##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: September 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. 
  Delaware
    
    22-3640393(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 West 80 Century Road
Paramus, New Jersey
    
    07652(Address of Principal Executive Offices)
    
    (Zip Code)
 (201)967-1900 
  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 November 2, 2004, the registrant had 186,022,481 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
63,445,881 shares were held by the public and directors, officers and employees
of the registrant.




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Hudson City Bancorp, Inc.
Form 10-Q Contents of Report  
 Page NumberPART I  FINANCIAL INFORMATIONItem 1.  Financial StatementsConsolidated Statements of Financial Condition  September 30, 2004
(Unaudited) and December 31, 2003
    
    
    3Consolidated Statements of Income (Unaudited)  For the three and
nine months ended September 30, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows (Unaudited)  For the nine months
ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3.  Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4.  Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1.  Legal Proceedings
    
    
    35Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3.  Defaults Upon Senior Securities
    
    
    36Item 4.  Submission of Matters to a Vote of Security Holders
    
    
    36Item 5.  Other Information
    
    
    36Item 6.  Exhibits
    
    
    36SIGNATURES
    
    
    37CERTIFICATIONCERTIFICATIONCERTIFICATIONS
  Explanatory Note: This Form 10-Q contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, and
may be identified by the use of such words as believe, expect,
anticipate, should, planned, estimated and potential. Examples of
forward looking statements include, but are not limited to, estimates with
respect to the financial condition, results of operations and business of
Hudson City Bancorp, Inc. that are subject to various factors which could cause
actual results to differ materially from these estimates. These factors
include: changes in general, economic and market conditions, legislative and
regulatory conditions, or the development of an interest rate environment that
adversely affects Hudson City Bancorps interest rate spread or other income
anticipated from operations and investments. As used in this Form 10-Q, we
and us and our refer to Hudson City Bancorp, Inc. and its consolidated
subsidiary Hudson City Savings Bank, depending on the context. Page 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION 
 Item 1.  Financial Statements Hudson City Bancorp, Inc. and Subsidiary 
 Consolidated Statements of Financial Condition
 September 30,
    
    December 31,2004
    
    2003(Unaudited)(In thousands)AssetsCash and due from banks
    
    $
    124,559
    
    
    $
    190,984Federal funds sold
    
    
    23,900
    
    
    
    63,600Total cash and cash
equivalents
    
    
    148,459
    
    
    
    254,584Investment securities held to maturity, market value of $1,173,915 at
September 30, 2004 and $1,443 at December 31,
2003
    
    
    1,170,986
    
    
    
    1,366Investment securities available for sale, at market value
    
    
    1,725,612
    
    
    
    2,243,812Federal Home Loan Bank of New York stock
    
    
    140,000
    
    
    
    164,850Mortgage-backed securities held to maturity, market value of $3,615,555
at September 30, 2004 and $4,250,688 at December 31,
2003
    
    
    3,646,758
    
    
    
    4,292,444Mortgage-backed securities available for sale, at market value
    
    
    1,570,762
    
    
    
    1,130,257Loans
    
    
    10,760,351
    
    
    
    8,803,066Less:Deferred loan
fees
    
    
    7,405
    
    
    
    10,255Allowance for loan
losses
    
    
    27,210
    
    
    
    26,547Net
loans
    
    
    10,725,736
    
    
    
    8,766,264Foreclosed real estate, net
    
    
    1,643
    
    
    
    1,002Accrued interest receivable
    
    
    95,668
    
    
    
    80,220Banking premises and equipment, net
    
    
    34,482
    
    
    
    31,354Other assets
    
    
    61,168
    
    
    
    67,207Total
Assets
    
    $
    19,321,274
    
    
    $
    17,033,360Liabilities and Stockholders EquityDeposits:Interest-bearing
    
    $
    10,779,505
    
    
    $
    10,057,285Noninterest-bearing
    
    
    416,214
    
    
    
    396,495Total
deposits
    
    
    11,195,719
    
    
    
    10,453,780Borrowed funds
    
    
    6,650,000
    
    
    
    5,150,000Accrued expenses and other liabilities
    
    
    119,470
    
    
    
    100,214Total
liabilities
    
    
    17,965,189
    
    
    
    15,703,994Common stock, $0.01 par value, 800,000,000 shares authorized; 231,276,600
shares issued, 186,012,681 shares outstanding at September 30, 2004,
and 189,835,997 shares outstanding at December 31,
2003
    
    
    2,313
    
    
    
    2,313Additional paid-in capital
    
    
    568,461
    
    
    
    543,589Retained earnings
    
    
    1,538,221
    
    
    
    1,396,257Treasury stock, at cost; 45,263,919 shares at September 30, 2004 and
41,440,603 shares at December 31,
2003
    
    
    (698,323
    )
    
    
    (547,859
    )Unallocated common stock held by the employee stock ownership plan
    
    
    (48,043
    )
    
    
    (49,513
    )Unearned common stock held by the recognition and retention plan
    
    
    (8,165
    )
    
    
    (9,463
    )Accumulated other comprehensive income (loss), net of tax
    
    
    1,621
    
    
    
    (5,958
    )Total stockholders
equity
    
    
    1,356,085
    
    
    
    1,329,366Total Liabilities
and Stockholders
Equity
    
    $
    19,321,274
    
    
    $
    17,033,360
 See accompanying notes to consolidated financial statements. Page 3




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Hudson City Bancorp, Inc. and Subsidiary 
 Consolidated Statements of Income
 (Unaudited)
 For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003(In thousands, except share data)Interest and Dividend Income:Interest and fees on first mortgage loans
    
    $
    138,421
    
    
    $
    96,950
    
    
    $
    389,400
    
    
    $
    304,477Interest and fees on consumer and other loans
    
    
    2,213
    
    
    
    2,084
    
    
    
    6,345
    
    
    
    6,296Interest on mortgage-backed securities held to maturity
    
    
    42,409
    
    
    
    51,554
    
    
    
    132,364
    
    
    
    167,352Interest on mortgage-backed securities available for sale
    
    
    17,540
    
    
    
    12,857
    
    
    
    50,200
    
    
    
    38,881Interest on investment securities held to maturity:Taxable
    
    
    14,193
    
    
    
    14
    
    
    
    25,884
    
    
    
    48Exempt from federal taxes
    
    
    6
    
    
    
    7
    
    
    
    17
    
    
    
    17Interest and dividend income on investment securities
available for sale-taxable
    
    
    18,262
    
    
    
    22,360
    
    
    
    60,649
    
    
    
    54,805Dividends on Federal Home Loan Bank
of New York stock
    
    
    858
    
    
    
    340
    
    
    
    2,250
    
    
    
    4,399Interest on federal funds sold
    
    
    359
    
    
    
    519
    
    
    
    970
    
    
    
    1,602Total interest and dividend income
    
    
    234,261
    
    
    
    186,685
    
    
    
    668,079
    
    
    
    577,877Interest Expense:Interest on deposits
    
    
    54,253
    
    
    
    50,444
    
    
    
    155,453
    
    
    
    159,804Interest on borrowed funds
    
    
    56,040
    
    
    
    41,552
    
    
    
    154,159
    
    
    
    122,738Total interest
expense
    
    
    110,293
    
    
    
    91,996
    
    
    
    309,612
    
    
    
    282,542Net interest
income
    
    
    123,968
    
    
    
    94,689
    
    
    
    358,467
    
    
    
    295,335Provision for Loan Losses
    
    
    225
    
    
    
    225
    
    
    
    675
    
    
    
    675Net interest income after provision
for loan
losses
    
    
    123,743
    
    
    
    94,464
    
    
    
    357,792
    
    
    
    294,660Non-Interest Income:Service charges and other income
    
    
    1,373
    
    
    
    1,681
    
    
    
    3,849
    
    
    
    4,292Gains on securities transactions, net
    
    
    3,526
    
    
    
    7,750
    
    
    
    8,597
    
    
    
    20,549Total non-interest income
    
    
    4,899
    
    
    
    9,431
    
    
    
    12,446
    
    
    
    24,841Non-Interest Expense:Compensation and employee benefits
    
    
    19,878
    
    
    
    17,598
    
    
    
    59,349
    
    
    
    50,795Net occupancy expense
    
    
    4,044
    
    
    
    3,770
    
    
    
    11,788
    
    
    
    11,213Federal deposit insurance assessment
    
    
    405
    
    
    
    402
    
    
    
    1,228
    
    
    
    1,165Computer and related services
    
    
    529
    
    
    
    509
    
    
    
    1,485
    
    
    
    1,190Other expense
    
    
    4,032
    
    
    
    3,332
    
    
    
    13,275
    
    
    
    11,682Total non-interest expense
    
    
    28,888
    
    
    
    25,611
    
    
    
    87,125
    
    
    
    76,045Income before income tax
expense
    
    
    99,754
    
    
    
    78,284
    
    
    
    283,113
    
    
    
    243,456Income Tax Expense
    
    
    37,734
    
    
    
    28,021
    
    
    
    106,446
    
    
    
    88,446Net
income
    
    $
    62,020
    
    
    $
    50,263
    
    
    $
    176,667
    
    
    $
    155,010Basic Earnings Per Share
    
    $
    0.35
    
    
    $
    0.28
    
    
    $
    0.98
    
    
    $
    0.85Diluted Earnings Per Share
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.95
    
    
    $
    0.83Weighted Average Number of Common Shares Outstanding:Basic
    
    
    178,964,733
    
    
    
    182,576,472
    
    
    
    180,273,112
    
    
    
    182,666,536Diluted
    
    
    183,724,358
    
    
    
    187,918,359
    
    
    
    185,372,444
    
    
    
    187,675,640
 See accompanying notes to consolidated financial statements. Page 4




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Hudson City Bancorp, Inc. and Subsidiary 
 Consolidated Statements of Cash Flows
 (Unaudited)
 For the Nine MonthsEnded September 30,2004
    
    2003(In thousands)Cash Flows from Operating Activities:Net income
    
    $
    176,667
    
    
    $
    155,010Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation, accretion and amortization expense
    
    
    19,751
    
    
    
    35,857Provision for loan losses
    
    
    675
    
    
    
    675Gains on securities transactions, net
    
    
    (8,597
    )
    
    
    (20,549
    )Allocation of stock for employee benefit plans
    
    
    14,670
    
    
    
    10,000Deferred tax benefit
    
    
    20
    
    
    
    Net proceeds from sale of foreclosed real estate
    
    
    1,651
    
    
    
    2,089Increase in accrued interest receivable
    
    
    (15,448
    )
    
    
    (3,112
    )Decrease in other assets
    
    
    784
    
    
    
    5,967Increase in accrued expenses and other liabilities
    
    
    19,256
    
    
    
    7,230Tax benefit from stock plans
    
    
    20,269
    
    
    
    Net Cash Provided by Operating Activities
    
    
    229,698
    
    
    
    193,167Cash Flows from Investing Activities:Originations of loans
    
    
    (1,181,806
    )
    
    
    (1,855,221
    )Purchases of loans
    
    
    (2,361,841
    )
    
    
    (1,794,287
    )Payments on loans
    
    
    1,575,804
    
    
    
    3,147,106Principal collection of mortgage-backed securities held to maturity
    
    
    1,208,846
    
    
    
    2,958,240Proceeds from sales of mortgage-backed securities held to maturity
    
    
    
    
    
    
    54,549Purchases of mortgage-backed securities held to maturity
    
    
    (573,916
    )
    
    
    (3,014,172
    )Principal collection of mortgage-backed securities available for sale
    
    
    210,275
    
    
    
    356,531Proceeds from sales of mortgage-backed securities available for sale
    
    
    380,863
    
    
    
    943,614Purchases of mortgage-backed securities available for sale
    
    
    (1,016,973
    )
    
    
    (995,172
    )Proceeds from maturities and calls of investment securities held to maturity
    
    
    300,030
    
    
    
    35Purchases of investment securities held to maturity
    
    
    (1,469,643
    )
    
    
    Proceeds from maturities and calls of investment securities available for sale
    
    
    861,339
    
    
    
    1,247,217Proceeds from sales of investment securities available for sale
    
    
    
    
    
    
    50,531Purchases of investment securities available for sale
    
    
    (337,306
    )
    
    
    (2,940,682
    )Purchases of Federal Home Loan Bank of New York stock
    
    
    
    
    
    
    (30,000
    )Redemption of Federal Home Loan Bank of New York stock
    
    
    24,850
    
    
    
    Purchases of premises and equipment, net
    
    
    (5,818
    )
    
    
    (870
    )Net Cash Used in Investment Activities
    
    
    (2,385,296
    )
    
