
cover specifically identifiable loan losses, as well as estimated losses
inherent in our portfolio for which certain losses are probable but not
specifically identifiable.
As part of our evaluation of the adequacy of our allowance for loan
losses, each month we prepare a worksheet. This worksheet categorizes the entire
loan portfolio by certain risk characteristics such as loan type (one- to
four-family, multi-family, etc.) and payment status (i.e., current or number of
days delinquent). Loans with known potential losses are categorized separately.
We assign potential loss factors to the payment status categories on the basis
of our assessment of the potential risk inherent in each loan type. We use this
worksheet, together with loan portfolio balances and delinquency reports, to
Page 15
evaluate the adequacy of the allowance for loan losses. Other key factors we
consider in this process are current real estate market conditions, changes in
the trend of non-performing loans, the current state of the local and national
economy and loan portfolio growth.
We establish the provision for loan losses after considering the
results of our review of delinquency and charge-off trends, the allowance for
loan loss worksheet, the amount of the allowance for loan losses in relation to
the total loan balance, loan portfolio growth, accounting principles generally
accepted in the United States of America and regulatory guidance. We have
applied this process consistently and we have made minimal changes in the
estimation methods and assumptions that we have used. We maintain the allowance
for loan losses through provisions for loan losses that we charge to income. We
charge losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
Our primary lending emphasis is the origination of one- to four-family
first mortgage loans on residential properties and, to a lesser extent, second
mortgage loans on one- to four-family residential properties. As a result of our
lending emphasis, we had a loan concentration in residential first mortgage
loans at December 31, 2001, the majority of which are secured by real property
located in New Jersey. Of residential first mortgage loans outstanding at
December 31, 2001, 27.8% or $1.62 billion were adjustable-rate mortgages. The
ability of borrowers to make payments on their adjustable-rate mortgages may
decrease if interest rates rise.
Based on the composition of our loan portfolio and the growth in our
loan portfolio over the past five years, we believe the primary risks inherent
in our portfolio are possible increases in interest rates, a possible decline in
the economy, generally, and a possible decline in real estate market values. Any
one or a combination of these events may adversely affect our loan portfolio
resulting in increased delinquencies and loan losses. Accordingly, we have
maintained our provision for loan losses at the current level to primarily
address the actual growth in our loan portfolio. We consider it important to
maintain the ratio of our allowance for loan losses to total loans within an
acceptable range. At December 31, 2001, the allowance for loan losses as a
percentage of total loans was 0.40% compared with 0.45% at December 31, 1997.
Because of the primary emphasis of our lending practices and the current market
conditions, we consider 0.40% to be within an acceptable range. Furthermore, the
increase in the allowance for loan losses each year from 1997 to 2001 reflected
the continued growth in the loan portfolio, the relatively low levels of loan
charge-offs, the stability in the economy during those years and the resulting
stability in our overall loan quality.
Although we believe that we have established and maintained the
allowance for loan losses at adequate levels, future additions may be necessary
if economic and other conditions in the future differ substantially from the
current operating environment. Although management uses the best information
available, the level of the allowance for loan losses remains an estimate which
is subject to significant judgement and short-term change.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Operating Results for the Years Ended
December 31, 2001 and 2000-- Provision for Loan Losses."
Page 16
The following table presents our allocation of the allowance for loan
losses by loan category and the percentage of loans in each category to total
loans at December 31, 2001, 2000, 1999, 1998, and 1997.
