##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q
 
 (Mark One)[X]
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934For the quarterly period ended: March 31, 2004[   ]
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934For the transition period from  to
 Commission File Number: 0-26001 Hudson City Bancorp, Inc. 
 Delaware
    
    22-3640393(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 West 80 Century RoadParamus, 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 [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X]No [   ] As of April 30, 2004, the registrant had 189,339,311 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
66,762,711 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 
March 31, 2004 (unaudited) and December 31, 2003
    
    
    3Consolidated Statements of Income (unaudited) 
For the three months ended March 31, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows
(unaudited)  For the three months ended March
31, 2004 and 2003
    
    
    5Notes to Consolidated Financial
Statements
    
    
    6Item 2.  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3.  Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.  Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1.  Legal Proceedings
    
    
    28Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities
    
    
    28Item 3.  Defaults Upon Senior Securities
    
    
    29Item 4.  Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.  Other Information
    
    
    29Item 6.  Exhibits and Reports on Form 8-K
    
    
    29SIGNATURES
    
    
    30
  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
 March 31,
    
    December 31,2004
    
    2003(Unaudited)(In thousands)AssetsCash and due from banks
    
    $
    116,602
    
    
    $
    190,984Federal funds sold
    
    
    113,900
    
    
    
    63,600Total cash and cash equivalents
    
    
    230,502
    
    
    
    254,584Investment securities held to maturity, market value of $575,548 at
March 31, 2004 and $1,443 at December 31, 2003
    
    
    563,841
    
    
    
    1,366Investment securities available for sale, at market value
    
    
    1,772,270
    
    
    
    2,243,812Federal Home Loan Bank of New York stock
    
    
    160,000
    
    
    
    164,850Mortgage-backed securities held to maturity, market value of $4,008,742
at March 31, 2004 and $4,250,688 at December 31, 2003
    
    
    4,005,352
    
    
    
    4,292,444Mortgage-backed securities available for sale, at market value
    
    
    1,560,478
    
    
    
    1,130,257Loans
    
    
    9,450,227
    
    
    
    8,803,066Less:Deferred loan fees
    
    
    10,053
    
    
    
    10,255Allowance for loan losses
    
    
    26,765
    
    
    
    26,547Net loans
    
    
    9,413,409
    
    
    
    8,766,264Foreclosed real estate, net
    
    
    1,103
    
    
    
    1,002Accrued interest receivable
    
    
    79,093
    
    
    
    80,220Banking premises and equipment, net
    
    
    32,564
    
    
    
    31,354Other assets
    
    
    101,337
    
    
    
    67,207Total Assets
    
    $
    17,919,949
    
    
    $
    17,033,360Liabilities and Stockholders EquityDeposits:Interest-bearing
    
    $
    10,349,986
    
    
    $
    10,057,285Noninterest-bearing
    
    
    410,029
    
    
    
    396,495Total deposits
    
    
    10,760,015
    
    
    
    10,453,780Borrowed funds
    
    
    5,650,000
    
    
    
    5,150,000Accrued expenses and other liabilities
    
    
    121,014
    
    
    
    100,214Total liabilities
    
    
    16,531,029
    
    
    
    15,703,994Common stock, $0.01 par value, 800,000,000 shares authorized; 231,276,600
shares issued, 189,602,811 shares outstanding at March 31, 2004,
189,835,997 shares outstanding at December 31, 2003
    
    
    2,313
    
    
    
    2,313Additional paid-in capital
    
    
    558,160
    
    
    
    543,589Retained earnings
    
    
    1,439,943
    
    
    
    1,396,257Treasury stock, at cost; 41,673,789 shares at March 31, 2004 and
41,440,603 shares at December 31, 2003
    
    
    (569,034
    )
    
    
    (547,859
    )Unallocated common stock held by the employee stock ownership plan
    
    
    (49,023
    )
    
    
    (49,513
    )Unearned common stock held by the recognition and retention plan

    
    
    (11,080
    )
    
    
    (9,463
    )Accumulated other comprehensive income (loss), net of tax
    
    
    17,641
    
    
    
    (5,958
    )Total stockholders equity
    
    
    1,388,920
    
    
    
    1,329,366Total Liabilities and Stockholders Equity
    
    $
    17,919,949
    
    
    $
    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 MonthsEnded March 31,2004
    
    2003(In thousands, except per share data)Interest and Dividend Income:Interest and fees on first mortgage loans
    
    $
    123,087
    
    
    $
    106,709Interest and fees on consumer and other loans
    
    
    2,049
    
    
    
    2,125Interest on mortgage-backed securities held to maturity
    
    
    45,851
    
    
    
    61,075Interest on mortgage-backed securities available for sale
    
    
    15,796
    
    
    