    
    (1,872,581
    )Cash Flows from Financing Activities:Net increase in deposits
    
    
    741,939
    
    
    
    1,109,435Proceeds from borrowed funds
    
    
    3,050,000
    
    
    
    850,000Principal payments on borrowed funds
    
    
    (1,550,000
    )
    
    
    (250,000
    )Dividends paid
    
    
    (29,761
    )
    
    
    (70,984
    )Purchases of stock by the RRP
    
    
    (7,299
    )
    
    
    Purchases of treasury stock
    
    
    (160,729
    )
    
    
    (46,436
    )Exercise of stock options
    
    
    5,323
    
    
    
    9,449Net Cash Provided by Financing Activities
    
    
    2,049,473
    
    
    
    1,601,464Net Decrease in Cash and Cash Equivalents
    
    
    (106,125
    )
    
    
    (77,950
    )Cash and Cash Equivalents at Beginning of Period
    
    
    254,584
    
    
    
    240,796Cash and Cash Equivalents at End of Period
    
    $
    148,459
    
    
    $
    162,846Supplemental Disclosures:Interest paid
    
    $
    304,413
    
    
    $
    282,223Income taxes paid
    
    $
    78,299
    
    
    $
    89,596
 See accompanying notes to consolidated financial statements. Page 5




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Hudson City Bancorp, Inc. and Subsidiary 
  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 nine-month periods ended September 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 $2,255,000 and
$2,994,000 for the nine month periods ended September 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. Page 6




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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 MonthsEnded September 30,2004
    
    2003(In thousands, except per share data)Net income, as reported
    
    $
    62,020
    
    
    $
    50,263Add: expense recognized for the recognition and
retention plans, net of related tax effect
    
    
    1,309
    
    
    
    1,046Less: total stock option and recognition and
retention plans expense, determined under
the fair value method, net of
related tax effect
    
    
    (2,133
    )
    
    
    (1,660
    )Pro forma net income
    
    $
    61,196
    
    
    $
    49,649Basic earnings per share: As reported
    
    $
    0.35
    
    
    $
    0.28Pro forma
    
    
    0.34
    
    
    
    0.27Diluted earnings per share: As reported
    
    $
    0.34
    
    
    $
    0.27Pro forma
    
    
    0.33
    
    
    
    0.26
 For the Nine MonthsEnded September 30,2004
    
    2003(In thousands, except per share data)Net income, as reported
    
    $
    176,667
    
    
    $
    155,010Add: expense recognized for the recognition and
retention plans, net of related tax effect
    
    
    4,294
    
    
    
    3,085Less: total stock option and recognition and
retention plans expense, determined under
the fair value method, net of
related tax effect
    
    
    (6,774
    )
    
    
    (4,912
    )Pro forma net income
    
    $
    174,187
    
    
    $
    153,183Basic earnings per share: As reported
    
    $
    0.98
    
    
    $
    0.85Pro forma
    
    
    0.97
    
    
    
    0.84Diluted earnings per share: As reported
    
    $
    0.95
    
    
    $
    0.83Pro forma
    
    
    0.94
    
    
    
    0.82
 Page 7




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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 Nine Months EndedSeptember 30,2004
    
    2003Expected dividend yield
    
    
    1.69
    %
    
    
    2.24
    %Expected volatility
    
    
    19.66
    
    
    
    24.71Risk-free interest rate
    
    
    3.05
    
    
    
    2.98Expected 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 MonthsEnded September 30,2004
    
    2003(In thousands)Net income
    
    $
    62,020
    
    
    $
    50,263Other comprehensive income:Unrealized holding gain (loss) on securities
available for sale, net of tax of $35,442
for 2004 and $(11,319) for 2003
    
    
    51,320
    
    
    
    (16,389
    )Reclassification adjustment for gains
in net income, net of tax of $(1,440)
for 2004 and $(3,166) for 2003
    
    
    (2,086
    )
    
    
    (4,584
    )Total accumulated other comprehensive
income
    
    $
    111,254
    
    
    $
    29,290
 For the Nine MonthsEnded September 30,2004
    
    2003(In thousands)Net income
    
    $
    176,667
    
    
    $
    155,010Other comprehensive income:Unrealized holding gain (loss) on securities
available for sale, net of tax of $8,746
for 2004 and $(7,325) for 2003
    
    
    12,664
    
    
    
    (10,606
    )Reclassification adjustment for gains
in net income, net of tax of $(3,512)
for 2004 and $(8,394) for 2003
    
    
    (5,085
    )
    
    
    (12,155
    )Total accumulated other comprehensive
income
    
    $
    184,246
    
    
    $
    132,249
 Page 8




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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 September 30,2004
    
    2003Per
    
    
    
    
    
    
    
    
    
    PerShare
    
    
    
    
    
    
    
    
    
    ShareIncome
    
    Shares
    
    Amount
    
    Income
    
    Shares
    
    Amount(In thousands, except per share data)Net income
    
    $
    62,020
    
    
    
    
    
    
    
    
    
    
    $
    50,263Basic earnings per share:Income available to
common stockholders
    
    $
    62,020
    
    
    
    178,965
    
    
    $
    0.35
    
    
    $
    50,263
    
    
    
    182,576
    
    
    $
    0.28Effect of dilutive common
stock equivalents
    
    
    
    
    
    
    4,759
    
    
    
    
    
    
    
    
    
    
    
    5,342Diluted earnings per share:Income available to
common stockholders
    
    $
    62,020
    
    
    
    183,724
    
    
    $
    0.34
    
    
    $
    50,263
    
    
    
    187,918
    
    
    $
    0.27
 For the Nine Months Ended September 30,2004
    
    2003Per
    
    
    
    
    
    
    
    
    
    PerShare
    
    
    
    
    
    
    
    
    
    ShareIncome
    
    Shares
    
    Amount
    
    Income
    
    Shares
    
    Amount(In thousands, except per share data)Net income
    
    $
    176,667
    
    
    
    
    
    
    
    
    
    
    
    $155,010Basic earnings per share:Income available to
common stockholders
    
    $
    176,667
    
    
    
    180,273
    
    
    $
    0.98
    
    
    $
    155,010
    
    
    
    182,667
    
    
    $
    0.85Effect of dilutive common
stock equivalents
    
    
    
    
    
    
    5,099
    
    
    
    
    
    
    
    
    
    
    
    5,009Diluted earnings per share:Income available to
common stockholders
    
    $
    176,667
    
    
    
    185,372
    
    
    $
    0.95
    
    
    $
    155,010
    
    
    
    187,676
    
    
    $
    0.83
 Page 9




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Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements 4.  Fair Value and Unrealized Losses of Securities The following table summarizes the fair value and unrealized losses of those
investment and mortgage-backed securities that reported an unrealized loss at
September 30, 2004 and whether the unrealized loss position was continuous for
the twelve months prior to September 30, 2004. Less Than 12 Months
    
    12 Months or Longer
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    Losses(In thousands)United States government agencies
    
    $
    461,021
    
    
    $
    2,684
    
    
    $
    702,383
    
    
    $
    8,145
    
    
    $
    1,163,404
    
    
    $
    10,829GNMA pass-through certificates
    
    $
    170,944
    
    
    $
    1,433
    
    
    $
    
    
    
    $
    
    
    
    $
    170,944
    
    
    $
    1,433FNMA pass-through certificates
    
    
    1,256,331
    
    
    
    4,181
    
    
    
    203,576
    
    
    
    3,788
    
    
    
    1,459,907
    
    
    
    7,969FHLMC pass-through certificates
    
    
    70,662
    
    
    
    359
    
    
    
    250,106
    
    
    
    5,865
    
    
    
    320,768
    
    
    
    6,224FHLMC, FNMA and GNMA -
REMICs
    
    
    46,423
    
    
    
    730
    
    
    
    767,187
    
    
    
    36,190
    
    
    
    813,610
    
    
    
    36,920Total mortgage-backed securities
    
    $
    1,544,360
    
    
    $
    6,703
    
    
    $
    1,220,869
    
    
    $
    45,843
    
    
    $
    2,765,229
    
    
    $
    52,546
 The unrealized losses are primarily due to the changes in interest rates during
the life of the security. We have not classified these items as impaired as the
coupon payments for the investment securities and the principal and interest
payments for the mortgage-backed securities have been made in accordance with
the terms of the agreements. We anticipate collecting the entire principal
balance on these securities as scheduled. 5.  Stockholders Equity Under our stock repurchase programs, shares of Hudson City Bancorp common stock
may be purchased in the open market and through other privately negotiated
transactions, from time-to-time, depending on market conditions. The
repurchased shares are held as treasury stock for general corporate use.
During the nine-month period ended September 30, 2004, we purchased 4,565,200
shares of our common stock at an aggregate cost of $160.7 million. At September
30, 2004, there were 3,101,221 shares remaining to be repurchased under the
existing stock repurchase program. In the first quarter of 2004, Hudson City, MHC applied for and was granted
approval from the Office of Thrift Supervision (OTS) to waive receipt of
dividends declared by Hudson City Bancorp during 2004. This dividend waiver
provides additional operating capital and liquidity at Hudson City Bancorp. The
$29.8 million cash dividend paid to common stockholders in the first nine
months of 2004 decreased $41.2 million from the $71.0 million cash dividend
paid in the first nine months of 2003 primarily due to the approximately $62.5
million dividend waived by Hudson City, MHC. Page 10




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Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements 6.  Net Periodic Benefit Plans Expenses Non-contributory retirement and post-retirement plans are maintained to cover
all employees, including retired employees, who have met the eligibility
requirements of the plans. Benefits under the qualified and non-qualified
defined benefit retirement plans are based primarily on years of service and
compensation. Funding of the qualified retirement plan is actuarially
determined on an annual basis. It is our policy to fund the qualified
retirement plan sufficiently to meet the minimum requirements set forth in the
Employee Retirement Income Security Act of 1974. The non-qualified retirement
plan, which is maintained for certain executive officers, is unfunded. Net periodic benefit cost included the following components: For the Three Months Ended September 30,Retirement Plans
    
    Other Benefits2004
    
    2003
    
    2004
    
    2003(In thousands)Service cost
    
    $
    736
    
    
    $
    677
    
    
    $
    530
    
    
    $
    411Interest cost
    
    
    1,132
    
    
    
    1,068
    
    
    
    580
    
    
    
    490Expected return on assets
    
    
    (1,633
    )
    
    
    (1,322
    )
    
    
    
    
    
    
    Amortization of:Net loss (gain)
    
    
    15
    
    
    
    132
    
    
    
    (10
    )
    
    
    (92
    )Unrecognized prior service cost
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    246
    
    
    $
    551
    
    
    $
    1,100
    
    
    $
    809
 For the Nine Months Ended September 30,Retirement Plans
    
    Other Benefits2004
    
    2003
    
    2004
    
    2003(In thousands)Service cost
    
    $
    2,209
    
    
    $
    2,032
    
    
    $
    1,590
    
    
    $
    1,232Interest cost
    
    
    3,396
    
    
    
    3,203
    
    
    
    1,739
    
    
    
    1,469Expected return on assets
    
    
    (4,900
    )
    

    
    (3,965
    )
    
    
    
    
    
    
    Amortization of:Net loss (gain)
    
    
    44
    
    
    
    396
    
    
    
    (30
    )
    
    
    (276
    )Unrecognized prior service cost
    
    
    (12
    )
    
    
    (12
    )
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    737
    
    
    $
    1,654
    
    
    $
    3,299
    
    
    $
    2,425
 Due to the funded status of our qualified retirement plan, we do not plan to
make a contribution to the plan for 2004. Effective July 1, 2004, we adopted FASB Staff Position 106-2, which requires
companies to recognize the effects of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (Medicare Act). The effect of the
Medicare Act reduced the accumulated postretirement benefit obligation by
$5,399,000 as of January 1, 2004. In addition, the Medicare Act reduced the net
periodic benefit cost by $513,000 for the nine-month period ended September 30,
2004, which included reductions in service cost, interest cost and amortization
of net gain of $244,000, $253,000 and $16,000, respectively. Page 11