AT DECEMBER 31,
----------------------------------------------------
2001 2000
------------------------- ------------------------
PERCENTAGE PERCENTAGE
OF LOANS IN OF LOANS IN
CATEGORY CATEGORY
TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS
------- ------ ------- ------
(DOLLARS IN THOUSANDS)
First mortgage loans:
One- to four-family
conventional ..... $18,114 94.93% $13,628 94.56%
Other first mortgages 28 2.57 24 2.37
------ ------ ------- -------
Total first
mortgage loans ... 18,142 97.50 13,652 96.93
Consumer and other loans . 1,247 2.50 1,233 3.07
Unallocated .............. 4,621 -- 7,259 --
------- ------ ------- ------
Total allowance for
loan losses ..... $24,010 100.00% $22,144 100.00%
======= ====== ======= ======
AT DECEMBER 31,
------------------------------------------------- -----------------------
1999 1998 1997
------------------------- --------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF LOANS IN OF LOANS IN OF LOANS IN
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ------ ------- ------ ------- --------
(DOLLARS IN THOUSANDS)
First mortgage loans:
One- to four-family
conventional ..... $12,340 95.82% $11,168 96.10% $9,409 96.07%
Other first mortgages 21 1.59 29 1.53 48 1.42
------- ------ ------ ----- ------ -----
Total first
mortgage
loans ......... 12,361 97.41 11,197 97.63 9,457 97.49
Consumer and other loans . 957 2.59 656 2.37 662 2.51
Unallocated .............. 6,692 -- 5,859 -- 5,506 --
------- ------ ------- ------ ------- ------
Total allowance for
loan losses ..... $20,010 100.00% $17,712 100.00% $15,625 100.00%
======= ====== ======= ====== ======= ======
Page 17
INVESTMENT ACTIVITIES
Investment Securities. The Board of Directors reviews and approves our
investment policy on an annual basis. The Chief Executive Officer, Chief
Operating Officer and Investment Officer, as authorized by the Board of
Directors, implement this policy. Management reports securities transactions to
the Executive Committee of the Board of Directors twice a month. The Board of
Directors reviews our investment activity on a monthly basis.
Our investment policy is designed primarily to manage the interest rate
sensitivity of our assets and liabilities, to generate a favorable return
without incurring undue interest rate and credit risk, to complement our lending
activities and to provide and maintain liquidity within established guidelines.
In establishing our investment strategies, we consider our interest rate
sensitivity position, the types of securities to be held, liquidity and other
factors. New Jersey chartered savings banks have authority to invest in various
types of assets, including U.S. Treasury obligations, securities of various
federal agencies, mortgage-backed securities, certain time deposits of insured
banks and savings institutions, certain bankers' acceptances, repurchase
agreements, loans of federal funds, and, subject to certain limits, corporate
debt and equity securities, commercial paper and mutual funds.
Our investment policy currently does not authorize participation in
hedging programs, options or futures transactions or interest rate swaps and
also prohibits the purchase of non-investment grade bonds. In the future we may
amend our policy to allow us to engage in hedging transactions. Our investment
policy also provides that we will not engage in any practice that the FFIEC
considers to be an unsuitable investment practice. In addition, the policy
provides that we shall attempt to maintain primary liquidity, which consists of
investments in cash, cash in banks, money market investments, securities with
remaining maturities of less than five years and GNMA mortgage-backed securities
classified as available for sale, in an amount equal to 4% of total deposits and
short-term borrowings. At December 31, 2001, our primary liquidity ratio was
8.5%. For information regarding the carrying values, yields and maturities of
our investment securities and mortgage-backed securities, see "-- Carrying
Values, Yields and Maturities."
We classify securities as held to maturity or available for sale at the
date of purchase. Held to maturity securities are reported at cost, adjusted for
amortization of premium and accretion of discount. Available for sale securities
are reported at fair market value. We classify obligations of the U.S.
government and federal agencies, corporate bonds and equity securities as
available for sale. We classify municipal bonds as held to maturity. We have
both the ability and positive intent to hold these investments to maturity. We
currently have no securities classified as trading.
Mortgage-backed Securities. All of our mortgage-backed securities are
directly or indirectly insured or guaranteed by GNMA, FannieMae or FreddieMac.
We classify mortgage-backed securities as held to maturity or available for sale
at the date of purchase based on our assessment of our internal liquidity
requirements. Held to maturity mortgage-backed securities are reported at cost,
adjusted for amortization of premium and accretion of discount. We have both the
ability and positive intent to hold these investments to maturity. Available for
sale mortgage-backed securities are reported at fair market value. We currently
have no mortgage-backed securities classified as trading.