    14,399Interest on investment securities held to maturity:Taxable
    
    
    1,326
    
    
    
    17Exempt from federal taxes
    
    
    5
    
    
    
    5Interest and dividends on investment securities available
for sale-taxable
    
    
    23,937
    
    
    
    11,690Dividends on Federal Home Loan Bank of New York stock
    
    
    659
    
    
    
    1,990Interest on federal funds sold
    
    
    317
    
    
    
    526Total interest and dividend income
    
    
    213,027
    
    
    
    198,536Interest Expense:Interest on deposits
    
    
    49,769
    
    
    
    55,684Interest on borrowed funds
    
    
    47,719
    
    
    
    40,270Total interest expense
    
    
    97,488
    
    
    
    95,954Net interest income
    
    
    115,539
    
    
    
    102,582Provision for Loan Losses
    
    
    225
    
    
    
    225Net interest income after provision for loan losses
    
    
    115,314
    
    
    
    102,357Non-Interest Income:Service charges and other income
    
    
    1,194
    
    
    
    1,302Gains on securities transactions, net
    
    
    2,437
    
    
    
    4,171Total non-interest income
    
    
    3,631
    
    
    
    5,473Non-Interest Expense:Compensation and employee benefits
    
    
    19,684
    
    
    
    16,916Net occupancy expense
    
    
    3,940
    
    
    
    3,863Federal deposit insurance assessment
    
    
    417
    
    
    
    378Computer and related services
    
    
    539
    
    
    
    335Other expense
    
    
    4,473
    
    
    
    4,030Total non-interest expense
    
    
    29,053
    
    
    
    25,522Income
before income tax expense
    
    
    89,892
    
    
    
    82,308Income Tax Expense
    
    
    33,663
    
    
    
    30,107Net income
    
    $
    56,229
    
    
    $
    52,201Basic Earnings Per Share
    
    $
    0.31
    
    
    $
    0.29Diluted Earnings Per Share
    
    $
    0.30
    
    
    $
    0.28Weighted Average Number of Common Shares Outstanding:Basic
    
    
    181,523,963
    
    
    
    182,764,282Diluted
    
    
    187,040,989
    
    
    
    187,557,530
 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 Three MonthsEnded March 31,2004
    
    2003(In thousands)Cash Flows from Operating Activities:Net income
    
    $
    56,229
    
    
    $
    52,201Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation, accretion and
amortization
expense
    
    
    7,515
    
    
    
    9,952Provision for loan
losses
    
    
    225
    
    
    
    225Gains on securities
transactions,
net
    
    
    (2,437
    )
    
    
    (4,171
    )Allocation of stock for
employee benefit
plans
    
    
    4,630
    
    
    
    2,980Deferred tax
expense
    
    
    415
    
    
    
    Net proceeds from sale of
foreclosed real
estate
    
    
    828
    
    
    
    221Decrease in accrued
interest
receivable
    
    
    1,127
    
    
    
    701(Increase) decrease in
other
assets
    
    
    (50,843
    )
    
    
    7,973Increase in accrued
expenses and other
liabilities
    
    
    20,800
    
    
    
    28,538Tax benefit from stock
plans
    
    
    12,705
    
    
    
    Net Cash Provided by Operating
Activities
    
    
    51,194
    
    
    
    98,620Cash Flows from Investing Activities:Originations of
loans
    
    
    (265,875
    )
    
    
    (405,288
    )Purchases of
loans
    
    
    (761,050
    )
    
    
    (418,033
    )Payments on
loans
    
    
    376,966
    
    
    
    884,417Principal collection of mortgage-backed securities held to
maturity
    
    
    286,619
    
    
    
    840,582Purchases of mortgage-backed securities held to
maturity
    
    
    (4,093
    )
    
    
    (884,988
    )Principal collection of mortgage-backed securities available
for sale
    
    
    49,626
    
    
    
    116,388Proceeds from sales of mortgage-backed securities available
for sale
    
    
    126,421
    
    
    
    196,467Purchases of mortgage-backed securities available for
sale
    
    
    (581,912
    )
    
    
    (116,379
    )Purchases of investment securities held to
maturity
    
    
    (562,475
    )
    
    
    Proceeds from maturities and calls of investment securities
available for sale
    
    
    826,335
    
    
    
    134,200Purchases of investment securities available for
sale
    
    
    (337,306
    )
    
    
    (1,093,208
    )Purchases of Federal Home Loan Bank of New York
stock
    
    
    
    
    
    
    (12,500
    )Redemption of Federal Home Loan Bank of New York
stock
    
    
    4,850
    
    
    
    (Purchases) sales of premises and equipment,
net
    
    
    (2,008
    )
    