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Hudson City Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements 7.  Subsequent Event On October 28, 2004, the Board of Directors of Hudson City Bancorp declared a
quarterly cash dividend of nineteen cents ($0.19) per common share outstanding.
The dividend is payable on December 1, 2004 to stockholders of record at the
close of business on November 5, 2004. The Board of Directors of Hudson City,
MHC has waived receipt of this dividend consistent with OTS approval. 8.  Recent Accounting Pronouncements On September 30, 2004, the FASB issued Staff Position No. EITF Issue 03-01-1,
Effective Date of Paragraphs 10-20 of EITF Issue No. 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments,
which delays the effective date for the measurement and recognition guidance
contained in EITF Issue No. 03-01. EITF Issue No. 03-01 provides guidance for
evaluating whether an investment is other-than-temporarily impaired and was
originally effective for other-than-temporarily impairment evaluations made in
reporting periods beginning after June 15, 2004. The delay in the effective
date for the measurement and recognition guidance contained in paragraphs 10
through 20 of EITF Issue No. 03-01 does not suspend the requirement to
recognize other-than-temporarily impairments as required by existing
authoritative literature. The disclosure guidance in paragraphs 21 and 22 of
EITF Issue 03-01 remains effective. The delay will be superseded concurrent
with the final issuance of Staff Position No. EITF 03-01a, which is expected to
provide implementation guidance on matters such as impairment evaluations for
declines in value caused by increases in interest rates and/or sector spreads.
We do not expect the final issuance of the Staff Position No. EITF 03-01a to
have a material impact on our financial condition or results of operations. Page 12




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Hudson City Bancorp, Inc.
Form 10-Q 
 Item 2.  Managements Discussion and Analysis of Financial Condition and
Results of Operations Executive Summary Our results of operations depend primarily on net interest income, which is a
direct result of the interest rate environment. Net interest income is the
difference between the interest income we earn on our interest-earning assets,
primarily mortgage loans, mortgage-backed securities and investment securities,
and the interest we pay on our interest-bearing liabilities, primarily time
deposits, interest-bearing demand deposits and borrowed funds. Net interest
income is directly impacted by the spread between long-term interest rates and
short-term interest rates, as our interest-earning assets, particularly those
with initial terms to maturity or repricing greater than one year, generally
price off long-term rates while our interest-bearing liabilities generally
price off short-term interest rates. Our net interest income is also impacted by the shape of the market yield
curve. A steep yield curve, where the difference in interest rates between time
periods is greater in the long-term time periods, could be beneficial to our
net interest income as the interest rate spread between our additional
interest-earning assets and interest-bearing liabilities would be larger.
Conversely, a flat yield curve, where the difference in rates is lesser in the
long-term periods or is shrinking over time, could have an adverse impact on
our net interest income, as our net interest rate spread would decrease. The impact on our interest income due to changes in interest rates is generally
felt in later periods than the impact on our interest expense due to the timing
of the recording on the balance sheet of our interest-earning assets and
interest-bearing liabilities. The recording of interest-earning assets on the
balance sheet generally lags the current market rate due to commitment periods
of up to three months, while the recording of interest-bearing liabilities on
the balance sheet generally times the current market. This timing difference
could have an adverse impact on our net interest income in a rising interest
rate environment. Also impacting our net interest income and net interest rate spread is the
level of prepayment activity on our mortgage-related assets. The actual amount
of time before mortgage loans and mortgage-backed securities are repaid can be
significantly impacted by changes in market interest rates and mortgage
prepayment rates. Mortgage prepayment rates will vary due to a number of
factors, including the regional economy where the mortgage loan or the
underlying mortgages of the mortgage-backed security were originated, seasonal
factors and demographic variables. However, the major factors affecting
prepayment rates are the prevailing market interest rates, related mortgage
refinancing opportunities and competition. Generally, the level of prepayment
activity directly affects the yield earned on those assets, as the payments
received on the interest-earning assets will be reinvested at the prevailing
market interest rate. Prepayment rates are generally inversely related to the
prevailing market interest rate, thus, as market interest rates increase,
prepayment rates tend to decrease. Our results of operations may also be affected significantly by general and
local economic and competitive conditions, particularly those with respect to
changes in market interest rates, government policies and actions of regulatory
authorities. Our results are also affected by the price of our stock, as the
expense of certain of our employee stock compensation plans is related to the
current price of our common stock. Short-term market interest rates generally increased during the second and
third quarters of 2004 following a period of general stability in short-term
interest rates during 2003 and the first quarter of Page 13




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Hudson City Bancorp, Inc.
Form 10-Q 2004. The Federal Open Market Committee (FOMC) increased the overnight
lending rate 25 basis points at each of the three regularly scheduled meetings
in June, August and September of 2004. It is anticipated the FOMC will continue
to increase the overnight lending rate at the remaining scheduled meetings in
2004, thus further increasing the short-term market interest rates. Overall,
during 2004, long-term market interest rates generally decreased. During the
first and third quarters of 2004, long-term market rates decreased, while
during the second quarter, long-term rates increased. This general decrease in
long-term interest rates, in conjunction with the increasing short-term
interest rates, has flattened the market yield curve. Long-term market interest
rates are expected to increase in the future, but not as fast as short-term
interest rates, which will further flatten the market yield curve. If this
occurs, the resulting interest rate environment is likely to have a negative
impact on our results of operations as our interest-bearing liabilities
generally price off short-term interest rates, while our interest-earning
assets generally price off long-term interest rates and the spread between the
rates we earn on our interest-earning assets and the rates we pay on our
interest-bearing liabilities will decrease. If both short- and long-term
interest rates increase by the same amount, and the shape of the yield curve
does not change, the resulting environment is also likely to have a negative
impact on our results of operations, as our interest-bearing liabilities will
reset to the current market interest rate faster than our interest-earning
assets. The prepayment activity decreased on our mortgage-related assets during the
first nine months of 2004 when compared to the prepayment activity experienced
during the first nine months of 2003. This decrease in prepayment activity was
due to the stabilization of long-term interest rates during the second half of
2003, notwithstanding the decreases in long-term interest rates during 2004.
The decrease is also due to the large volume of refinancing and modification
activity that occurred during the declining interest rate environment of 2003.
The mortgage-related assets resulting from this prepayment activity will not
tend to prepay as fast, as their contractual interest rate is relatively low.
The slowing of the prepayment activity in turn decreased the amount of related
premium amortized on these assets during the first nine months of 2004. The
decrease in the prepayment activity and the slowing of the premium amortization
generally had a positive impact on our net interest income, net interest rate
spread and net interest margin for the periods reported in 2004 when compared
to the periods reported in 2003. The low interest rate environment of 2004 afforded us the opportunity to
realize gains on certain of our mortgage-backed securities prior to interest
rate changes, such as the long-term interest rate increase seen in the second
quarter of 2004, which would have adversely affected their fair market value.
The low market interest rates caused increases in the fair market value of the
fixed-rate mortgage-backed securities sold. The larger volume of sales and
larger gain reported for 2003, when compared with the gain reported for 2004,
resulted from the enhanced opportunities to realize gains on sales due to the
declining interest rate environment experienced during 2003. The overall
decrease in long-term interest rates during 2004 has increased the overall
unrealized gain on our available for sale securities. We may continue to
realize gains on the sale of securities if given the opportunity to sell these
assets in a favorable interest rate environment and reinvest the proceeds at an
equivalent yield. During the first nine months of 2004, we continued to grow our balance sheet
consistent with our traditional thrift business model and the growth
initiatives we have employed during recent periods. Our balance sheet growth,
primarily due to increases in residential first mortgage loans and callable
government-sponsored agency securities classified as held to maturity, was
funded principally by customer deposits and borrowed funds. The growth in our
core investment of residential first mortgage loans was due to our continued
strong levels of loan purchases. The growth in customer deposits was primarily
due to the continued success of our interest-bearing High Value Checking
account. Borrowed funds were increased to meet the goals of our growth
initiatives and to take advantage of the still Page 14




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Hudson City Bancorp, Inc.
Form 10-Q historically low interest rate environment. Our ability to grow our business
with relatively low cost interest-bearing liabilities resulted in the increase
in our net interest income during the three- and nine-month periods ended
September 30, 2004. We expect to continue to grow our assets primarily through the origination and
purchase of mortgage loans, while purchasing investment and mortgage-backed
securities as a supplement to our mortgage loans. The primary funding for our
asset growth is expected to come from customer deposits, using borrowed funds
to supplement our deposit initiatives as a means to extend the maturity of our
liabilities. We intend to grow customer deposits by continuing to offer
desirable products at competitive rates and by opening new branch offices. We
have opened three additional branch offices in New Jersey and our first branch
in Suffolk County, NY during 2004. We have plans to open an additional two
branch offices in New Jersey and four additional branch offices in Suffolk
County. We also plan to expand our branch network, on a de novo basis, into
Staten Island, NY in the first half of 2005. We will continue to explore branch
expansion opportunities in market areas that present significant opportunities
for our traditional thrift business model. Although new branching activity
results in additional expenses, overall we continue to maintain a low level of
operating expenses. Comparison of Financial Condition at September 30, 2004 and December 31, 2003 During the first nine months of 2004, our total assets increased $2.29 billion,
or 13.4%, to $19.32 billion at September 30, 2004 from $17.03 billion at
December 31, 2003. Loans increased $1.96 billion, or 22.3%, to $10.76 billion
at September 30, 2004 from $8.80 billion at December 31, 2003. The increase in
loans reflected an increase in our loan purchase activity as well as our
continued focus on the origination of one- to four-family first mortgage loans.
For the first nine months of 2004, we purchased first mortgage loans of $2.36
billion and originated first mortgage loans of $1.11 billion, compared with
purchases of $1.79 billion and originations of $1.77 billion for the first nine
months of 2003. The larger volume of purchased mortgage loans in the first
nine months 2004, coupled with the significant decline in loan prepayment
activity during the period, allowed us to grow and geographically diversify our
mortgage loan portfolio at a relatively low overhead cost while maintaining our
traditional thrift business model. We will continue to purchase mortgage loans
to grow and diversify our portfolio, as opportunities and funding are
available. The lower volume of origination activity was primarily due to a
decline in refinancing activity. These first mortgage loan originations and purchases were exclusively in one-to
four-family mortgage loans and were primarily fixed-rate loans. At September
30, 2004, fixed-rate mortgage loans accounted for 92.5% of our first mortgage
loan portfolio compared with 90.9% at December 31, 2003. This percentage of
fixed-rate loans to total loans may have an adverse impact on our earnings in a
rising rate environment as the interest rate on these loans would not reprice,
while our interest-bearing deposits and callable borrowed funds would reprice,
from time to time, to the higher market interest rates. During the first nine months of 2004, $120.7 million of our loan originations
were the result of refinancing of our existing mortgage loans compared with
$419.3 million during the first nine months of 2003. The dollar amount of
refinancing of existing mortgage loans was included in total loan originations.
We allow certain customers to modify, for a fee, their existing mortgage loans
with the intent of maintaining customer relationships in periods of extensive
refinancing due to low long-term interest rates. In general, all terms and
conditions of the existing mortgage loan remain the same except the adjustment
of the interest rate to the currently offered fixed-rate product with a similar
term to maturity or to a Page 15




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Hudson City Bancorp, Inc.
Form 10-Q reduced term at the request of the borrower. Modifications of our existing
mortgage loans during the first nine months of 2004 were approximately $200.5
million compared with $1.43 billion during the first nine months of 2003.
These loan modifications were not reflected in loan origination totals. We
feel loan refinancing and modification activity are inversely related to the
level of interest rates. The decrease in the refinancing and modification
activity, when comparing the 2004 activity to the 2003 activity, was due to the
stabilization of long-term interest rates. If long-term rates increase or
remain relatively stable, we expect the amount of loan refinancings and
modifications to remain at the 2004 levels or decrease. The loan purchases were made pursuant to our wholesale loan purchase program
established to supplement our retail loan originations. The purchasing
agreements, as established with each seller/servicer, contain parameters as to
the loans that can be included in each package. These parameters, such as
maximum loan size and maximum loan-to-value ratio, conform to parameters
generally utilized by us to originate mortgage loans. Purchased loan packages
are subject to internal due diligence procedures that may include review of
individual loan files. This review subjects the purchased loan file to
substantially the same underwriting standards used in our own loan origination
process. Loan packages purchased include mortgage loans secured by properties
located primarily in the east coast corridor states between Massachusetts and
North Carolina, and in Michigan and Illinois. Investment securities held to maturity increased to $1.17 billion at September
30, 2004 from $1.4 million at December 31, 2003. During 2004, we began to
classify certain of our government-sponsored agency security purchases as held
to maturity. This increase in investment securities held to maturity reflected
in part the reinvestment of the cash flows from the decrease of $518.2 million
of investment securities available for sale during the low interest rate
environment of the first nine months of 2004. The increase also represented a
strategy to shorten the overall final maturity of our interest-earning assets,
while continuing to grow our balance sheet, by investing a portion of the cash
flows from our mortgage-related assets into investment securities. Of the
agency securities purchased and classified as held to maturity, $546.6 million
have step-up features, where the interest rate is increased on scheduled future
dates. These securities have call options that are generally effective prior to
the initial rate increase but after an initial non-call period of three months
to one year. The initial rate for the securities purchased was higher than
interest rates on similar agency securities offered at the time of purchase
without the step-up feature. The rate increases are at least one percent per
adjustment and are fixed over the life of the security. Overall, the aggregate balance of the mortgage-backed securities portfolio
remained relatively stable at $5.22 billion at September 30, 2004 compared with
$5.42 billion at December 31, 2003. Payments received on mortgage-backed
securities were primarily reinvested into fixed-rate mortgage-backed securities
at the prevailing market interest rates. Accrued interest receivable increased
$15.5 million, primarily due to increased balances in loans and investments. Total
liabilities increased $2.27 billion, or 14.5%, to $17.97 billion at
September 30, 2004 compared with $15.70 billion at December 31, 2003. Total
deposits increased $741.9 million, or 7.1%, to $11.20 billion at September 30,
2004 from $10.45 billion at December 31, 2003. The increase in total deposits
was primarily used to fund our growth initiatives. Interest-bearing deposits
increased $722.2 million primarily due to an increase of $1.10 billion in our
interest-bearing High Value Checking account product, partially offset by a
$321.0 million decrease in time deposits. We believe the increase in
interest-bearing deposits was due primarily to our consistent offering of
competitive rates on our interest-bearing High Value Checking account product.
The balance in the High Value Checking account at September 30, 2004 was $3.81
billion compared with $2.71 billion at December 31, 2003. Page 16