At December 31, 2001, mortgage-backed securities classified as held to
maturity totaled $4.48 billion, or 39.2% of total assets, while $530.7 million,
or 4.6% of total assets, were classified as available for sale. At December 31,
2001, the mortgage-backed securities portfolio had a weighted average rate of
6.40% and a market value of approximately $5.06 billion. Of the mortgage-backed
securities we held at December 31, 2001, $2.88 billion, or 57.4% of total
mortgage-backed securities, had fixed rates and $2.13
Page 18
billion, or 42.6% of total mortgage-backed securities, had adjustable-rates.
Mortgage-backed securities at December 31, 2001 included real estate mortgage
investment conduits ("REMICs"), which are securities derived by reallocating
cash flows from mortgage pass-through securities or from pools of mortgage loans
held by a trust. REMICs are a form of, and are often referred to as,
collateralized mortgage obligations ("CMOs"). The volume of our mortgage-backed
security purchases increased during 2001, compared to 2000, due to the lower
interest rate environment which caused an increase in prepayment activity.
Of the mortgage-backed securities purchased in 2001, $2.17 billion were
REMICs. The REMIC purchases in 2001 had fixed interest rates and generally had
shorter average lives compared with alternate mortgage-backed security
investments available at the time of purchase. Our REMICs have fixed coupon
rates ranging from 6.00% to 6.50% and a weighted average rate of 6.36% at
December 31, 2001. At December 31, 2001, REMICs totaled $1.99 billion, which
constituted 39.8% of the mortgage-backed securities portfolio. Our REMICs had an
expected average life of 4.27 years at December 31, 2001. Purchases of
mortgage-backed securities may decline in the future to offset any significant
increase in demand for one- to four-family mortgage loans. We did not sell any
of our mortgage-backed securities during 2001.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. However, mortgage-backed securities are
more liquid than individual mortgage loans and are used to collateralize certain
borrowings. In general, mortgage-backed securities issued or guaranteed by GNMA,
FannieMae and FreddieMac are weighted at no more than 20% for risk-based capital
purposes, compared to the 50% risk weighting assigned to most non-securitized
residential mortgage loans.
While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, they remain subject to the risk of a fluctuating
interest rate environment. Along with other factors, such as the geographic
distribution of the underlying mortgage loans, changes in interest rates may
alter the prepayment rate of those mortgage loans and affect both the prepayment
rates and value of mortgage-backed securities.
Page 19
The following table presents our investment securities activities for
the periods indicated.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
INVESTMENT SECURITIES:
Carrying value at beginning of period .......... $ 878,148 $ 813,437 $ 786,424
--------- --------- ---------
Purchases:
Held to maturity ..................... -- 252 --
Available for sale ................... 130,430 25,000 913,976
Equity securities..................... 10,000 -- --
Calls:
Held to maturity ..................... (40) (150) (15)
Available for sale ................... (855,614) (211) (433,141)
Maturities:
Available for sale ................... -- (325) (300,013)
Sales:
Available for sale ................... -- -- (109,774)
Premium amortization and discount accretion, net -- 39 2,167
Change in unrealized gain or loss .............. 5,944 40,106 (46,187)
--------- --------- ---------
Net (decrease) increase in investment securities (709,280) 64,711 27,013
--------- --------- ---------
Carrying value at end of period ................ $ 168,868 $ 878,148 $ 813,437
========= ========= =========
The following table presents our mortgage-backed securities activity
for the periods indicated.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
2001 2000 1999
----------- ----------- -----------
(IN THOUSANDS)
MORTGAGE-BACKED SECURITIES:
Carrying value at beginning of period .......... $ 3,262,035 $ 3,097,072 $ 3,070,931
----------- ----------- -----------
Purchases:
Held to maturity ...................... 2,804,215 862,546 1,094,073
Available for sale .................... 560,228 -- --
Principal payments:
Held to maturity ...................... (1,584,372) (693,241) (1,059,577)
Available for sale .................... (35,996) -- --
Premium amortization and discount accretion, net (3,797) (4,342) (8,355)
Change in unrealized gain or loss .............. 6,865 -- --
---------- --------- -----------
Net increase in mortgage-backed securities ..... 1,747,143 164,963 26,141
----------- ----------- -----------
Carrying value at end of period ................ $ 5,009,178 $ 3,262,035 $ 3,097,072
=========== =========== ===========
Page 20
The following table presents the composition of our money market
investments, investment securities and mortgage-backed securities portfolios in
dollar amount and in percentage of each investment type at the dates indicated.
