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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2004

o 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x     No o

As of August 4, 2004, the registrant had 187,109,581 shares of common stock, $0.01 par value, outstanding. Of such shares outstanding, 122,576,600 shares were held by Hudson City, MHC, the registrant’s mutual holding company, and 64,532,981 shares were held by the public and directors, officers and employees of the registrant.

 

Hudson City Bancorp, Inc.
Form 10-Q

Contents of Report

         
    Page
    Number
       
       
    3  
    4  
    5  
    6  
    13  
    31  
    35  
       
    35  
    35  
    36  
    36  
    36  
    37  
    38  
 CERTIFICATION
 CERTIFICATION
 CERTIFICATION

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.

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PART I — FINANCIAL INFORMATION

Item 1. — Financial Statements

Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition
                 
    June 30,   December 31,
    2004
   2003
    (Unaudited)        
    (In thousands)
Assets
                
Cash and due from banks
  $ 149,034     $ 190,984  
Federal funds sold
     13,700       63,600  
 
    
 		      
 		  
Total cash and cash equivalents
    162,734       254,584  
Investment securities held to maturity, market value of $1,081,974 at June 30, 2004 and $1,443 at December 31, 2003
     1,100,424       1,366  
Investment securities available for sale, at market value
     1,682,553       2,243,812  
Federal Home Loan Bank of New York stock
     150,000       164,850  
Mortgage-backed securities held to maturity, market value of $3,817,798 at June 30, 2004 and $4,250,688 at December 31, 2003
    3,967,628       4,292,444  
Mortgage-backed securities available for sale, at market value
    1,369,389       1,130,257  
Loans
     10,051,557       8,803,066  
Less:
                
Deferred loan fees
    11,669       10,255  
Allowance for loan losses
    26,990       26,547  
 
    
 		      
 		  
Net loans
     10,012,898       8,766,264  
Foreclosed real estate, net
     1,278       1,002  
Accrued interest receivable
    94,063       80,220  
Banking premises and equipment, net
    33,918       31,354  
Other assets
     96,450       67,207  
 
    
 		      
 		  
Total Assets
   $ 18,671,335     $ 17,033,360  
 
    
 		      
 		  
Liabilities and Stockholders’ Equity
                
Deposits:
                
Interest-bearing
   $ 10,610,849     $ 10,057,285  
Noninterest-bearing
     465,612       396,495  
 
    
 		      
 		  
Total deposits
    11,076,461       10,453,780  
Borrowed funds
     6,200,000       5,150,000  
Accrued expenses and other liabilities
     107,572       100,214  
 
    
 		      
 		  
Total liabilities
     17,384,033       15,703,994  
 
    
 		      
 		  
Common stock, $0.01 par value, 800,000,000 shares authorized; 231,276,600 shares issued, 187,156,831 shares outstanding at June 30, 2004, 189,835,997 shares outstanding at December 31, 2003
     2,313       2,313  
Additional paid-in capital
     560,062       543,589  
Retained earnings
     1,487,702       1,396,257  
Treasury stock, at cost; 44,119,769 shares at June 30, 2004 and 41,440,603 shares at December 31, 2003
     (655,567 )     (547,859 )
Unallocated common stock held by the employee stock ownership plan
     (48,533 )     (49,513 )
Unearned common stock held by the recognition and retention plan
    (11,062 )     (9,463 )
Accumulated other comprehensive loss, net of tax
    (47,613 )     (5,958 )
 
    
 		      
 		  
Total stockholders’ equity
    1,287,302       1,329,366  
 
    
 		      
 		  
Total Liabilities and Stockholders’ Equity
   $ 18,671,335     $ 17,033,360  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Income
(Unaudited)
                                 
    For the Three Months   For the Six Months
    Ended June 30,
   Ended June 30,
    2004
   2003
   2004
   2003
    (In thousands, except share data)
Interest and Dividend Income:
                                