    
    1,386Net Cash Used in Investment
Activities
    
    
    (843,902
    )
    
    
    (756,956
    )Cash Flows from Financing Activities:Net increase in
deposits
    
    
    306,235
    
    
    
    473,054Proceeds from borrowed
funds
    
    
    650,000
    
    
    
    250,000Principal payments on borrowed
funds
    
    
    (150,000
    )
    
    
    Dividends
paid
    
    
    (9,604
    )
    
    
    (21,168
    )Purchases of stock by the recognition and retention
plan
    
    
    (3,891
    )
    
    
    Purchases of treasury
stock
    
    
    (27,406
    )
    
    
    (17,514
    )Exercise of stock
options
    
    
    3,292
    
    
    
    5,463Net Cash Provided by Financing
Activities
    
    
    768,626
    
    
    
    689,835Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (24,082
    )
    
    
    31,499Cash and Cash Equivalents at Beginning of Period
    
    
    254,584
    
    
    
    240,796Cash and Cash Equivalents at End of
Period
    
    $
    230,502
    
    
    $
    272,295Supplemental Disclosures:Interest
paid
    
    $
    96,460
    
    
    $
    96,106Income taxes
paid
    
    $
    
    
    
    $
    
 See accompanying notes to consolidated financial statements. Page 5




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Hudson City Bancorp, Inc.
Form 10-Q 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-month period ended March 31, 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 this 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 $892,000 and $1.17
million for the three month periods ended March 31, 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.
Form 10-Q 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 the pro
forma amounts that follow. For the Three MonthsEnded March 31,2004
    
    2003(In thousands, except per share data)Net income, as reported
    
    $
    56,229
    
    
    $
    52,201Add: expense recognized for the recognition and
retention plans, net of related tax effect
    
    
    1,160
    
    
    
    1,006Less: total stock option and recognition and
retention plans expense, determined under
the fair value method, net of
related tax effect
    
    
    (1,962
    )
    
    
    (1,613
    )Pro forma net income
    
    $
    55,427
    
    
    $
    51,594Basic
earnings per share:
    As reported
    
    $
    0.31
    
    
    $
    0.29Pro forma
    
    
    0.31
    
    
    
    0.28Diluted earnings per
share:
    As reported
    
    $
    0.30
    
    
    $
    0.28Pro forma
    
    
    0.30
    
    
    
    0.28
 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 MonthsEnded March 31,2004
    
    2003Expected dividend yield
    
    
    1.64
    %
    
    
    2.24
    %Expected volatility
    
    
    19.68
    
    
    
    24.71Risk-free interest rate
    
    
    2.99
    
    
    
    2.98Expected option life
    
    5 years
    
    5 years
 Page 7




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q 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 March 31,2004
    
    2003(In thousands)Net income
    
    $
    56,229
    
    
    $
    52,201Other comprehensive income:Unrealized holding gain (loss) on securities
available for sale, net of tax of $17,294
for 2004 and $(2,098) for 2003
    
    
    25,040
    
    
    
    (3,038
    )Reclassification adjustment for gains in
net income, net of tax of $(996) for
2004 and ($1,704) for 2003
    
    
    (1,441
    )
    
    
    (2,467
    )Total comprehensive income
    
    $
    79,828
    
    
    $
    46,696
 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 March 31,2004
    
    2003Per
    
    
    
    
    
    
    
    
    
    PerShare
    
    
    
    
    
    
    
    
    
    ShareIncome
    
    Shares
    
    Amount
    
    Income
    
    Shares
    
    Amount(In thousands, except per share data)Net income
    
    $
    56,229
    
    
    
    
    
    
    
    
    
    
    $
    52,201Basic earnings per share:Income available to
common stockholders
    
    $
    56,229
    
    
    
    181,524
    
    
    $
    0.31
    
    
    $
    52,201
    
    
    
    182,764
    
    
    $
    0.29Effect of dilutive common
stock equivalents
    
    
    
    
    
    
    5,517
    
    
    
    
    
    
    
    
    
    
    
    4,794Diluted earnings per share:Income available to
common stockholders
    
    $
    56,229
    
    
    
    187,041
    
    
    $
    0.30
    
    
    $
    52,201
    
    
    
    187,558
    
    
    $
    0.28
 Page 8




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Hudson City Bancorp, Inc.
Form 10-Q 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 which reported an unrealized loss at
March 31, 2004 and whether the unrealized loss position was continuous for the
twelve months prior to March 31, 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
    
    $
    220,512
    
    
    $
    908
    
    
    $
    
    
    
    $
    
    
    
    $
    220,512
    
    
    $
    908Corporate
bonds
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    1
    
    
    