It also presents the coupon type for the mortgage-backed securities portfolio.
AT DECEMBER 31,
------------------------------- ------------------------------- -------------------------------
2001 2000 1999
------------------------------- ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
CARRYING OF FAIR CARRYING OF FAIR CARRYING OF FAIR
VALUE TOTAL(1) VALUE VALUE TOTAL(1) VALUE VALUE TOTAL(1) VALUE
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
(DOLLARS IN THOUSANDS)
MONEY MARKET INVESTMENTS:
Federal funds sold ..... $ 17,600 100.00% $ 17,600 $ 121,700 100.00% $ 121,700 $ 116,600 100.00% $ 116,600
========== ====== ========== ========== ====== ========== ========== ====== ==========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds ........ $ 1,441 0.85% $ 1,474 $ 1,481 0.17% $ 1,496 $ 1,379 0.17% $ 1,348
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
AVAILABLE FOR SALE:
United States government
and agencies ......... 156,408 92.62 156,408 875,202 99.66 875,202 810,078 99.59 810,078
Corporate bonds ........ 1,044 0.62 1,044 1,465 0.17 1,465 1,980 0.24 1,980
Equity securities ...... 9,975 5.91 9,975 -- -- -- -- -- --
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
Total available for
sale ................... 167,427 99.15 167,427 876,667 99.83 876,667 812,058 99.83 812,058
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
Total investment
securities ............. $ 168,868 100.00% $ 168,901 $ 878,148 100.00% $ 878,163 $ 813,437 100.00% $ 813,406
========== ====== ========== ========== ====== ========== ========== ====== ==========
MORTGAGE-BACKED
SECURITIES
BY ISSUER:
HELD TO MATURITY:
GNMA pass-through
certificates ......... $1,704,584 34.03% $1,730,296 $2,457,168 75.32% $2,474,259 $2,208,007 71.30% $2,216,980
FNMA pass-through
certificates ......... 642,457 12.83 656,063 635,691 19.49 641,715 673,328 21.74 654,915
FHLMC pass-through
certificates ......... 139,149 2.78 142,856 161,684 4.96 164,099 189,258 6.11 187,580
FHLMC, FNMA and
GNMA REMICs .......... 1,992,298 39.77 2,001,477 7,492 0.23 7,431 26,479 0.85 26,121
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
Total held to
maturity ............. 4,478,488 89.41 4,530,692 3,262,035 100.00 3,287,504 3,097,072 100.00 3,085,596
AVAILABLE FOR SALE:
GNMA pass-through
certificates ......... 530,690 10.59 530,690 -- -- -- -- -- --
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
Total mortgage-backed
securities ............. $5,009,178 100.00% $5,061,382 $3,262,035 100.00% $3,287,504 $3,097,072 100.00% $3,085,596
========== ====== ========== ========== ====== ========== ========== ====== ==========
BY COUPON TYPE:
Adjustable-rate ........ $2,131,492 42.55% $2,151,018 $2,391,200 73.30% $2,401,842 $2,276,037 73.49% $2,281,060
Fixed-rate ............. 2,877,686 57.45 2,910,364 870,835 26.70 885,662 821,035 26.51 804,536
---------- ------ ---------- ---------- ------ ---------- ---------- ------ ----------
Total mortgage-backed
securities ........... $5,009,178 100.00% $5,061,382 $3,262,035 100.00% $3,287,504 $3,097,072 100.00% $3,085,596
========== ====== ========== ========== ====== ========== ========== ====== ==========
TOTAL INVESTMENT PORTFOLIO . $5,195,646 $5,247,883 $4,261,883 $4,287,367 $4,027,109 $4,015,602
========== ========== ========== ========== ========== ==========
- ----------------
(1) Based on carrying value for each investment type.