Interest and fees on first mortgage loans
   $ 127,892     $ 100,818     $ 250,979     $ 207,527  
Interest and fees on consumer and other loans
     2,083       2,087       4,132       4,212  
Interest on mortgage-backed securities held to maturity
     44,104       54,723       89,955       115,798  
Interest on mortgage-backed securities available for sale
     16,864       11,625       32,660       26,024  
Interest on investment securities held to maturity:
                                
Taxable
    10,365       17       11,691       34  
Exempt from federal taxes
     6       5       11       10  
Interest and dividend income on investment securities available for sale-taxable
     18,450       20,755       42,387       32,445  
Dividends on Federal Home Loan Bank of New York stock
     733       2,069       1,392       4,059  
Interest on federal funds sold
    294       557       611       1,083  
 
    
 		      
 		      
 		      
 		  
Total interest and dividend income
     220,791       192,656       433,818       391,192  
 
    
 		      
 		      
 		      
 		  
Interest Expense:
                                
Interest on deposits
     51,431       53,676       101,200       109,360  
Interest on borrowed funds
    50,400       40,916       98,119       81,186  
 
    
 		      
 		      
 		      
 		  
Total interest expense
    101,831       94,592       199,319       190,546  
 
    
 		      
 		      
 		      
 		  
Net interest income
     118,960       98,064       234,499       200,646  
Provision for Loan Losses
     225       225       450       450  
 
    
 		      
 		      
 		      
 		  
Net interest income after provision for loan losses
     118,735       97,839       234,049       200,196  
 
    
 		      
 		      
 		      
 		  
Non-Interest Income:
                                
Service charges and other income
     1,282       1,309       2,476       2,611  
Gains on securities transactions, net
     2,634       8,628       5,071       12,799  
 
    
 		      
 		      
 		      
 		  
Total non-interest income
     3,916       9,937       7,547       15,410  
 
    
 		      
 		      
 		      
 		  
Non-Interest Expense:
                                
Compensation and employee benefits
     19,787       16,281       39,471       33,197  
Net occupancy expense
     3,804       3,580       7,744       7,443  
Federal deposit insurance assessment
     406       385       823       763  
Computer and related services
     417       346       956       681  
Other expense
    4,770       4,320       9,243       8,350  
 
    
 		      
 		      
 		      
 		  
Total non-interest expense
     29,184       24,912       58,237       50,434  
 
    
 		      
 		      
 		      
 		  
Income before income tax expense
     93,467       82,864       183,359       165,172  
Income Tax Expense
     35,049       30,318       68,712       60,425  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 58,418     $ 52,546     $ 114,647     $ 104,747  
 
    
 		      
 		      
 		      
 		  
Basic Earnings Per Share
  $ 0.32     $ 0.29     $ 0.63     $ 0.57  
 
    
 		      
 		      
 		      
 		  
Diluted Earnings Per Share
   $ 0.32     $ 0.28     $ 0.62     $ 0.56  
 
    
 		      
 		      
 		      
 		  
Weighted Average Number of Common Shares Outstanding:
                                
Basic
     180,345,017       182,660,915       180,934,489       182,712,314  
Diluted
     185,410,221       187,810,046       186,204,987       187,623,655  

See accompanying notes to consolidated financial statements.

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Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows
(Unaudited)
                 
    For the Six Months
    Ended June 30,
    2004
   2003
    (In thousands)
Cash Flows from Operating Activities:
                
Net income
   $ 114,647     $ 104,747  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation, accretion and amortization expense
    13,847       23,720  
Provision for loan losses
    450       450  
Gains on securities transactions, net
     (5,071 )     (12,799 )
Allocation of stock for employee benefit plans
    10,080       6,335  
Deferred tax benefit
     415       —  
Net proceeds from sale of foreclosed real estate
    1,073       954  
Increase in accrued interest receivable
     (13,843 )     (8,365 )
(Increase) decrease in other assets
     (891 )     8,662  
Increase (decrease) in accrued expenses and other liabilities
     7,358       (4,244 )
Tax benefit from stock plans
     13,073       —  
 
    
 		      