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Hudson City Bancorp, Inc.
Form 10-Q Borrowed funds increased $1.50 billion, or 29.1%, to $6.65 billion at September
30, 2004 from $5.15 billion at December 31, 2003. The additional borrowed funds
were primarily used to fund our asset growth. Borrowed funds were comprised of
$4.80 billion of securities sold under agreements to repurchase and $1.85
billion of FHLB advances. The $3.05 billion in new borrowings, which had
initial call dates of predominately two to four years from the date of
borrowing, were partially offset by calls and maturities of borrowed funds in
an aggregate amount of $1.55 billion. Total stockholders equity increased $26.7 million, or 2.0%, to $1.36 billion
at September 30, 2004 from $1.33 billion at December 31, 2003. The increase in
stockholders equity was primarily due to net income of $176.7 million for the
first nine months of 2004, a $5.3 million increase due to the exercise of
741,884 stock options, a $20.3 million permanent tax benefit due to the
exercise of stock options and the vesting of employee stock benefit plans, and
a $14.7 million increase due to the commitment of shares for our employee stock
benefit plans. The increase in stockholders equity also reflected a $7.6
million increase in accumulated other comprehensive income, primarily due to an
increase in the fair market value of our fixed-rate available for sale
investment portfolio, reflecting decreases in longer term interest rates during
the third quarter of 2004. These increases to stockholders equity were partially offset by repurchases of
4,565,200 shares of our common stock at an aggregate cost of $160.7 million,
purchases of 200,000 shares of common stock for our recognition and retention
plan at an aggregate cost of $7.3 million and cash dividends declared and paid
to common stockholders of $29.8 million. As of September 30, 2004 there
remained 3,101,221 shares authorized to be purchased under our current stock
repurchase program. The amount of the cash dividend paid to common stockholders
reflected the waiver of receipt of the dividend by Hudson City, MHC, the
majority stockholder of Hudson City Bancorp. At September 30, 2004, the ratio of total stockholders equity to total assets
was 7.02% compared with 7.80% at December 31, 2003. For the nine-month period
ended September 30, 2004, the ratio of average stockholders equity to average
assets was 7.37% compared with 8.73% for the year ended December 31, 2003. The
decrease in these ratios was primarily due to our capital management strategy
of planned asset growth, and a slower percentage growth in stockholders equity
as compared to the percentage growth in assets, due to payment of cash
dividends and stock repurchases. Stockholders equity per common share was
$7.61 at September 30, 2004 compared with $7.33 at December 31, 2003. Average Balance Sheets for the Three and Nine Months Ended September 30, 2004
and 2003 The tables on the following pages present certain information regarding Hudson
City Bancorps financial condition and net interest income for the three- and
nine-month periods ended September 30, 2004 and 2003. The tables present the
annualized average yield on interest-earning assets and the annualized average
cost of interest-bearing liabilities. We derived the yields and costs by
dividing annualized income or expense by the average balance of
interest-earning assets and interest-bearing liabilities, respectively, for the
periods shown. We derived average balances from daily balances over the
periods indicated. Interest income includes fees that we considered
adjustments to yields. Yields on tax-exempt obligations were not computed on a
tax equivalent basis. Page 17




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Hudson City Bancorp, Inc.
Form 10-Q For the Three Months Ended September 30,2004
    
    2003Average
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Cost
    
    Balance
    
    Interest
    
    Cost(Dollars in thousands)(Unaudited)Assets:Interest-earning assets:First mortgage loans, net (1)
    
    $
    10,053,014
    
    
    
    138,421
    
    
    
    5.51
    %
    
    $
    6,735,892
    
    
    
    96,950
    
    
    
    5.76
    %Consumer and other loans
    
    
    148,268
    
    
    
    2,213
    
    
    
    5.97
    
    
    
    130,102
    
    
    
    2,084
    
    
    
    6.41Federal funds sold
    
    
    103,830
    
    
    
    359
    
    
    
    1.38
    
    
    
    220,115
    
    
    
    519
    
    
    
    0.94Mortgage-backed securities at amortized cost
    
    
    5,324,117
    
    
    
    59,949
    
    
    
    4.50
    
    
    
    6,071,404
    
    
    
    64,411
    
    
    
    4.24Federal Home Loan Bank of New York stock
    
    
    144,511
    
    
    
    858
    
    
    
    2.37
    
    
    
    163,777
    
    
    
    340
    
    
    
    0.83Investment securities at amortized cost
    
    
    2,874,795
    
    
    
    32,461
    
    
    
    4.52
    
    
    
    2,035,486
    
    
    
    22,381
    
    
    
    4.40Total interest-earning assets
    
    
    18,648,535
    
    
    
    234,261
    
    
    
    5.02
    
    
    
    15,356,776
    
    
    
    186,685
    
    
    
    4.86Noninterest-earning assets
    
    
    295,252
    
    
    
    
    
    
    
    
    
    
    
    356,828Total Assets
    
    $
    18,943,787
    
    
    
    
    
    
    
    
    
    
    $
    15,713,604Liabilities and Stockholders Equity:Interest-bearing liabilities:Savings accounts
    
    $
    948,515
    
    
    
    2,366
    
    
    
    0.99
    
    
    $
    937,147
    
    
    
    2,353
    
    
    
    1.00Interest-bearing demand accounts
    
    
    3,790,740
    
    
    
    21,010
    
    
    
    2.20
    
    
    
    2,198,166
    
    
    
    11,536
    
    
    
    2.08Money market accounts
    
    
    585,848
    
    
    
    1,408
    
    
    
    0.96
    
    
    
    624,892
    
    
    
    1,498
    
    
    
    0.95Time deposits
    
    
    5,399,202
    
    
    
    29,469
    
    
    
    2.17
    
    
    
    5,923,580
    
    
    
    35,057
    
    
    
    2.35Total interest-bearing deposits
    
    
    10,724,305
    
    
    
    54,253
    
    
    
    2.01
    
    
    
    9,683,785
    
    
    
    50,444
    
    
    
    2.07Borrowed funds
    
    
    6,359,782
    
    
    
    56,040
    
    
    
    3.51
    
    
    
    4,121,739
    
    
    
    41,552
    
    
    
    4.00Total interest-bearing liabilities
    
    
    17,084,087
    
    
    
    110,293
    
    
    
    2.57
    
    
    
    13,805,524
    
    
    
    91,996
    
    
    
    2.64Noninterest-bearing liabilities:Noninterest-bearing deposits
    
    
    427,877
    
    
    
    
    
    
    
    
    
    
    
    433,480Other noninterest-bearing liabilities
    
    
    124,862
    
    
    
    
    
    
    
    
    
    
    
    110,725Total noninterest-bearing liabilities
    
    
    552,739
    
    
    
    
    
    
    
    
    
    
    
    544,205Total liabilities
    
    
    17,636,826
    
    
    
    
    
    
    
    
    
    
    
    14,349,729Stockholders equity
    
    
    1,306,961
    
    
    
    
    
    
    
    
    
    
    
    1,363,875Total Liabilities and Stockholders Equity
    
    $
    18,943,787
    
    
    
    
    
    
    
    
    
    
    $
    15,713,604Net interest income/net interest rate spread (2)
    
    
    
    
    
    $
    123,968
    
    
    
    2.45
    %
    
    
    
    
    
    $
    94,689
    
    
    
    2.22
    %Net interest-earning assets/net interest margin (3)
    
    $
    1,564,488
    
    
    
    
    
    
    
    2.67
    %
    
    $
    1,551,252
    
    
    
    
    
    
    
    2.49
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.09
    x
    
    
    
    
    
    
    
    
    
    
    1.11
    x
   (1)
    
    Amount is net of deferred loan fees and allowance for loan losses and includes non-performing loans.(2)
    
    Determined by subtracting the annualized weighted average cost of total interest-bearing liabilities from
the annualized weighted average yield on total interest-earning assets.(3)
    
    Determined by dividing annualized net interest income by total average interest-earning assets. Page 18




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q For the Nine Months Ended September 30,2004
    
    2003Average
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Cost
    
    Balance
    
    Interest
    
    Cost(Dollars in thousands)(Unaudited)Assets:Interest-earning assets:First mortgage loans, net (1)
    
    $
    9,421,679
    
    
    
    389,400
    
    
    
    5.51
    %
    
    $
    6,706,822
    
    
    
    304,477
    
    
    
    6.05
    %Consumer and other loans
    
    
    140,897
    
    
    
    6,345
    
    
    
    6.00
    
    
    
    127,423
    
    
    
    6,296
    
    
    
    6.59Federal funds sold
    
    
    122,842
    
    
    
    970
    
    
    
    1.06
    
    
    
    199,275
    
    
    
    1,602
    
    
    
    1.07Mortgage-backed securities at amortized cost
    
    
    5,455,954
    
    
    
    182,564
    
    
    
    4.46
    
    
    
    6,063,186
    
    
    
    206,233
    
    
    
    4.54Federal Home Loan Bank of New York stock
    
    
    153,533
    
    
    
    2,250
    
    
    
    1.95
    
    
    
    153,315
    
    
    
    4,399
    
    
    
    3.83Investment securities at amortized cost
    
    
    2,586,558
    
    
    
    86,550
    
    
    
    4.46
    
    
    
    1,552,987
    
    
    
    54,870
    
    
    
    4.71Total interest-earning assets
    
    
    17,881,463
    
    
    
    668,079
    
    
    
    4.98
    
    
    
    14,803,008
    
    
    
    577,877
    
    
    
    5.21Noninterest-earning assets
    
    
    331,634
    
    
    
    
    
    
    
    
    
    
    
    331,895Total Assets
    
    $
    18,213,097
    
    
    
    
    
    
    
    
    
    
    $
    15,134,903Liabilities and Stockholders Equity:Interest-bearing liabilities:Savings accounts
    
    $
    947,351
    
    
    
    7,042
    
    
    
    0.99
    
    
    $
    923,054
    
    
    
    8,331
    
    
    
    1.21Interest-bearing demand accounts
    
    
    3,392,201
    
    
    
    54,486
    
    
    
    2.15
    
    
    
    1,756,908
    
    
    
    29,745
    
    
    
    2.26Money market accounts
    
    
    601,600
    
    
    
    4,308
    
    
    
    0.96
    
    
    
    623,853
    
    
    
    5,360
    
    
    
    1.15Time deposits
    
    
    5,537,205
    
    
    
    89,617
    
    
    
    2.16
    
    
    
    6,047,703
    
    
    
    116,368
    
    
    
    2.57Total interest-bearing deposits
    
    
    10,478,357
    
    
    
    155,453
    
    
    
    1.98
    
    
    
    9,351,518
    
    
    
    159,804
    
    
    
    2.28Borrowed funds
    
    
    5,853,544
    
    
    
    154,159
    
    
    
    3.52
    
    
    
    3,912,729
    
    
    
    122,738
    
    
    
    4.19Total interest-bearing liabilities
    
    
    16,331,901
    
    
    
    309,612
    
    
    
    2.53
    
    
    
    13,264,247
    
    
    
    282,542
    
    
    