Page 21
Carrying Values, Rates and Maturities. The table below presents
information regarding the carrying values, weighted-average rates and
contractual maturities of our money market investments, investment securities
and mortgage-backed securities at December 31, 2001. Mortgage-backed securities
are presented by issuer and by coupon type. Equity securities have been excluded
from this table.
AT DECEMBER 31, 2001
---------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS
----------------------- ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE RATE VALUE RATE VALUE RATE
------- ---- ------- ---- -------- ----
(Dollars in thousands)
MONEY MARKET
INVESTMENTS:
Federal funds
sold ................ $17,600 1.50% $ -- - % $ -- - %
======= ======= ========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds ....... $ -- -- $ 265 5.94 $ 924 6.22
------- ------- --------
AVAILABLE FOR SALE:
United States
government agencies ... -- -- 25,070 7.21 131,338 5.92
Corporate bonds ....... 653 7.41 266 4.16 125 5.35
------- ------- --------
Total available for
sale .................. 653 7.41 25,336 7.18 131,463 5.92
------- ------- --------
Total investment
securities ............ $ 653 7.41 $25,601 7.17 $132,387 5.92
======= ======= ========
MORTGAGE-BACKED
SECURITIES
BY ISSUER:
HELD TO MATURITY:
GNMA pass-through
certificates ......... $ -- -- $ 2,550 8.05 $ 10,462 8.65
FNMA pass-through
certificates ........ -- -- 269 6.92 91,855 6.73
FHLMC pass-through
certificates ........ 32 9.79 2,987 9.41 37,566 7.27
FHLMC, FNMA and
GNMA REMIC's ....... -- -- -- -- -- --
------- ------- --------
Total held to
maturity ............ 32 9.79 5,806 8.69 139,883 7.02
AVAILABLE FOR SALE:
GNMA pass-through
certificates ........ -- -- -- -- -- --
------- ------- --------
Total mortgage-backed
securities .......... $ 32 9.79 $ 5,806 8.69 $139,883 7.02
======= ======= ========
BY COUPON TYPE:
Adjustable-rate ....... $ -- -- $ 269 6.92 $ -- --
Fixed-rate ............ 32 9.79 5,537 8.78 139,883 7.02
------- ------- --------
Total mortgage-backed
securities .......... $ 32 9.79 $ 5,806 8.69 $139,883 7.02
======= ======= ========
TOTAL INVESTMENT PORTFOLIO $18,285 1.73 $31,407 7.45 $272,270 6.49
======= ======= ========
AT DECEMBER 31, 2001
--------------------------------------------------------
MORE THAN TEN YEARS TOTAL
------------------------- ------------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE RATE VALUE RATE
========== ==== ========== ====
MONEY MARKET
INVESTMENTS: ( Dollars in thousands )
Federal funds
sold ................ $ -- -- % $ 17,600 1.50%
========== ==========
INVESTMENT SECURITIES:
HELD TO MATURITY:
Municipal bonds ....... $ 252 5.84 $ 1,441 6.10
---------- ----------
AVAILABLE FOR SALE:
United States
government agencies ... -- -- 156,408 6.13
Corporate bonds ....... -- -- 1,044 6.34
---------- ----------
Total available for
sale .................. -- -- 157,452 6.13
---------- ----------
Total investment
securities ............ $ 252 5.84 $ 158,893 6.13
========== ==========
MORTGAGE-BACKED
SECURITIES
BY ISSUER:
HELD TO MATURITY:
GNMA pass-through
certificates ......... $1,691,572 6.50 $1,704,584 6.52
FNMA pass-through
certificates ........ 550,333 6.95 642,457 6.92
FHLMC pass-through
certificates ........ 98,564 6.88 139,149 7.04
FHLMC, FNMA and
GNMA REMIC's ....... 1,992,298 6.36 1,992,298 6.36
---------- ----------
Total held to
maturity ............ 4,332,767 6.50 4,478,488 6.52
AVAILABLE FOR SALE:
GNMA pass-through
certificates ........ 530,690 5.33 530,690 5.33
---------- ----------
Total mortgage-backed
securities .......... $4,863,457 6.37 $5,009,178 6.40
========== ==========
BY COUPON TYPE:
Adjustable-rate ....... $2,131,223 6.16 $2,131,492 6.16
Fixed-rate ............ 2,732,234 6.54 2,877,686 6.57
---------- ----------
Total mortgage-backed
securities .......... $4,863,457 6.37 $5,009,178 6.40
========== ==========
TOTAL INVESTMENT PORTFOLIO $4,863,709 6.37 $5,185,671 6.38
========== ==========
Page 22
SOURCES OF FUNDS
General. Deposits, borrowings, scheduled amortization and prepayments of
loan principal and mortgage-backed securities, maturities and calls of
investment securities and funds provided by operations are our primary sources
of funds for use in lending, investing and for other general purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Deposits. We offer a variety of deposit accounts having a range of
interest rates and terms. We currently offer regular savings deposits
(consisting of passbook and statement savings accounts), NOW accounts, checking
accounts, money market accounts and time deposits. We also offer IRA accounts
and qualified retirement plans.