    49
    
    
    
    1Total investment
securities
    
    $
    220,512
    
    
    $
    908
    
    
    $
    49
    
    
    $
    1
    
    
    $
    220,561
    
    
    $
    909GNMA pass-through certificates
    
    $
    76,805
    
    
    $
    312
    
    
    $
    
    
    
    $
    
    
    
    $
    76,805
    
    
    $
    312FNMA pass-through certificates
    
    
    223,088
    
    
    
    1,216
    
    
    
    
    
    
    
    
    
    
    
    223,088
    
    
    
    1,216FHLMC pass-through certificates
    
    
    271,231
    
    
    
    2,098
    
    
    
    
    
    
    
    
    
    
    
    271,231
    
    
    
    2,098FHLMC, FNMA and GNMA -
REMICs
    
    
    1,337,670
    
    
    
    32,089
    
    
    
    
    
    
    
    
    
    
    
    1,337,670
    
    
    
    32,089Total mortgage-backed
securities
    
    $
    1,908,794
    
    
    $
    35,715
    
    
    $
    
    
    
    $
    
    
    
    $
    1,908,794
    
    
    $
    35,715
 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 agreement. 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 three-month period ended March 31, 2004, we purchased 700,000 shares
of our common stock at an aggregate cost of $27.4 million. At March 31, 2004,
there were 6,966,421 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 to waive receipt of dividend payments from Hudson City Bancorp. This
dividend waiver will provide additional operating capital and liquidity at
Hudson City Bancorp. The cash dividend paid to common stockholders in the first
quarter of 2004 of $9.6 million reflected an approximate $17.9 million decrease
from the fourth quarter 2003 dividend payment of $27.5 million due to the waiver of the
dividend payment by Hudson City, MHC. 6.  Net Periodic Benefit Plans Expenses Non-contributory retirement and postretirement 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 Page 9




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Hudson City Bancorp, Inc.
Form 10-Q 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 for the quarters ended March 31 included the
following components: For the Three Months Ended March 31,Retirement Plans
    
    Other Benefits2004
    
    2003
    
    2004
    
    2003(In thousands)Service
cost
    
    $
    726
    
    
    $
    677
    
    
    $
    552
    
    
    $
    411Interest
cost
    
    
    1,134
    
    
    
    1,068
    
    
    
    638
    
    
    
    490Expected return on assets
    
    
    (1,643
    )
    
    
    (1,322
    )
    
    
    
    
    
    
    Amortization of:Net loss
(gain)
    
    
    12
    
    
    
    132
    
    
    
    1
    
    
    
    (92
    )Unrecognized prior service
cost
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    Net periodic
benefit cost
    
    $
    225
    
    
    $
    551
    
    
    $
    1,191
    
    
    $
    809
 In 2004, Hudson City expects to fund its qualified retirement plan with the
minimum contribution, which has not yet been determined. 7.  Subsequent Event On April 15, 2004, the Board of Directors of Hudson City Bancorp declared a
quarterly cash dividend of seventeen cents ($0.17) per common share
outstanding. The dividend is payable on June 1, 2004 to stockholders of record
at the close of business on May 7, 2004. 8.  Recent Accounting Pronouncements On January 12, 2004, The FASB issued Staff Position No. 106-1 Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003, which allows companies to recognize or defer
recognizing the effects of the Medicare Prescription Drug Improvement and
Modernization Act of 2003, or Medicare Act, for annual financial statements of
fiscal years ending after December 7, 2003. The Medicare Act introduced both a
Medicare prescription-drug benefit and a federal subsidy to sponsors of retiree
health-care plans that provide a benefit at least actuarially equivalent to
the Medicare benefit. These provisions of the Medicare Act will affect
accounting measurements. We have elected to defer accounting for the effects
of the Medicare Act. The specific authoritative guidance on accounting for the
federal subsidy is pending and the issued guidance could require us to change
previously reported information. As a result, we have not yet determined the
impact of the Medicare Act on our financial condition or results of operations. Page 10




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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 rates. 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. 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 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 in the area where the underlying
mortgages were originated, seasonal factors, demographic variables and the
assumability of the underlying mortgages. However, the major factors affecting
prepayment rates are prevailing 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 current lower market
interest rate. 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 are related to the
current price of our common stock. Market interest rates, while still at historical lows, were generally stable
during the second half of 2003 and the first quarter of 2004. Long-term
interest rates declined slightly during the first quarter of 2004, but
increased during April 2004, due to the release of economic data, which moved
the long-term rates above the beginning of year levels. This increase in
long-term interest rates increased the spread between the long-term and
short-term interest rates thus further steepening the market yield curve. This
increase in long-term interest rates and the steepening of the yield curve
should have a positive impact on our interest income in future periods. Page 11