 		  
Net Cash Provided by Operating Activities
     141,138       119,460  
 
    
 		      
 		  
Cash Flows from Investing Activities:
                
Originations of loans
     (812,005 )     (987,854 )
Purchases of loans
     (1,594,636 )     (851,388 )
Payments on loans
     1,154,542       1,934,639  
Principal collection of mortgage-backed securities held to maturity
     881,578       1,850,827  
Purchases of mortgage-backed securities held to maturity
     (564,710 )     (1,893,818 )
Principal collection of mortgage-backed securities available for sale
    142,997       237,582  
Proceeds from sales of mortgage-backed securities available for sale
     226,593       604,113  
Purchases of mortgage-backed securities available for sale
     (637,405 )     (857,878 )
Proceeds from maturities and calls of investment securities held to maturity
    30       35  
Purchases of investment securities held to maturity
     (1,099,084 )     —  
Proceeds from maturities and calls of investment securities available for sale
     861,335       838,485  
Purchases of investment securities available for sale
     (337,306 )     (2,200,725 )
Purchases of Federal Home Loan Bank of New York stock
     —       (22,500 )
Redemption of Federal Home Loan Bank of New York stock
     14,850       —  
(Purchases) sales of premises and equipment, net
     (4,239 )     244  
 
    
 		      
 		  
Net Cash Used in Investment Activities
     (1,767,460 )     (1,348,238 )
 
    
 		      
 		  
Cash Flows from Financing Activities:
                
Net increase in deposits
     622,681       827,515  
Proceeds from borrowed funds
     1,850,000       550,000  
Principal payments on borrowed funds
     (800,000 )     (100,000 )
Dividends paid
    (19,493 )     (44,199 )
Purchases of stock by the RRP
     (7,299 )     —  
Purchases of treasury stock
     (115,538 )     (36,937 )
Exercise of stock options
    4,121       8,518  
 
    
 		      
 		  
Net Cash Provided by Financing Activities
     1,534,472       1,204,897  
 
    
 		      
 		  
Net Decrease in Cash and Cash Equivalents
     (91,850 )     (23,881 )
Cash and Cash Equivalents at Beginning of Period
     254,584       240,796  
 
    
 		      
 		  
Cash and Cash Equivalents at End of Period
   $ 162,734     $ 216,915  
 
    
 		      
 		  
Supplemental Disclosures:
                
Interest paid
   $ 196,195     $ 190,871  
 
    
 		      
 		  
Income taxes paid
  $ 53,699     $ 66,721  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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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 1999 by Hudson City Savings Bank in connection with the conversion and reorganization of Hudson City Savings from a mutual savings bank into a two-tiered mutual savings bank holding company structure.

In our opinion, all the adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three- and six-month periods ended June 30, 2004 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2004.

Certain information and note disclosures usually included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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, 2003 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 $1,312,000 and $2,596,000 for the six month periods ended June 30, 2004 and 2003, respectively, did not result in cash receipts or cash payments.

Stock Option Plans’ Fair Value Disclosure. The Hudson City stock option plans and the recognition and retention plans (“RRP”) are accounted for in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related Interpretations. Accordingly, no compensation expense has been recognized for the stock option plans. Expense for the RRP in the amount of the fair value of the common stock at the date of grant is recognized ratably over the vesting period.

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Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Had expense for Hudson City’s stock option plans been determined based on the fair value at the grant date for our stock options consistent with the method of SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts that follow.