Deposit flows are influenced significantly by general and local economic
conditions, changes in prevailing interest rates, pricing of deposits and
competition. Our deposits are primarily obtained from market areas surrounding
our offices. We rely primarily on paying competitive rates, providing strong
customer service and maintaining long-standing relationships with customers to
attract and retain these deposits. We do not use brokers to obtain deposits. We
believe the increase in total deposits in 2001 was due in part to the volatility
in the equity markets, our offering competitive rates on our time deposit
products and deposit movement among financial institutions due to consolidation
within our industry.
When we determine our deposit rates, we consider local competition, U.S.
Treasury securities offerings and the rates charged on other sources of funds.
Core deposits (defined as regular savings deposits, money market accounts and
noninterest-bearing transaction accounts) represented 21.6% of total deposits on
December 31, 2001. At December 31, 2001, time deposits with remaining terms to
maturity of less than one year amounted to $5.52 billion. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Analysis of Net Interest Income" for information relating to the average
balances and costs of our deposit accounts for the years ended December 31,
2001, 2000 and 1999.
Page 23
The following table presents our deposit activity for the periods
indicated:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2001 2000 1999
---------- ----------- -----------
(DOLLARS IN THOUSANDS)
Total deposits at beginning of period $6,604,121 $ 6,688,044 $ 6,807,339
Net deposits ........................ 1,001,634 (394,436) (415,012)
Interest credited, net penalties .... 307,007 310,513 295,717
---------- ----------- -----------
Total deposits at end of period ..... $7,912,762 $ 6,604,121 $ 6,688,044
========== =========== ===========
Net increase (decrease) ............. $1,308,641 $ (83,923) $ (119,295)
========== =========== ===========
Percent increase (decrease) ......... 19.82% (1.25)% (1.75)%
At December 31, 2001, we had $923.8 million in time deposits with balances
of $100,000 and over maturing as follows:
MATURITY PERIOD AMOUNT
--------------- ------
(IN THOUSANDS)
Three months or less .................................... $410,695
Over three months through six months .................... 193,749
Over six months through 12 months ....................... 255,656
Over 12 months .......................................... 63,730
--------
Total ......................................... $923,830
========
Page 24
The following table presents the distribution of our deposit accounts at
the dates indicated by dollar amount and percent of portfolio, and the weighted
average nominal interest rate on each category of deposits.