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Hudson City Bancorp, Inc.
Form 10-Q A period of general stability in interest rates during the second half of 2003
and the first quarter of 2004, notwithstanding the slight long-term interest
rate decrease in the first quarter of 2004, followed general market interest
rate declines, in particular in long-term interest rates, during the first half
of 2003. This stabilization of interest rates slowed the prepayment activity on
our mortgage-related assets when compared to the activity experienced during
the first three quarters of 2003. The slowing of the prepayment activity in
turn decreased the amount of related premium amortized on these assets during
the first quarter of 2004. The decrease in the prepayment activity and the
slowing of the premium amortization had a positive impact on our net interest
income, net interest rate spread and net interest margin in the first quarter
of 2004 and the fourth quarter of 2003 when compared to previously reported
quarters. If interest rates remain stable or long-term interest rates increase,
we believe the resulting situation could have a positive impact on our
earnings, net interest margin and net interest spread in future quarters in
2004. This low interest rate environment also 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 April 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 cash flows from the sales of these
securities were generally reinvested in mortgage loans. During the first three months of 2004, we continued to grow our balance sheet
consistent with the growth initiatives we have employed during recent periods.
Our balance sheet growth, primarily due to increases in 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 current low interest rate environment.
Our ability to grow our business with low cost interest-bearing liabilities
resulted in the increase in our net interest income during the first quarter of
2004. We expect to continue to grow through internal expansion 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 growth is expected to come from customer deposits, using
borrowed funds to supplement our deposit initiatives as a funding source. We
intend to grow customer deposits by continuing to offer desirable products at
competitive rates and by opening new branch offices. We are opening three
branch offices in May 2004. Comparison of Financial Condition at March 31, 2004 and December 31, 2003 During the first three months of 2004, our total assets increased $886.6
million, or 5.2%, to $17.92 billion at March 31, 2004 from $17.03 billion at
December 31, 2003. Loans increased $647.2 million, or 7.4%, to $9.45 billion
at March 31, 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 three months of 2004, we purchased first mortgage loans of
$761.1 million and originated first mortgage loans of $247.3 million, compared
with purchases of $418.0 million and originations of $387.6 million for the
first three months of 2003. The larger volume of purchased mortgage loans in
the first quarter 2004, when compared to originated loans, allowed us to grow
and diversify our mortgage loan portfolio at a relatively low overhead cost
during a slow period for Page 12




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Hudson City Bancorp, Inc.
Form 10-Q originating loans. We will continue to purchase mortgage loans to grow and
diversify our portfolio as opportunities and funding are available. These first mortgage loan originations and purchases were exclusively in one-to
four-family mortgage loans and were primarily fixed-rate loans. At March 31,
2004, fixed-rate mortgage loans accounted for 91.7% 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
to the higher market interest rates. During the first quarter of 2004, $30.9 million of our loan originations were
the result of refinancing of our existing mortgage loans compared
with $137.1 million during the first quarter 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 reduced term at the request of the borrower.
Modifications of our existing mortgage loans during the first quarter of 2004
were approximately $62.7 million compared with $371.2 million during the first
quarter 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. If long-term rates increase
or remain relatively stable, we expect the amount of loan refinancings and
modifications to remain at these levels or decrease during 2004. 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 $562.4 million to $563.8
million at March 31, 2004 from $1.4 million at December 31, 2003. During the
first quarter of 2004 we began to classify certain of our government-sponsored
agency security purchases as held to maturity. Of the agency securities
purchased and classified as held to maturity, $446.6 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. The increase in investment securities held to maturity primarily reflected the
reinvestment of the cash flows from the $471.5 million decrease in investment
securities available for sale during the first three months of 2004 due to
calls during this low interest rate environment. The $430.2 million increase in Page 13