    2.85Noninterest-bearing liabilities:Noninterest-bearing deposits
    
    
    416,808
    
    
    
    
    
    
    
    
    
    
    
    409,759Other noninterest-bearing liabilities
    
    
    122,459
    
    
    
    
    
    
    
    
    
    
    
    113,179Total noninterest-bearing liabilities
    
    
    539,267
    
    
    
    
    
    
    
    
    
    
    
    522,938Total liabilities
    
    
    16,871,168
    
    
    
    
    
    
    
    
    
    
    
    13,787,185Stockholders equity
    
    
    1,341,929
    
    
    
    
    
    
    
    
    
    
    
    1,347,718Total Liabilities and Stockholders Equity
    
    $
    18,213,097
    
    
    
    
    
    
    
    
    
    
    $
    15,134,903Net interest income/net interest rate spread (2)
    
    
    
    
    
    $
    358,467
    
    
    
    2.45
    %
    
    
    
    
    
    $
    295,335
    
    
    
    2.36
    %Net interest-earning assets/net interest margin (3)
    
    $
    1,549,562
    
    
    
    
    
    
    
    2.67
    %
    
    $
    1,538,761
    
    
    
    
    
    
    
    2.65
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.09
    x
    
    
    
    
    
    
    
    
    
    
    1.12
    x
   (1)
    
    Amount is net of deferred loan fees and allowance for loan losses and includes non-performing loans.(2)
    
    Determined by subtracting the annualized weighted average cost of total interest-bearing liabilities from
the annualized weighted average yield on total interest-earning assets.(3)
    
    Determined by dividing annualized net interest income by total average interest-earning assets. Page 19




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q Comparison of Operating Results for the Three Months Ended September 30, 2004
and 2003 General.Net income was $62.0 million for the three months ended September
30, 2004, an increase of $11.7 million, or 23.3%, compared with net income of
$50.3 million for the three months ended September 30, 2003. Basic and diluted
earnings per common share were $0.35 and $0.34 for the third quarter of 2004
compared with basic and diluted earnings per share of $0.28 and $0.27,
respectively, for the third quarter of 2003. For the third quarter of 2004 our
return on average stockholders equity was 18.98% compared with 14.74% for the
third quarter of 2003. The increase in the return on average stockholders
equity was primarily due to the growth of our net income and a lower percentage
growth in stockholders equity due to payment of cash dividends and stock
repurchases. Our return on average assets for the three-month period ended
September 30, 2004 was 1.31% compared with 1.28% for the three-month period
ended September 30, 2003. The increase in the return on average assets was
primarily due to our increase in net income for the third quarter of 2004
compared to the third quarter of 2003. Interest and Dividend Income.Total interest and dividend income increased
$47.6 million, or 25.5%, to $234.3 million for the quarter ended September 30,
2004 compared with $186.7 million for the quarter ended September 30, 2003. The
increase in total interest and dividend income was primarily due to a $3.29
billion, or 21.4%, increase in the average balance of total interest-earning
assets to $18.65 billion for the third quarter of 2004 compared with $15.36
billion for the third quarter of 2003. The growth in the average balance of
total interest-earning assets was consistent with the growth initiatives
employed by us during recent periods. The increase in interest and dividend
income was also the result of a 16 basis point increase in the annualized
average yield on total interest-earning assets to 5.02% for the third quarter
of 2004 from 4.86% for the third quarter of 2003, primarily reflecting yield
increases in mortgage-backed securities and investment securities. The $41.4 million increase in interest and fee income on first mortgage loans
was primarily due to a $3.31 billion increase in the average balance of first
mortgage loans, which reflected our continued emphasis on our core investment
in first mortgage loans, primarily through purchases, at a time when
prepayments outpaced origination activity. The increase in mortgage loan income
due to the increase in the average balance was partially offset by a 25 basis
point decrease in the annualized average yield, which reflected the large
volume of loan origination and purchase activity during the low long-term
interest rate environment of 2003 and the first nine months of 2004. The $10.1 million increase in interest and dividends on total investment
securities was primarily due to an increase in the average balance of
investment securities of $839.3 million, which reflected the investment of
certain of the cash flows from the high level of prepayment activity on our
mortgage-related assets in 2003 and 2004 into investment securities, and the
decision to shorten the overall weighted-average life of our assets by
investing in callable securities with initial call dates of three months to one
year and final maturity dates of five to seven years. The increase in income on
total investment securities was also due to a 12 basis point increase in the
annualized average yield on our investment securities, due to the purchase of
agency step-up bonds, which have higher interest rates than similar agency
securities. The $4.5 million decrease in interest income on total mortgage-backed
securities was due to a $747.3 million decrease in the average balance of total
mortgage-backed securities, which reflected the high volume of prepayment
activity, the sales of mortgage-backed securities, and the subsequent
investment of certain of the cash flows into investment securities. The impact
on mortgage-backed securities income due to the decline of the average balance
was partially offset by the slowing of the premium amortization, Page 20




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q due to the decline in prepayment activity, which resulted in a 26 basis point
increase in the annualized average yield on our mortgage-backed securities. Interest Expense.Total interest expense, comprised of interest on deposits
and interest on borrowed funds, increased $18.3 million, or 19.9%, to $110.3
million for the quarter ended September 30, 2004 from $92.0 million for the
quarter ended September 30, 2003. This increase was primarily due to a $3.27
billion, or 23.7%, increase in the average balance of total interest-bearing
liabilities to $17.08 billion for the third quarter of 2004 compared with
$13.81 billion for the third quarter of 2003. The impact of the increase in the
average balance of total interest-bearing liabilities was offset, in part, by a
7 basis point decrease in the annualized average cost of total interest-bearing
liabilities to 2.57% for the three-month period ended September 30, 2004 from
2.64% for the corresponding period in 2003. Interest expense on borrowed funds increased $14.4 million primarily due to a
$2.24 billion increase in the average balance of borrowed funds, the impact of
which was partially offset by a 49 basis point decrease in the annualized
average cost of borrowed funds. The increase in the average balance of borrowed
funds was used to fund asset growth. The decrease in the average cost of
borrowed funds reflected the continued growth of our borrowed funds in the
relatively low interest rate environment that existed during 2003 and overall
during 2004. Interest expense on interest-bearing deposits increased $3.9 million primarily
due to an increase in the average balance of interest-bearing deposits of $1.04
billion, the impact of which was partially offset by a 6 basis point decrease
in the annualized average cost to 2.01%. The decrease in the annualized average
cost of interest-bearing deposits primarily reflected an 18 basis point
decrease in the annualized average cost of our time deposits, due to the
relatively low interest rate environment experienced during 2003 and overall
during 2004. The 12 basis point increase in the annualized average cost of
interest-bearing demand deposits reflected the short-term interest rate
increase during 2004. The increase in the average balance of interest-bearing deposits, primarily
used to fund asset growth, reflected a $1.59 billion increase in the average
balance of interest-bearing demand accounts due to the growth in our High Value
Checking account product. We believe the increase in the average balance of
interest-bearing deposits was primarily due to our consistent offering of
competitive rates on our High Value Checking account product. Although we
believe our time deposit rates are competitive, we believe the $524.4 million
decrease in the average balance of time deposits was due in part to transfers
to our High Value Checking account. We intend to continue to fund future asset
growth using customer deposits as our primary source of funds, by continuing to
pay competitive rates and by opening new branch offices, while supplementing
the deposit growth with borrowed funds. Net Interest Income.Net interest income increased $29.3 million, or 30.9%,
to $124.0 million for the quarter ended September 30, 2004 compared with $94.7
million for the quarter ended September 30, 2003. This increase primarily
reflected our growth initiatives that resulted in increases in the average
balance of both interest-earning assets and interest-bearing liabilities, and
the net interest rate spread earned on this growth. Our net interest rate
spread, the difference between the annualized average yield on total
interest-earning assets and the annualized average cost of total
interest-bearing liabilities, increased 23 basis points to 2.45% for the third
quarter of 2004 from 2.22% for the corresponding period in 2003. Our net
interest margin, determined by dividing the annualized net interest income by
average total interest-earning assets, increased 18 basis points to 2.67% for
the three-month period ended September 30, 2004 from 2.49% for the three-month
period ended September 30, 2003. Page 21




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q The increases in these ratios primarily reflected the increase in the
annualized yield on total interest-earning assets, primarily due to the
decrease in the amortization of the net premium on our mortgage-related assets,
due to the decline in prepayment activity on these assets. The increases in
these ratios also reflected the decrease in the annualized cost of total
interest-bearing liabilities, primarily due to the growth of our total
interest-bearing liabilities in the low interest rate environment of 2003 and
overall during 2004. The lesser increase in the net interest margin, when
compared to the increase in the net interest rate spread, was due to the use of
funds to purchase treasury stock, which otherwise could have been invested in
interest-earning assets. It is anticipated that overall market interest rates will increase in future
periods, and that the short-term interest rates may increase faster than the
long-term interest rates, thus flattening the yield curve, as was experienced
in the third quarter of 2004. If this continues to occur, the resulting
interest rate environment is likely to have a negative impact on our net
interest income, net interest rate spread and net interest margin, as our
interest-bearing liabilities generally price off short-term interest rates,
while our interest-earning assets generally price off long-term interest rates
and the spread between the rates we earn on our interest-earning assets and the

rates we pay on our interest-bearing liabilities will decrease. Provision for Loan Losses.Our provision for loan losses for the quarters
ended September 30, 2004 and 2003 was $225,000. Net charge-offs during the
first nine months of 2004 were $12,000 compared with net charges-offs of
$77,000 during the first nine months of 2003. The allowance for loan losses
increased $663,000 to $27.2 million at September 30, 2004 from $26.5 million at
December 31, 2003. The increase in the allowance for loan losses, through the
provision for loan losses, reflected the overall growth of the loan portfolio,
increases in non-performing loans and low levels of charge-offs. Non-performing loans, defined as non-accruing loans and accruing loans
delinquent 90 days or more, increased $3.0 million to $23.3 million at
September 30, 2004 from $20.3 million at December 31, 2003, reflecting
increases in our non-performing purchased loan portfolio. The ratio of
non-performing loans to total loans was 0.22% at September 30, 2004 compared
with 0.23% at December 31, 2003. The ratio of the allowance for loan losses to
non-performing loans was 116.62% at September 30, 2004 compared with 131.09% at
December 31, 2003. The ratio of the allowance for loan losses to total loans
was 0.25% at September 30, 2004 compared with 0.30% at December 31, 2003. Although we believe that we have established and maintained the allowance for
loan losses at adequate levels, additions may be necessary if future economic
and other conditions differ substantially from the current operating
environment. Although we use the best information available, the level of the
allowance for loan losses remains an estimate that is subject to significant
judgment and short-term change. See Critical Accounting Policies. Non-Interest Income.Total non-interest income decreased $4.5 million to
$4.9 million for the quarter ended September 30, 2004 from $9.4 million for the
quarter ended September 30, 2003. The decrease in non-interest income primarily
reflected a $4.3 million decrease in gains on securities transactions, net to
$3.5 million for the third quarter of 2004 from $7.8 million for the third
quarter of 2003 primarily due to decreases in sales of mortgage-backed
securities. The $3.5 million gain on securities transactions during the third
quarter of 2004 resulted from an opportunity to realize gains from the sale of
certain available for sale mortgage-backed securities. The historically low
interest rate environment enabled us to realize these gains on the sales of
securities, as the lower rates increased the fair value of the fixed-rate
securities sold. The higher amount of gains in 2003 resulted from the enhanced
opportunities to realize gains due to a declining rate environment. The total
cash flow from the sales of these securities was $154.3 million. Page 22