AT DECEMBER 31,
-----------------------------------------------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
PERCENT AVERAGE PERCENT AVERAGE PERCENT AVERAGE
OF TOTAL NOMINAL OF TOTAL NOMINAL OF TOTAL NOMINAL
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
(DOLLARS IN THOUSANDS)
Savings ..................... $ 814,367 10.29% 2.05% $ 757,607 11.47% 2.29% $ 804,105 12.02% 2.50%
Interest-bearing demand ..... 102,185 1.29 1.24 96,611 1.46 1.49 96,828 1.45 2.00
Money market ................ 516,700 6.53 2.12 448,860 6.80 2.40 486,794 7.28 2.68
Noninterest-bearing demand .. 375,659 4.75 -- 332,177 5.03 -- 308,115 4.61 --
---------- ------ ---------- ------ ---------- ------
Total .................... 1,808,911 22.86 1.60 1,635,255 24.76 1.81 1,695,842 25.36 2.07
---------- ------ ---------- ------ ---------- ------
Time deposits:
Time deposits $100,000
and over ............... 923,830 11.68 4.07 600,605 9.09 5.99 536,664 8.02 5.18
Time deposits less than
$100,000 with original
maturities of:
Three months or less ... 709,409 8.97 3.33 567,746 8.60 6.06 545,068 8.15 5.35
Over three months to
twelve months ........ 2,114,885 26.73 4.03 1,929,952 29.22 6.11 1,178,064 17.61 5.06
Over twelve months to
twenty-four months ... 1,382,543 17.47 4.37 1,049,847 15.90 5.56 1,919,050 28.70 5.12
Over twenty-four months
to thirty-six months . 324,533 4.10 5.22 263,955 4.00 5.82 242,325 3.62 5.38
Over thirty-six months
to forty-eight months 56,831 0.72 5.04 31,350 0.47 5.53 33,880 0.51 5.50
Over forty-eight months
to sixty months ...... 8,878 0.11 4.60 2,989 0.05 5.29 3,730 0.06 5.30
Over sixty months ...... 15,891 0.20 4.88 11,547 0.17 5.11 14,130 0.21 5.21
IRA and Keogh
accounts ............. 567,051 7.16 4.59 510,875 7.74 5.84 519,291 7.76 5.22
---------- ------ ---------- ------ ---------- ------
Total time deposits .... 6,103,851 77.14 4.16 4,968,866 75.24 5.92 4,992,202 74.64 5.16
---------- ------ ---------- ------ ---------- ------
Total deposits ......... $7,912,762 100.00% 3.57 $6,604,121 100.00% 4.90 $6,688,044 100.00% 4.38
========== ====== ========== ====== ========== ======
Page 25
The following table presents, by rate category, the amount of our time
deposit accounts outstanding at December 31, 2001, 2000 and 1999.
AT DECEMBER 31,
----------------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
TIME DEPOSIT ACCOUNTS:
3.00% or less...... $ 1,441 $ 1,479 $ 1,642
3.01% to 3.50% .... 1,670,805 -- --
3.51% to 4.00% .... 1,022,767 -- --
4.01% to 4.50% .... 1,149,054 -- 9
4.51% to 5.00% .... 1,750,701 87,211 1,914,559
5.01% to 5.50% .... 181,584 1,317,649 2,305,200
Over 5.50%... 327,499 3,562,527 770,792
---------- ---------- ----------
Total ....... $6,103,851 $4,968,866 $4,992,202
========== ========== ==========
The following table presents, by rate category, the remaining period to
maturity of time deposit accounts outstanding as of December 31, 2001.
PERIOD TO MATURITY FROM DECEMBER 31, 2001
--------------------------------------------------------------------------------------------------------
OVER OVER SIX OVER TWO
WITHIN THREE MONTHS OVER ONE TO OVER
THREE TO SIX TO TO TWO THREE THREE
MONTHS MONTHS ONE YEAR YEARS YEARS YEARS TOTAL
------ ------ -------- ----- ----- ----- -----
(IN THOUSANDS)
TIME DEPOSIT ACCOUNTS:
3.00% or less $ 1,441 $ -- $ -- $ -- $ -- $ -- $ 1,441
3.01% to 3.50% . .. 715,423 312,230 593,171 49,981 -- -- 1,670,805
3.51% to 4.00% .... 190,001 325,355 396,421 102,187 6,589 2,214 1,022,767
4.01% to 4.50% .... 595,834 161,320 268,335 106,360 7,859 9,346 1,149,054
4.51% to 5.00% .... 668,644 394,021 425,008 207,086 44,425 11,517 1,750,701
5.01% to 5.50% .... 113,945 653 46,108 18,114 2,044 720 181,584
Over 5.50% . 130,903 74,909 106,262 12,739 1,255 1,431 327,499
---------- ---------- ---------- -------- ------- ---------- ----------
Total ....... $2,416,191 $1,268,488 $1,835,305 $496,467 $62,172 $ 25,228 $6,103,851
========== ========== ========== ======== ======= ========== ==========
Borrowings. Hudson City enters into sales of securities under agreements
to repurchase with selected brokers and the FHLB. These agreements are
recorded as financing transactions as Hudson City maintains effective control
over the transferred securities. The dollar amount of the securities underlying
the agreements continues to be carried in Hudson City's securities portfolio.