                 
    For the Three Months
    Ended June 30,
    2004
   2003
    (In thousands, except per share data)
Net income, as reported
   $ 58,418     $ 52,546  
Add: expense recognized for the recognition and retention plans, net of related tax effect
    1,827       1,033  
Less: total stock option and recognition and retention plans expense, determined under the fair value method, net of related tax effect
     (2,656 )     (1,640 )
 
    
 		      
 		  
Pro forma net income
   $ 57,589     $ 51,939  
 
    
 		      
 		  
Basic earnings per share: As reported
  $ 0.32     $ 0.29  
Pro forma
     0.32       0.28  
Diluted earnings per share: As reported
  $ 0.32     $ 0.28  
Pro forma
     0.31       0.28  
                 
    For the Six Months
    Ended June 30,
    2004
   2003
    (In thousands, except per share data)
Net income, as reported
   $ 114,647     $ 104,747  
Add: expense recognized for the recognition and retention plans, net of related tax effect
    2,987       2,040  
Less: total stock option and recognition and retention plans expense, determined under the fair value method, net of related tax effect
     (4,644 )     (3,253 )
 
    
 		      
 		  
Pro forma net income
   $ 112,990     $ 103,534  
 
    
 		      
 		  
Basic earnings per share: As reported
  $ 0.63     $ 0.57  
Pro forma
     0.62       0.57  
Diluted earnings per share: As reported
  $ 0.62     $ 0.56  
Pro forma
     0.61       0.55  

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Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements

The fair value of the option grants, for those grants issued during the following periods, was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

                 
    For the Three and Six
    Months Ended June 30,
    2004
   2003
Expected dividend yield
     1.69 %     2.24 %
Expected volatility
     19.66       24.71  
Risk-free interest rate
     3.05       2.98  
Expected option life
   5 years   5 years

2. — Comprehensive Income

Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes unrealized holding gains and losses on securities available for sale, net of tax. Total comprehensive income during the periods indicated is as follows.

                 
    For the Three Months
    Ended June 30,
    2004
   2003
    (In thousands)
Net income
  $ 58,418     $ 52,546  
Other comprehensive income:
                
Unrealized holding (loss) gain on securities available for sale, net of tax of ($43,990) for 2004 and $6,091 for 2003
     (63,696 )     8,820  
Reclassification adjustment for gains in net income, net of tax of ($1,076) for 2004 and $(3,525) for 2003
     (1,558 )     (5,103 )
 
    
 		      
 		  
Total accumulated other comprehensive (loss) income
   $ (6,836 )   $ 56,263  
 
    
 		      
 		  
                 
    For the Six Months
    Ended June 30,
    2004
   2003
    (In thousands)
Net income
  $ 114,647     $ 104,747  
Other comprehensive income:
                
Unrealized holding (loss) gain on securities available for sale, net of tax of ($26,696) for 2004 and $3,994 for 2003
     (38,656 )     5,783  
Reclassification adjustment for gains in net income, net of tax of ($2,072) for 2004 and $(5,228) for 2003
     (2,999 )     (7,571 )
 
    
 		      
 		  
Total accumulated other comprehensive income
   $ 72,992     $ 102,959  
 
    
 		      
 		  

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Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements

3. — Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.

                                                 
    For the Three Months Ended June 30,
    2004
   2003
                    Per                   Per
                    Share                   Share
    Income
   Shares
   Amount
   Income
   Shares
   Amount
            (In thousands, except per share data)        
Net income
   $ 58,418                     $ 52,546                  
 
    
 		                      
 		                  
Basic earnings per share:
                                                
Income available to common stockholders
   $ 58,418       180,345     $ 0.32     $ 52,546       182,661     $ 0.29  
 
                    
 		                      
 		  
Effect of dilutive common stock equivalents
     —       5,065               —       5,149          
 
    
 		      
 		              
 		      
 		          
Diluted earnings per share:
                                                
Income available to common stockholders
   $ 58,418       185,410     $ 0.32     $ 52,546       187,810     $ 0.28  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
                                                 
    For the Six Months Ended June 30,
    2004
   2003
                    Per                   Per
                    Share                   Share
    Income
   Shares
   Amount
   Income
   Shares
   Amount
            (In thousands, except per share data)        
Net income
   $ 114,647                     $ 104,747                  
 
    
 		                      
 		                  
Basic earnings per share:
                                                
Income available to common stockholders
   $ 114,647       180,934     $ 0.63     $ 104,747       182,712     $ 0.57  
 
                    
 		                      
 		  
Effect of dilutive common stock equivalents
     —       5,271               —       4,912