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q Non-Interest Expense.Total non-interest expense increased $3.3 million, or
12.9%, to $28.9 million for the quarter ended September 30, 2004 from $25.6
million for the quarter ended September 30, 2003. The increase was primarily
due to an increase of $2.3 million in compensation and employee benefits
reflecting routine salary increases and staff increases due to our overall
growth and branch expansion. Our efficiency ratio, determined by dividing total non-interest expense by the
sum of net interest income and non-interest income was 22.42% for the third
quarter of 2004 compared with 24.60% for the third quarter of 2003. Our ratio
of annualized non-interest expense to average total assets for the third
quarter of 2004 was 0.61% compared with 0.65% for the third quarter of 2003.
The decrease in these ratios reflected our efforts to control costs,
notwithstanding the actual increase in non-interest expense, as our average
assets grew in excess of 20.0% when comparing the third quarter of 2004 to the
same period in 2003. Income Taxes.Income tax expense increased $9.7 million, or 34.6%, to $37.7
million for the quarter ended September 30, 2004 from $28.0 million for the
quarter ended September 30, 2003, primarily due to the 27.5% increase in income
before income tax expense. Our effective tax rate increased for the third
quarter of 2004 to 37.83% from 35.79% for the third quarter of 2003, primarily
due to the expense of the employee stock ownership plan, which is not fully
deductible for income tax purposes. Comparison of Operating Results for the Nine Months Ended September 30, 2004
and 2003 General.Net income was $176.7 million for the nine months ended September
30, 2004, an increase of $21.7 million, or 14.0%, compared with net income of
$155.0 million for the nine months ended September 30, 2003. Basic and diluted
earnings per common share were $0.98 and $0.95, respectively, for the first
nine months of 2004 compared with basic and diluted earnings per share of $0.85
and $0.83, respectively, for the first nine months of 2003. For the nine months
ended September 30, 2004 our return on average stockholders equity was 17.55%
compared with 15.34% for the corresponding period of 2003. The increase in the
return on average stockholders equity was primarily due to the growth of our
net income and a decline in stockholders equity due to payment of cash
dividends and stock repurchases. Our return on average assets for the
nine-month period ended September 30, 2004 was 1.29% compared with 1.37% for
the nine-month period ended September 30, 2003. The decrease in the return on
average assets was primarily due to our overall balance sheet growth in the low
interest rate environment of 2003 and the first nine months of 2004. Interest and Dividend Income.Total interest and dividend income increased
$90.2 million, or 15.6%, to $668.1 million for the nine-month period ended
September 30, 2004 compared with $577.9 million for the nine-month period ended
September 30, 2003. The increase in total interest and dividend income was
primarily due to a $3.08 billion, or 20.8%, increase in the average balance of
total interest-earning assets to $17.88 billion for the first nine months of
2004 compared with $14.80 billion for the first nine months of 2003. The growth
in the average balance of total interest-earning assets was consistent with the
growth initiatives employed by us during recent periods. The impact on interest
and dividend income from the increase in the average balance of our total
interest-earning assets was partially off-set by a 23 basis point decrease in
the annualized average yield on total interest-earning assets to 4.98% for the
nine-month period ended September 30, 2004 from 5.21% for the nine-month period
ended September 30, 2003, primarily reflecting the growth of our
interest-earning assets during the low interest rate environment of 2003 and
the first nine months of 2004. Page 23




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q The $84.9 million increase in interest and fee income on first mortgage loans
was primarily due to a $2.71 billion increase in the average balance of first
mortgage loans, which reflected our continued emphasis on our core investment
in first mortgage loans, primarily through purchases, at a time when
prepayments outpaced origination activity. The increase in mortgage loan income
due to the increase in the average balance was partially offset by a 54 basis
point decrease in the annualized average yield, which reflected the large
volume of loan origination and purchase activity during the low long-term
interest rate environment of 2003 and the first nine months of 2004. The $31.7 million increase in interest and dividends on total investment
securities was primarily due to an increase in the average balance of
investment securities of $1.04 billion, which reflected the investment of
certain of the cash flows from the high level of prepayment activity on our
mortgage-related assets in 2003 and 2004 into investment securities, and the
decision to shorten the overall weighted-average life of our assets by
investing in callable securities with initial call dates of three months to one
year and final maturity dates of five to seven years. The increase in income on
total investment securities due to the increase in the average balance was
partially offset by a 25 basis point decrease in the annualized average yield
on our investment securities, which reflected the large volume of purchases
made during the low interest rate environment of 2003 and the first nine months
of 2004. The $23.6 million decrease in interest income on total mortgage-backed
securities was primarily due to a $607.2 million decrease in the average
balance of total mortgage-backed securities, which reflected the high volume of
prepayment activity, the sales of mortgage-backed securities, and the
subsequent investment of certain of the cash flows into investment securities.
The decrease in interest income on total mortgage-backed securities also
reflected an 8 basis point decrease in the annualized average yield on
mortgage-backed securities, due to the reinvestment of certain of the proceeds
back into mortgage-backed securities in the low interest rate environment. The
impact on mortgage-backed securities income due to the decline in the average
balance and annualized weighted average yield was partially offset by the
slowing of the premium amortization due to the decline in prepayment activity. Interest Expense.Total interest expense, comprised of interest on deposits
and interest on borrowed funds, increased $27.1 million, or 9.6%, to $309.6
million for the nine-month period ended September 30, 2004 from $282.5 million
for the nine-month period ended September 30, 2003. This increase was primarily
due to a $3.07 billion, or 23.2%, increase in the average balance of total
interest-bearing liabilities to $16.33 billion for the first nine months of
2004 compared with $13.26 billion for the first nine months of 2003. The impact
of the increase in the average balance of total interest-bearing liabilities
was offset, in part, by a 32 basis point decrease in the annualized average
cost of total interest-bearing liabilities to 2.53% for the nine-month period
ended September 30, 2004 from 2.85% for the corresponding period in 2003. Interest expense on borrowed funds increased $31.5 million primarily due to a
$1.94 billion increase in the average balance of borrowed funds, the impact of
which was partially offset by a 67 basis point decrease in the annualized
average cost of borrowed funds. The increase in the average balance of borrowed
funds was used to fund asset growth. The decrease in the average cost of
borrowed funds reflected the continued growth of our borrowed funds in the low
interest rate environment that existed during 2003 and overall during 2004. Interest expense on interest-bearing deposits decreased $4.3 million primarily
due to a 30 basis point decrease in the annualized average cost to 1.98%, the
impact of which was partially offset by an increase Page 24




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Hudson City Bancorp, Inc.
Form 10-Q in the average balance of interest-bearing deposits of $1.13 billion. The
decrease in the annualized average cost of interest-bearing deposits primarily
reflected a 41 basis point decrease in the annualized average cost of our time
deposits and an 11 basis point decrease in the annualized average cost of
interest-bearing demand deposits. These decreases in the annualized average
cost of interest-bearing deposits reflected the low interest rate environment
experienced during 2003 and the first quarter of 2004. The increase in the average balance of interest-bearing deposits, primarily
used to fund asset growth, reflected a $1.63 billion increase in the average
balance of interest-bearing demand accounts due to the growth in our High Value
Checking account product. We believe the increase in the average balance of
interest-bearing deposits was primarily due to our consistent offering of
competitive rates on our High Value Checking account product. Although we
believe our time deposit rates are competitive, we believe the $510.5 million
decrease in the average balance of time deposits was due in part to transfers
to our High Value Checking account. We intend to continue to fund future asset
growth using customer deposits as our primary source of funds, by continuing to
pay competitive rates and by opening new branch offices, while supplementing
the deposit growth with borrowed funds. Net Interest Income.Net interest income increased $63.2 million, or 21.4%,
to $358.5 million for the nine-month period ended September 30, 2004 compared
with $295.3 million for the nine-month period ended September 30, 2003. This
increase primarily reflected our growth initiatives, which resulted in
increases in the average balance of both interest-earning assets and
interest-bearing liabilities, and the net interest rate spread earned on this
growth. Our net interest rate spread increased 9 basis points to 2.45% for the
first nine months of 2004 from 2.36% for the corresponding period in 2003. Our
net interest margin increased 2 basis points to 2.67% for the nine-month period
ended September 30, 2004 from 2.65% for the nine-month period ended September
30, 2003. The increases in these ratios reflected the larger decrease in the
annualized cost on total interest-bearing liabilities compared with the
decrease in the annualized yield of total interest-earning assets primarily due
to the decreased prepayment activity on our mortgage-related assets, and the
resulting decrease in the amortization of the net premium on these assets. Provision for Loan Losses.Our provision for loan losses for the nine-month
periods ended September 30, 2004 and 2003 was $675,000. Non-Interest Income.Total non-interest income decreased $12.4 million to
$12.4 million for the nine-month period ended September 30, 2004 from $24.8
million for the nine-month period ended September 30, 2003. The decrease in
non-interest income primarily reflected a $11.9 million decrease in gains on
securities transactions, net to $8.6 million for the first nine months of 2004
from $20.5 million for the first nine months of 2003 primarily due to decreases
in sales of mortgage-backed securities. The $8.6 million gain on securities
transactions during the first nine months of 2004 resulted from an opportunity
to realize gains from the sale of certain available for sale mortgage-backed
securities prior to interest rate changes, such as seen in the second quarter
of 2004, which would have had an adverse impact on their fair market value.
The historically low interest rate environment enabled us to realize these
gains on the sales of securities, as the lower rates increased the fair value
of the fixed-rate securities sold. The gains in 2003 resulted from the enhanced
opportunities to realize gains due to the declining interest rate environment.
The total cash flow from the sales of these securities during the first nine
months of 2004 was $380.9 million. Non-Interest Expense.Total non-interest expense increased $11.1 million,
or 14.6%, to $87.1 million for the nine-month period ended September 30, 2004
from $76.0 million for the nine-month period ended Page 25




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Hudson City Bancorp, Inc.
Form 10-Q September 30, 2003. The increase was primarily due to an increase of $8.6
million in compensation and employee benefits reflecting routine salary
increases, staff increases due to our overall growth and branch expansion, and
increases in stock-related compensation expense. Of the $8.6 million increase
in compensation and employee benefits, $4.5 million was due to increases in the
expense of our employee stock benefit plans, due to increases in the market
price of our common stock. Our efficiency ratio was 23.49% for the first nine months of 2004 compared with
23.75% for the first nine months of 2003. Our ratio of annualized non-interest
expense to average total assets for the first nine months of 2004 was 0.64%
compared with 0.67% for the first nine months of 2003. The relative stability
of these ratios reflected our efforts to control costs, notwithstanding the
actual increase in non-interest expense, as our average assets grew in excess
of 20.0% when comparing the first nine months of 2004 to the same period in
2003. Income Taxes.Income tax expense increased $18.0 million, or 20.4%, to
$106.4 million for the nine-month period ended September 30, 2004 from $88.4
million for the nine-month period ended September 30, 2003, primarily due to
the 16.3% increase in income before income tax expense. Our effective tax rate
increased for the first nine months of 2004 to 37.60% from 36.33% for the first
nine months of 2003, primarily due to the expense of the employee stock
ownership plan, which is not fully deductible for income tax purposes. Liquidity and Capital Resources The term liquidity refers to our ability to generate adequate amounts of cash
to fund loan originations, loan purchases, deposit withdrawals and operating
expenses. Our primary sources of funds are scheduled amortization and
prepayments of loan principal and mortgage-backed securities, deposits,
borrowed funds, maturities and calls of investment securities and funds
provided by our operations. Our membership in the FHLB provides us access to
additional sources of borrowed funds, which is generally limited to twenty
times the amount of FHLB stock owned. Deposit flows, calls of investment securities and borrowed funds, and
prepayments of loans and mortgage-backed securities are strongly influenced by
interest rates, general and local economic conditions and competition in the
marketplace. These factors reduce the predictability of the timing of these
sources of funds. As mortgage interest rates decline, customer-prepayment
activity tends to accelerate causing an increase in cash flow from both our
mortgage loan and mortgage-backed security portfolios. If our pricing is
competitive, the demand for mortgage originations also accelerates. When
mortgage rates increase, the opposite effect on prepayment activity tends to
occur and our loan origination and purchase activity becomes increasingly
dependent on the strength of our residential real estate market, home purchases
and new construction activity. Principal repayments on loans were $1.58 billion during the nine-month period
ended September 30, 2004 compared with $3.15 billion for the nine-month period
ended September 30, 2003. Principal payments received on mortgage-backed
securities totaled $1.42 billion during the first nine months of 2004 compared
with $3.31 billion during the first nine months of 2003. The decrease in
payments on loans and mortgage-backed securities reflected the high levels of
prepayment activity in 2003, due to the declining interest rate environment.
Maturities and calls of investment securities totaled $1.16 billion during the
nine-month period ended September 30, 2004 compared with maturities and calls
of $1.25 billion during the corresponding period in 2003. Page 26