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Hudson City Bancorp, Inc.
Form 10-Q mortgage-backed securities available for sale reflected the reinvestment of the
cash flows from the $287.1 million decrease in mortgage-backed securities held
to maturity and internal growth initiatives. The $34.1 million increase in other assets primarily reflected a receivable
from the sale of a mortgage-backed security at quarter end, partially off-set
by a decrease in our deferred tax asset as required by generally accepted
accounting principles. Total liabilities increased $827.0 million, or 5.3%, to $16.53 billion at March
31, 2004 compared with $15.70 billion at December 31, 2003. Total deposits
increased $306.2 million, or 2.9%, to $10.76 billion at March 31, 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 $292.7 million primarily due to an increase of $357.6 million in our
interest-bearing High Value Checking account product, partially offset by a
$52.3 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 deposit products, primarily on our interest-bearing
High Value Checking account product. We view our interest-bearing High Value
Checking account as an attractive alternative to cash management accounts
offered by brokerage firms. This account offers unlimited checking, no charge
on-line banking, no charge bill payment and debit card availability as part of
the product, and pays an interest rate generally above competitive market
rates. The balance in the High Value Checking account at March 31, 2004 was
$3.07 billion compared with $2.71 billion at December 31, 2003. Borrowed funds increased $500.0 million, or 9.7%, to $5.65 billion at March 31,
2004 from $5.15 billion at December 31, 2003. The additional borrowed funds
were primarily used to fund our growth strategies. Borrowed funds were
comprised of $3.70 billion of securities sold under agreements to repurchase
and $1.95 billion of FHLB advances. The $650.0 million in new borrowings, which
had initial call dates of three months to three years from the date of
borrowing, were partially offset by calls of borrowed funds in an aggregate
amount of $150.0 million. Total stockholders equity increased $59.6 million, or 4.5%, to $1.39 billion
at March 31, 2004 from $1.33 billion at December 31, 2003. The increase in
stockholders equity was primarily the result of net income of $56.2 million
for the first three months of 2004 and a $23.6 million increase in accumulated
other comprehensive income, primarily due to an increase in the fair value of
our available for sale investment portfolio, reflecting decreases in long-term
interest rates during the first quarter. However, the increase in interest
rates that occurred in April 2004 is expected to decrease the fair value of the
available for sale portfolio, as the securities are primarily fixed rate. The
increase in stockholders equity also reflected $3.3 million in proceeds from
the exercise of 466,814 stock options, a $12.7 million permanent tax benefit
due to the exercise of stock options and a $4.6 million increase due to the
commitment of shares for our employee stock benefit plans. These increases in stockholders equity were partially offset by repurchases of
700,000 shares of our common stock at an aggregate cost of $27.4 million,
purchases of 100,000 shares of common stock for our recognition and retention
plan at an aggregate cost of $3.9 million and cash dividends declared and paid
to common stockholders of $9.6 million. As of March 31, 2004, there remain
approximately 7.0 million shares authorized to be purchased under our current
stock repurchase program. In the first quarter of 2004, Hudson City, MHC
applied for and was granted approval to waive receipt of dividend payments from
Hudson City Bancorp. This dividend waiver will provide additional operating
capital and liquidity at Hudson City Bancorp. The cash dividend paid to common
stockholders in the first quarter of 2004 of Page 14




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Hudson City Bancorp, Inc.
Form 10-Q $9.6 million reflected an approximate $17.9 million decrease from the fourth
quarter 2003 dividend payment of $27.5 million due to the waiver of the dividend
payment by Hudson City, MHC. At March 31, 2004, the ratio of total stockholders equity to total assets was
7.75% compared with 7.80% at December 31, 2003. For the quarter ended March
31, 2004, the ratio of average stockholders equity to average assets was 7.70%
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 $7.66 at
March 31, 2004 compared with $7.33 at December 31, 2003. Average Balance Sheets for the Three Months Ended March 31, 2004 and 2003 The table on the following page presents certain information regarding Hudson
City Bancorps financial condition and net interest income for the three-month
periods ended March 31, 2004 and 2003. The table presents the annualized
average yield on interest-earning assets and the annualized average cost of
interest-bearing liabilities. We derived the yields and costs by dividing
annualized income or expense by the average balance of interest-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 and net premium amortization that we considered
adjustments to yields. Yields on tax-exempt obligations were not computed on a
tax equivalent basis. Page 15




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q For the Three Months Ended March 31,2004
    
    2003Average
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Cost
    
    Balance
    
    Interest
    
    Cost(Dollars in thousands)Assets:Interest-earnings assets:First mortgage loans, net (1)
    
    $
    8,836,842
    
    
    $
    123,087
    
    
    
    5.57
    %
    
    $
    6,729,310
    
    
    $
    106,709
    
    
    
    6.34
    %Consumer and other loans
    
    
    135,302
    
    
    
    2,049
    
    
    
    6.06
    
    
    
    126,172
    
    
    
    2,125
    
    
    
    6.74Federal funds sold
    
    
    139,674
    
    
    
    317
    
    
    
    0.91
    
    
    
    185,053
    
    
    
    526
    
    
    
    1.15Mortgage-backed securities at amortized cost
    
    
    5,540,780
    
    
    
    61,647
    
    
    
    4.45
    
    
    
    6,104,615
    
    
    
    75,474
    
    
    
    4.95Federal Home Loan Bank of New York stock
    
    
    160,213
    
    
    
    659
    
    
    
    1.65
    
    
    
    141,639
    
    
    
    1,990
    
    
    