The obligations to repurchase the securities are reported as a liability in the
consolidated statements of financial condition.
The securities underlying the agreements are delivered to the party with
whom each transaction is executed. They agree to resell to Hudson City the same
securities at the maturity or call of the agreement. Hudson City retains the
right of substitution of the underlying securities throughout the terms of the
agreements.
Page 26
Hudson City has also obtained advances from the FHLB, which are generally
secured by a blanket lien against our mortgage portfolio. Borrowings with the
FHLB are generally limited to twenty times the amount of FHLB stock owned.
Borrowed funds at December 31 are summarized as follows:
2001 2000
------------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PRINCIPAL RATE PRINCIPAL RATE
---------- ---- ---------- -----
(DOLLARS IN THOUSANDS)
Securities sold under agreements to repurchase:
FHLB ..................................... $ 700,000 5.22% $ 300,000 5.71%
Other brokers ............................ 850,000 5.17 950,000 6.20
---------- ----------
Total securities sold under 1,550,000 5.19 1,250,000 6.08
agreements to repurchase ........
Advances from the FHLB ........................ 600,000 4.48 -- --
---------- ----------
Total borrowed funds ................. $2,150,000 4.99 $1,250,000 6.08
========== ==========
At December 31, 2001, borrowed funds had scheduled maturities and
potential call dates as follows:
BORROWINGS BY SCHEDULED BORROWINGS BY NEXT
MATURITY DATE POTENTIAL CALL DATE
------------------------ -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
YEAR PRINCIPAL RATE PRINCIPAL RATE
----------- ---- ----------- ----
2002......... $ -- --% $ 500,000 5.76%
2003......... 50,000 4.73 200,000 5.07
2004......... 50,000 5.00 500,000 4.84
2005......... 150,000 5.35 475,000 4.58
2006......... 50,000 4.50 475,000 4.74
2008......... 100,000 4.75 -- --
2009......... 200,000 5.72 -- --
2010......... 350,000 5.58 -- --
2011......... 1,200,000 4.71 -- --
--------- -----------
Total.. $ 2,150,000 4.99 $ 2,150,000 4.99
=========== ===========
Page 27
The amortized cost and fair value of the underlying securities used as
collateral for securities sold under agreements to repurchase, the average
balances and the maximum outstanding at any month-end at or for the years ended
December 31, 2001 and 2000 are as follows:
AT OR FOR THE YEAR
ENDED
DECEMBER 31,
2001 2000
---------- ----------
(IN THOUSANDS)
Amortized cost of collateral:
United States government agency securities $ 75,012 $ 392,612
Mortgage-backed securities ............... 1,237,740 995,764
REMIC's .................................. 315,193 --
---------- ----------
Total amortized cost of collateral .. $1,627,945 $1,388,376
========== ==========
Fair value of collateral:
United States government agency securities $ 75,864 $ 390,550
Mortgage-backed securities ............... 1,253,531 1,002,669
REMIC's .................................. 321,140 --
---------- ----------
Total fair value of collateral ...... $1,650,535 $1,393,219
========== ==========
Average balance of outstanding borrowings
during the year .......................... $1,731,918 $ 797,966
========== ==========
Maximum balance of outstanding borrowings
at any month-end during the year ......... $2,150,000 $1,250,000
========== ==========
SUBSIDIARY
Hudson City Savings has one active, wholly-owned and consolidated
subsidiary: Hudson City Preferred Funding Corp. This subsidiary qualifies as a
real estate investment trust, pursuant to the Internal Revenue Code of 1986, as
amended, and holds $3.45 billion of one- to four-family mortgage loans as of
December 31, 2001.
PERSONNEL
As of December 31, 2001, we had 980 full-time employees and 53 part-time
employees. The employees are not represented by a collective bargaining unit and
we consider our relationship with our employees to be good.