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Hudson City Bancorp, Inc.
Form 10-Q Total deposits increased $741.9 million during the nine-month period ended
September 30, 2004 compared with an increase of $1.11 billion during the
nine-month period ended September 30, 2003. Deposit flows are affected by the
level of market interest rates, the interest rates and products offered by
competitors, the volatility of equity markets, and other factors. We believe
the increase in interest-bearing deposits was due primarily to our consistent
offering of competitive rates on our interest-bearing High Value Checking
account. Time deposit accounts scheduled to mature within one year were $3.93
billion at September 30, 2004. We anticipate that we will have sufficient
resources to meet this current funding commitment. Based on our deposit
retention experience and current pricing strategy, we anticipate that a
significant portion of these time deposits will remain with us as renewed time
deposits or transfers to our High Value Checking account product. We are
committed to maintaining a strong liquidity position; therefore we monitor our
liquidity position on a daily basis. For the nine-month period ended September 30, 2004 we borrowed $3.05 billion
compared with new borrowings of $850.0 million for the nine-month period ended
September 30, 2003. Principal payments on borrowed funds during the first nine
months of 2004 were $1.55 billion compared with $250.0 million for the
corresponding period in 2003. The increase in principal payments reflected the
increase in calls and maturities on borrowed funds during this increasing
interest rate environment and the use of borrowed funds with maturities of less
than one year. The increase in new borrowings reflected the increase in call
activity on borrowed funds and our growth initiatives. The funds borrowed
during 2004 had initial call dates of one month to four years from the date of
borrowing and final maturities of one month to ten years. At September 30,
2004, there were $200.0 million of borrowed funds scheduled to mature within
one year, and an additional $1.20 billion of borrowed funds with the potential
to be called within one year. We anticipate we will have sufficient resources
to meet either funding commitment by borrowing new funds at the prevailing
market interest rate, or paying-off the borrowed funds, as they mature or are
called. Our primary investing activities are the origination and purchase of one-to
four-family real estate loans and consumer and other loans, the purchase of
mortgage-backed securities, and the purchase of investment securities. We
originated total loans of $1.18 billion during the nine-month period ended
September 30, 2004 compared with $1.86 billion during the nine-month period
ended September 30, 2003. The decrease in originations reflected the high
volume of refinancing and prepayment activity in 2003 due to the declining
interest rate environment. During the first nine months of 2004 we purchased
total loans of $2.36 billion compared with $1.79 billion during the first nine
months of 2003. The larger volume of purchased mortgage loans in the first nine
months of 2004, when compared to originated loans, allowed us to grow and
geographically diversify our mortgage loan portfolio at a relatively low
overhead cost while maintaining our traditional thrift business model. The
increase in loan purchases also reflected the asset growth strategies we have
employed during recent periods, using customer deposits and borrowed funds as
our funding sources. We will continue to purchase mortgage loans to grow and
diversify our portfolio, as opportunities and funding are available. Purchases of mortgage-backed securities during the nine-month period ended
September 30, 2004 were $1.59 billion compared with $4.01 billion during the
nine-month period ended September 30, 2003. The decrease in purchases of
mortgage-backed securities reflected the decline in the prepayment activity,
resulting in a decrease in funds to reinvest, and the shift of security
purchases to government-sponsored agency investment securities. Page 27




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Hudson City Bancorp, Inc.
Form 10-Q During the nine-month period ended September 30, 2004, we purchased $1.81
billion of investment securities compared with purchases of $2.94 billion
during the nine-month period ended September 30, 2003. This decrease in
purchases was primarily due to the lower amount of investable cash flows in
2004 caused by lower prepayment activity on our mortgage-related assets. Of the
investment securities purchased during 2004, $1.47 billion were classified as
held to maturity. Of these securities, $546.6 million have step-up features,
where the interest rate is increased on scheduled future dates. These
securities have call options that are generally effective prior to the initial
rate increase but after an initial non-call period of three months to one year.
The initial rate for the securities purchased was higher than interest rates on
similar agency securities offered at the time of purchase without the step-up
feature. The rate increases are at least one percent per adjustment and are
fixed over the life of the security. As part of the membership requirements of the FHLB, we are required to hold a
certain dollar amount of FHLB common stock based on our asset size or our
borrowings from the FHLB. During the first nine months of 2004, we redeemed
$24.9 million of FHLB common stock due to calls of funds borrowed from the
FHLB. During the first nine months of 2003, we purchased $30.0 million of FHLB
stock. The redemptions made during 2004 brought our total investment in FHLB
stock to $140.0 million, the amount we are currently required to hold. Under our stock repurchase programs, shares of Hudson City Bancorp common stock
may be purchased in the open market and through other privately negotiated
transactions, from time-to-time, depending on market conditions. The
repurchased shares are held as treasury stock for general corporate use. During
the nine-month period ended September 30, 2004, we purchased 4,565,200 shares
of our common stock at an aggregate cost of $160.7 million compared with
purchases of 2,091,400 shares during the nine-month period ended September 30,
2003 at an aggregate cost of $46.4 million. At September 30, 2004, there were
3,101,221 shares remaining to be repurchased under the existing stock
repurchase program. During the first nine months of 2004, the trustee of our
recognition and retention plan purchased 200,000 shares of common stock for our
recognition and retention plan at an aggregate cost of $7.3 million due to
awards to employees made during the year. Cash dividends declared and paid during the first nine months of 2004 were
$29.8 million compared with $71.0 million during the first nine months of 2003.
In the first quarter of 2004, Hudson City, MHC applied for and was granted
approval from the OTS to waive receipt of dividends declared by Hudson City
Bancorp during 2004. This dividend waiver will provide additional operating
capital and liquidity at Hudson City Bancorp. The decrease in the dividend
payment reflected the waiver by Hudson City, MHC. The dividend pay-out ratio
using amount per share information, which does not reflect the dividend waiver
by Hudson City, MHC, for the first nine months of 2004 was 52.04% compared with
43.53% for the first nine months of 2003. On October 28, 2004, the Board of
Directors declared a quarterly cash dividend of nineteen cents ($0.19) per
common share. The dividend is payable on December 1, 2004 to stockholders of
record at the close of business on November 5, 2004. At September 30, 2004, Hudson City Savings exceeded all regulatory capital
requirements. Hudson City Savings tangible capital ratio, leverage (core)
capital ratio and total risk-based capital ratio were 6.60%, 6.60% and 18.16%,
respectively. The primary source of liquidity for Hudson City Bancorp, the holding company of
Hudson City Savings, is capital distributions from the banking subsidiary.
During the first nine months of 2004, Hudson City Bancorp received $161.4
million in dividend payments from Hudson City Savings, which amounted to 92.3%
of Hudson City Savings net income for that period. The primary use of these
funds is the payment Page 28




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Hudson City Bancorp, Inc.
Form 10-Q of dividends to our shareholders and the repurchase of our common stock. Hudson
City Bancorps ability to continue these activities is solely dependent upon
capital distributions from Hudson City Savings. Applicable federal law may
limit the amount of capital distributions Hudson City Savings may make. Off-Balance Sheet Arrangements and Contractual Obligations Hudson City is a party to certain off-balance sheet arrangements, which occur
in the normal course of our business, to meet the credit needs of our customers
and the growth initiatives of the Bank. These arrangements are primarily
commitments to originate and purchase mortgage loans, and to purchase
securities. We did not engage in any hedging transactions that use derivative
instruments (such as interest rate swaps and caps) during the first nine months
of 2004 and did not have any such hedging transactions in place at September
30, 2004. The following table reports the amounts of contractual obligations for Hudson
City as of September 30, 2004. Payments Due By PeriodLess Than
    
    1 Year to
    
    3 Years to
    
    More ThanContractual Obligation
    
    Total
    
    1 Year
    
    3 Years
    
    5 Years
    
    5 Years(In thousands)First mortgage loans
commitments
    
    $
    152,393
    
    
    $
    152,393
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage loan
purchases
    
    
    557,543
    
    
    
    557,543
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed security
purchases
    
    
    366,434
    
    
    
    366,434
    
    
    
    
    
    
    
    
    
    
    
    Operating
leases
    
    
    56,354
    
    
    
    3,925
    
    
    
    8,034
    
    
    
    7,529
    
    
    
    36,866Total
    
    $
    1,132,724
    
    
    $
    1,080,295
    
    
    $
    8,034
    
    
    $
    7,529
    
    
    $
    36,866
 Commitments to extend credit are agreements to lend money to a customer as long
as there is no violation of any condition established in the contract.
Commitments to fund first mortgage loans generally have fixed expiration dates
of approximately 90 days and other termination clauses. Since some commitments
are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. Hudson City Savings
evaluates each customers credit-worthiness on a case-by-case basis.
Additionally, we have available home equity and overdraft lines of credit,
which do not have fixed expiration dates, of approximately $82.4 million. We
are not obligated to advance further amounts on credit lines if the customer is
delinquent, or otherwise in violation of the agreement. The commitments to
purchase first mortgage loans and securities had a normal period from trade
date to settlement date of approximately 60 days. All commitments to purchase
loans and securities are expected to settle on a gross basis. Critical Accounting Policies Note 1 to our Audited Consolidated Financial Statements of our Annual Report on
Form 10-K for the year ended December 31, 2003, contains a summary of our
significant accounting policies. We believe our policies with respect to the
methodology for our determination of the allowance for loan losses and asset
impairment judgments, including other than temporary declines in the value of
our securities, involve a higher degree of complexity and require management to
make difficult and subjective judgments which often require assumptions or
estimates about highly uncertain matters. Changes in these judgments,
assumptions or estimates could cause reported results to differ materially.
These critical policies and their application are periodically reviewed with
the Audit Committee and our Board of Directors. Page 29




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Hudson City Bancorp, Inc.
Form 10-Q Allowance for Loan Losses.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
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 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. 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. Our primary lending emphasis is the origination and purchase of one- to
four-family first mortgage loans on residential properties and, to a lesser
extent, second mortgage loans on one- to four-family residential properties. As
a result of our lending emphasis, we have a loan concentration in residential
first mortgage loans at September 30, 2004, the majority of which are secured
by real property located in New Jersey. Based on the composition of our loan portfolio and the growth in our loan
portfolio, we believe the primary risks inherent in our portfolio are possible
increases in interest rates, a decline in the economy, generally, and a decline
in real estate market values. Any one or a combination of these events may
adversely affect our loan portfolio resulting in increased delinquencies, loan
losses and future levels of provisions. Accordingly, we have maintained our
provision for loan losses at the current level to primarily address the actual
growth in our loan portfolio and the growth in our non-performing loans. We
consider it important to maintain the allowance for loan losses at an
acceptable level given current economic conditions, interest rates and the
composition of our portfolio. The increase in the allowance for loan losses
reflected the continued growth in the loan portfolio, the growth in our
non-performing loans, the relatively low levels of loan charge-offs, the
stability in the real estate market 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, additions may be necessary if future economic
and other conditions differ substantially from the current operating
environment. Although management uses the best information available, the level
of the Page 30




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Hudson City Bancorp, Inc.
Form 10-Q allowance for loan losses remains an estimate that is subject to significant
judgment and short-term change. Asset Impairment Judgments.Certain of our assets are carried in our
consolidated statements of financial condition at fair value or at the lower of
cost or fair value. Valuation allowances are established when necessary to
recognize impairment of such assets. We periodically perform analyses to test
for impairment of various assets. In addition to our impairment analyses
related to loans discussed above, another significant impairment analysis
relates to other than temporary declines in the value of our securities. Our available for sale portfolio is carried at estimated fair value, with any
unrealized gains and losses, net of taxes, reported as accumulated other
comprehensive income in stockholders equity. The securities that we have the
positive intent and ability to hold to maturity are classified as held to
maturity and are carried at amortized cost. We conduct a periodic review and
evaluation of the securities portfolio to determine if the value of any
security has declined below its carrying value and whether such decline is
other than temporary. If such decline is deemed other than temporary, we would
adjust the carrying amount of the security by writing down the security to fair
market value through a charge to current period operations. The market values
of our securities are significantly affected by changes in interest rates. In
general, as interest rates rise, the market value of fixed-rate securities will
decrease, while, as interest rates fall, the market value of fixed-rate
securities will increase. With significant changes in interest rates, we
evaluate our intent and ability to hold the security to maturity or for a
sufficient time to recover the recorded principal balance to determine if the
security is impaired. Estimated fair values for securities are based on
published or securities dealers market values. 
 Item 3.  Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosure about market risk is presented as of
December 31, 2003 in Hudson City Bancorps Annual Report on Form 10-K. The
following is an update of the discussion provided therein. General.As a financial institution, our primary component of market risk
is interest rate volatility. Net interest income is the primary component of
our net income, and fluctuations in interest rates will ultimately impact the
level of both income and expense recorded on a large portion of our assets and
liabilities. Fluctuations in interest rates will also affect the market value
of all interest-earning assets, other than those that possess a short term to
maturity. Due to the nature of our operations, we are not subject to foreign
currency exchange or commodity price risk. Our real estate loan portfolio, the
majority of which is located in New Jersey, is subject to risks associated with
the local economy. We do not own any trading assets. We did not engage in any
hedging transactions that use derivative instruments (such as interest rate
swaps and caps) during the first nine months of 2004 and did not have any such
hedging transactions in place at September 30, 2004. In the future, we may,
with approval of our Board of Directors, engage in hedging transactions
utilizing derivative instruments. Page 31