    5.62Investment securities at amortized cost
    
    
    2,301,503
    
    
    
    25,268
    
    
    
    4.39
    
    
    
    880,963
    
    
    
    11,712
    
    
    
    5.32Total interest-earning assets
    
    
    17,114,314
    
    
    
    213,027
    
    
    
    4.98
    
    
    
    14,167,752
    
    
    
    198,536
    
    
    
    5.61Noninterest-earnings assets
    
    
    319,175
    
    
    
    
    
    
    
    
    
    
    
    318,520Total Assets
    
    $
    17,433,489
    
    
    
    
    
    
    
    
    
    
    $
    14,486,272Liabilities and Stockholders Equity:Interest-bearing liabilities:Savings accounts
    
    $
    943,526
    
    
    
    2,331
    
    
    
    0.99
    
    
    $
    905,571
    
    
    
    3,229
    
    
    
    1.45Interest-bearing demand accounts
    
    
    2,992,267
    
    
    
    15,626
    
    
    
    2.10
    
    
    
    1,301,176
    
    
    
    8,182
    
    
    
    2.55Money market accounts
    
    
    618,330
    
    
    
    1,472
    
    
    
    0.96
    
    
    
    624,200
    
    
    
    2,107
    
    
    
    1.37Time deposits
    
    
    5,642,579
    
    
    
    30,340
    
    
    
    2.16
    
    
    
    6,140,805
    
    
    
    42,166
    
    
    
    2.78Total interest-bearing deposits
    
    
    10,196,702
    
    
    
    49,769
    
    
    
    1.96
    
    
    
    8,971,752
    
    
    
    55,684
    
    
    
    2.52Borrowed funds
    
    
    5,376,374
    
    
    
    47,719
    
    
    
    3.57
    
    
    
    3,682,778
    
    
    
    40,270
    
    
    
    4.43Total interest-bearing liabilities
    
    
    15,573,076
    
    
    
    97,488
    
    
    
    2.52
    
    
    
    12,654,530
    
    
    
    95,954
    
    
    
    3.08Noninterest-bearing liabilities:Noninterest-bearing deposits
    
    
    394,167
    
    
    
    
    
    
    
    
    
    
    
    386,924Other noninterest-bearing liabilities
    
    
    123,683
    
    
    
    
    
    
    
    
    
    
    
    111,640Total noninterest-bearing liabilities
    
    
    517,850
    
    
    
    
    
    
    
    
    
    
    
    498,564Total liabilities
    
    
    16,090,926
    
    
    
    
    
    
    
    
    
    
    
    13,153,094Stockholders equity
    
    
    1,342,563
    
    
    
    
    
    
    
    
    
    
    
    1,333,178Total Liabilities and Stockholders
Equity
    
    $
    17,433,489
    
    
    
    
    
    
    
    
    
    
    $
    14,486,272Net interest income/net interest rate spread (2)
    
    
    
    
    
    $
    115,539
    
    
    
    2.46
    %
    
    
    
    
    
    $
    102,582
    
    
    
    2.53
    %Net interest-earning assets/net interest margin (3)
    
    $
    1,541,238
    
    
    
    
    
    
    
    2.69
    %
    
    $
    1,513,222
    
    
    
    
    
    
    
    2.86
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.10
    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 16




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Hudson City Bancorp, Inc.
Form 10-Q Comparison of Operating Results for the Three Months Ended March 31, 2004 and
2003 General.Net income was $56.2 million for the three months ended March 31,
2004, an increase of $4.0 million, or 7.7%, compared with net income of $52.2
million for the three months ended March 31, 2003. Basic and diluted earnings
per common share were $0.31 and $0.30, respectively, for the first quarter of
2004 compared with basic and diluted earnings per share of $0.29 and $0.28,
respectively, for the first quarter of 2003. For the first three months of 2004
our return on average stockholders equity was 16.75% compared with 15.66% for
the first three months of 2003. The increase in the return on average
stockholders equity was primarily due to the growth of our net income 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. Our
return on average assets for the three-month period ended March 31, 2004 was
1.29% compared with 1.44% for the three-month period ended March 31, 2003. The
decrease in the return on average assets was primarily due to the lower net
interest margin due to the low interest rate environment. The decline in the
return on average assets also reflected our overall balance sheet growth. Interest and Dividend Income.Total interest and dividend income increased
$14.5 million, or 7.3%, to $213.0 million for the quarter ended March 31, 2004
compared with $198.5 million for the quarter ended March 31, 2003. The increase
in total interest and dividend income was primarily due to a $2.94 billion, or
20.7%, increase in the average balance of total interest-earning assets to
$17.11 billion for the first three months of 2004 compared with $14.17 billion
for the first three 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 63 basis point decrease in the annualized average yield
on total interest-earning assets to 4.98% for the first quarter of 2004 from
5.61% for the first quarter of 2003, reflecting yield declines to varying
degrees in all asset categories. The $16.4 million increase in interest and fee income on first mortgage loans
was primarily due to a $2.11 billion increase in the average balance of first
mortgage loans, which reflected our continued emphasis on our core investment
in first mortgage loans. The increase in mortgage loan income due to the
increase in the average balance was partially offset by a 77 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 quarter of 2004. The $13.5 million increase in interest and dividends on total investment
securities was primarily due to an increase in the average balance of
investment securities of $1.42 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 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. The
increase in income on total investment securities due to the increase in the
average balance was partially offset by a 93 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 quarter of 2004. The $13.9 million decrease in interest income on total mortgage-backed
securities was due to a 50 basis point decrease in the annualized average yield
on total mortgage-backed securities, which reflected the significant turnover
in the portfolio and the downward repricing of our adjustable-rate securities
during the low interest rate environment of 2003 and the first quarter of 2004.
The decrease in interest income on total mortgage-backed securities was also
due to a $563.8 million decrease in the average balance of total Page 17