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Hudson City Bancorp, Inc.
Form 10-Q Interest Rate Risk Analysis.Hudson City Bancorp continues to monitor the
impact of interest rate volatility upon the present value of equity in the same
manner as at December 31, 2003. The following table presents the estimated
present value of equity over a range of interest rate change scenarios at
September 30, 2004. The present value ratio shown in the table is the present
value of equity as a percent of the present value of total assets in each of
the different rate environments. We believe the 200 basis point decrease
scenario is not meaningful given the prevailing low market interest rate
environment and accordingly is not presented in the table. Present Value of EquityAs Percent of PresentPresent Value of Equity
    
    Value of AssetsChange in
    
    Dollar
    
    Dollar
    
    Percent
    
    Present
    
    PercentInterest Rates
    
    Amount
    
    Change
    
    Change
    
    Value Ratio
    
    Change(Basis points)
    
    (Dollars in thousands)200
    
    
    $
    1,543,077
    
    
    $
    (872,332
    )
    
    
    (36.12
    )%
    
    
    8.71
    %
    
    
    (29.87
    )%100
    
    
    
    2,012,351
    
    
    
    (403,058
    )
    
    
    (16.69
    )
    
    
    10.82
    
    
    
    (12.88
    )50
    
    
    
    2,264,307
    
    
    
    (151,102
    )
    
    
    (6.26
    )
    
    
    11.89
    
    
    
    (4.27
    )0
    
    
    
    2,415,409
    
    
    
    
    
    
    
    
    
    
    
    12.42
    
    
    
    (50
    )
    
    
    2,367,414
    
    
    
    (47,995
    )
    
    
    (1.99
    )
    
    
    12.04
    
    
    
    (3.06
    )(100
    )
    
    
    2,166,963
    
    
    
    (248,446
    )
    
    
    (10.29
    )
    
    
    10.96
    
    
    
    (11.76
    )
 The percent change in the present value of equity in the 200 basis point
increase scenario was negative 36.12% at September 30, 2004 compared with
negative 34.95% at December 31, 2003. This increase in the negative percent
change in the present value of equity, and the overall decrease in the present
value of equity and the percent change in the present value of equity in the
increasing rate scenarios was primarily due to the extent to which our
interest-earning assets are comprised of fixed-rate investment securities,
mortgage-backed securities and mortgage loans. At September 30, 2004,
fixed-rate interest earning-assets were 88.1% of total interest-earning assets.
This percentage of fixed-rate interest-earning assets to total interest-earning
assets may have an adverse impact on our earnings in a rising rate environment
as the interest rate on these interest-earning assets would not reprice, while
our interest-bearing deposits and callable borrowed funds would reprice, from
time to time, to the higher market interest rates. The percent change in the
present value of equity in the 100 basis point decrease was negative 10.29% at
September 30, 2004 compared with negative 8.26% at December 31, 2003. The
increase in this ratio, and the overall decrease in the present value of equity
and the percent change in the present value of equity in the decreasing rate
scenarios was primarily due to the growth in our borrowed funds with long terms
to maturity and the growth in our interest-bearing demand accounts. Our current
policy sets a maximum percent change in the present value of equity at 55% from
the current, or zero basis point scenario, present value of equity, given an
instantaneous and parallel increase or decrease of 200 basis points. Page 32




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Hudson City Bancorp, Inc.
Form 10-Q In addition to the impact on the present value of equity, we also monitor the
impact of interest rate changes on our net interest income over the next
twelve-month period. This model does not purport to provide estimates of net
interest income over the next twelve-month period, but attempts to assess the
impact of a simultaneous and parallel interest rate change on our net interest
income. Assumptions for this model are the same as those used for our present
value of equity analysis. Change in
    
    Percent Change inInterest Rates
    
    Net Interest Income(Basis points)200
    
    
    
    (6.69
    )%100
    
    
    
    (2.23
    )50
    
    
    
    (0.66
    )0
    
    
    
    (50
    )
    
    
    (2.05
    )(100
    )
    
    
    (6.93
    )
 GAP Analysis.The table on the following page presents the amounts of our
interest-earning assets and interest-bearing liabilities outstanding at
September 30, 2004, which we anticipate to reprice or mature in each of the
future time periods shown. The decay rates applied to our non-maturity deposits
are the same as those reported in our Annual Report on Form 10-K for the year
ended December 31, 2003. The prepayment rate applied to our mortgage loans and
mortgage-backed securities for the September 30, 2004 analysis was 15% and 20%,
respectively, compared with 30% for both used for the December 31, 2003
analysis. The change in the prepayment rate reflected the decrease in the
prepayment activity on our mortgage-related assets and the stabilization of
long-term interest rates. At September 30, 2004, we have reported no callable
bonds at their call date, but have reported $200.0 million of callable
borrowings at their call date. The government-sponsored agency securities with
step-up features purchased during 2004 are reported at their next interest rate
adjustment. We have excluded non-accrual loans of $6,295,000 from the table. The cumulative one-year gap as a percent of total assets was negative 5.60% at
September 30, 2004 compared with positive 2.55% at December 31, 2003. This
change in the negative cumulative one-year gap primarily reflected the change
in the prepayment rate assumptions used for our mortgage-related assets and the
increase in borrowed funds under one year due to anticipated calls. Had the
prepayment and call assumptions used at December 31, 2003 been applied to our
September 30, 2004 gap analysis, the cumulative one-year gap as a percent of
total assets would have been a positive 5.89%. Page 33




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q At September 30, 2004More than
    
    More than
    
    More than
    
    More thanSix months
    
    six months
    
    one year
    
    two years
    
    three years
    
    More thanor less
    
    months to one year
    
    to two years
    
    to three years
    
    to five years
    
    five years
    
    Total(Dollars in thousands)Interest-earning assets:First mortgage loans
    
    $
    841,608
    
    
    $
    849,628
    
    
    $
    1,346,992
    
    
    $
    1,153,654
    
    
    $
    1,249,597
    
    
    $
    5,159,435
    
    
    $
    10,600,914Consumer and other loans
    
    
    28,470
    
    
    
    320
    
    
    
    1,421
    
    
    
    2,266
    
    
    
    16,523
    
    
    
    104,142
    
    
    
    153,142Federal funds sold
    
    
    23,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,900Mortgage-backed securities
    
    
    776,889
    
    
    
    857,072
    
    
    
    716,987
    
    
    
    574,012
    
    
    
    474,757
    
    
    
    1,817,803
    
    
    
    5,217,520FHLB stock
    
    
    140,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,000Investment securities
    
    
    10,332
    
    
    
    65
    
    
    
    
    
    
    
    62
    
    
    
    1,037,490
    
    
    
    1,848,649
    
    
    
    2,896,598Total interest-earning assets
    
    
    1,821,199
    
    
    
    1,707,085
    
    
    
    2,065,400
    
    
    
    1,729,994
    
    
    
    2,778,367
    
    
    
    8,930,029
    
    
    
    19,032,074Interest-bearing liabilities:Savings accounts
    
    
    23,795
    
    
    
    28,797
    
    
    
    46,642
    
    
    
    46,642
    
    
    
    93,283
    
    
    
    699,625
    
    
    
    938,784Interest-bearing demand accounts
    
    
    97,681
    
    
    
    97,681
    
    
    
    390,725
    
    
    
    390,725
    
    
    
    781,450
    
    
    
    2,148,989
    
    
    
    3,907,251Money market accounts
    
    
    14,388
    
    
    
    14,388
    
    
    
    57,550

    
    
    
    57,550
    
    
    
    115,101
    
    
    
    316,528
    
    
    
    575,505Time deposits
    
    
    2,718,688
    
    
    
    1,215,587
    
    
    
    891,449
    
    
    
    242,178
    
    
    
    290,063
    
    
    
    
    
    
    
    5,357,965Borrowed funds
    
    
    200,000
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,250,000
    
    
    
    6,650,000Total interest-bearing
liabilities
    
    
    3,054,552
    
    
    
    1,556,453
    
    
    
    1,386,366
    
    
    
    737,095
    
    
    
    1,279,897
    
    
    
    9,415,142
    
    
    
    17,429,505Interest rate sensitivity gap
    
    $
    (1,233,353
    )
    
    $
    150,632
    
    
    $
    679,034
    
    
    $
    992,899
    
    
    $
    1,498,470
    
    
    $
    (485,113
    )
    
    $
    1,602,569Cumulative interest rate sensitivity
Gap
    
    $
    (1,233,353
    )
    
    $
    (1,082,721
    )
    
    $
    (403,687
    )
    
    $
    589,212
    
    
    $
    2,087,682
    
    
    $
    1,602,569Cumulative interest rate sensitivity gap
as a percent of total assets
    
    
    (6.38
    )%
    
    
    (5.60
    )%
    
    
    (2.09
    )%
    
    
    3.05
    %
    
    
    10.81
    %
    
    
    8.29
    %Cumulative interest-earning assets
as a percent of interest-bearing
liabilities
    
    
    59.62
    %
    
    
    76.52
    %
    
    
    93.27
    %
    
    
    108.75
    %
    
    
    126.05
    %
    
    
    109.19
    %
 Page 34




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q 
 Item 4.  Controls and Procedures Ronald E. Hermance, Jr., our President and Chief Executive Officer, and Denis
J. Salamone, our Senior Executive Vice President and Chief Operating Officer,
conducted an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of
1934, as amended) as of September 30, 2004. Based upon their evaluation, they
each found that our disclosure controls and procedures were adequate to ensure
that information required to be disclosed in the reports that we file and
submit under the Exchange Act was recorded, processed, summarized and reported
as and when required and that such information was accumulated and communicated
to our management as appropriate to allow timely decisions regarding required
disclosures. There were no changes in our internal control over financial reporting that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting and we identified no significant deficiencies or material
weaknesses requiring corrective action with respect to those controls. 
 PART II  OTHER INFORMATION 
 Item 1.  Legal Proceedings We are not involved in any pending legal proceedings other than routine legal
proceedings occurring in the ordinary course of business. We believe that
these routine legal proceedings, in the aggregate, are immaterial to our
financial condition and results of operations. 
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds The following table reports information regarding repurchases of our common
stock during the third quarter of 2004 and the stock repurchase plans approved
by our Board of Directors. Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares that May YetTotal
    
    
    
    
    
    Part of Publicly
    
    Be Purchased UnderNumber of Shares
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Purchased (3)
    
    per Share
    
    Programs
    
    Programs (1) (2)July 1-July 31, 2004
    
    
    139,000
    
    
    $
    34.11
    
    
    
    139,000
    
    
    
    4,268,421August 1-August 31, 2004
    
    
    797,200
    
    
    
    34.30
    
    
    
    797,200
    
    
    
    3,471,221September 1-September 30, 2004
    
    
    370,000
    
    
    
    35.42
    
    
    
    370,000
    
    
    
    3,101,221Total
    
    
    1,306,200
    
    
    
    34.60
    
    
    
    1,306,200
   (1)
    
    On March 20, 2003, Hudson City Bancorp announced the adoption of its fifth Stock Repurchase Program, which authorized the purchase of up to
9,525,000 shares of common stock. This program has no expiration date and has 3,101,221 shares yet to be purchased as of September 30, 2004.  (2)
    
    No repurchase plan or program has expired or been terminated during the quarter.  (3)
    
    Amounts do not reflect purchases of common stock by the trustee of the recognition and retention plan. Page 35




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Hudson City Bancorp, Inc.
Form 10-Q 
 Item 3.  Defaults Upon Senior Securities Not applicable. 
 Item 4.  Submission of Matters to a Vote of Security Holders No matter was submitted during the quarter ended September 30, 2004 to a vote
of security holders of Hudson City Bancorp through the solicitation of proxies
or otherwise. 
 Item 5.  Other Information Not applicable. 
 Item 6.  Exhibits Exhibit Number
    
    Exhibit31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Written Statement of Chief Executive Officer and
Chief Financial Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350. *
   *
    
    Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18
of the Exchange Act or otherwise subject to the liability of that section. Page 36




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Hudson City Bancorp, Inc. Date: November 5, 2004
    
    By:
    
    /s/ Ronald E. Hermance, Jr.Ronald E. Hermance, Jr.President and Chief Executive Officer
(principal executive officer)Date: November 5, 2004
    
    By:
    
    /s/ Denis J. SalamoneDenis J. SalamoneSenior Executive Vice President andChief Operating Officer
(principal financial and accounting
officer)
 Page 37