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Hudson City Bancorp, Inc.
Form 10-Q mortgage-backed securities, which reflected the high volume of prepayment
activity and the sales of mortgage-backed securities and the subsequent
investment of certain of the cash flow into investment securities. If
short-term market interest rates remain low, the yield on our mortgage-backed
securities may continue to adjust downward due to annual rate change limits
that are part of the terms of the securities, which have limited the extent our
adjustable-rate securities may have adjusted in prior periods. We expect to continue to grow our assets by originating and purchasing first
mortgage loans as our primary growth strategy, while purchasing investment and
mortgage-backed securities to supplement our loan growth, and assist in the
management of interest rate risk. If the interest rate environment remains
stable or increases, and the prepayment activity continues to decline, we
believe the resulting situation would have a positive impact on our interest
income for the remainder of 2004. Interest Expense.Total interest expense, comprised of interest on deposits
and interest on borrowed funds, increased $1.5 million, or 1.6%, to $97.5
million for the quarter ended March 31, 2004 from $96.0 million for the quarter
ended March 31, 2003. This increase was primarily due to a $2.92 billion, or
23.1%, increase in the average balance of total interest-bearing liabilities to
$15.57 billion for the first three months of 2004 compared with $12.65 billion
for the first three months of 2003. The impact of the increase in the average
balance of total interest-bearing liabilities was offset, in part, by a 56
basis point decrease in the annualized average cost of total interest-bearing
liabilities to 2.52% for the three-month period ended March 31, 2004 from 3.08%
for the corresponding period in 2003. Interest expense on borrowed funds increased $7.4 million primarily due to a
$1.70 billion increase in the average balance of borrowed funds, the impact of
which was partially offset by an 86 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 the first quarter of
2004. The decrease in the annualized average cost of borrowed funds also
reflected the restructuring of certain of our borrowed funds during 2003, which
resulted in the extension of the weighted-average maturity and lowered the
contract rates. Interest expense on interest-bearing deposits decreased $5.9 million primarily
due to a 56 basis point decrease in the annualized average cost to 1.96%, the
impact of which was partially offset by an increase in the average balance of
interest-bearing deposits of $1.23 billion. The decrease in the annualized
average cost of interest-bearing deposits primarily reflected a 62 basis point
decrease in the annualized average cost of our time deposits and a 45 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 impact on the annualized average cost of
interest-bearing liabilities due to possible further decreases in market
interest rates may not be as favorable in future periods as short-term market
rates are currently at historically low levels and have been relatively stable
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 $1.69 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 desirable customer deposit products. Although we believe
our time deposit rates are competitive, we believe the $498.2 million decrease
in the average balance of time deposits was primarily due to transfers to our
High Value Checking account. We intend to continue to fund future asset growth
using customer deposits as Page 18




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Hudson City Bancorp, Inc.
Form 10-Q our primary source of funds, by continuing to pay attractive above market
rates, while supplementing the deposit growth with borrowed funds. Net Interest Income.Net interest income increased $12.9 million, or 12.6%,
to $115.5 million for the quarter ended March 31, 2004 compared with $102.6
million for the quarter ended March 31, 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, the
difference between the annualized average yield on total interest-earning
assets and the annualized average cost of total interest-bearing liabilities,
decreased 7 basis points to 2.46% for the first three months of 2004 from 2.53%
for the corresponding period in 2003. Our net interest margin, represented by
annualized net interest income divided by average total interest-earning
assets, decreased 17 basis points to 2.69% for the three-month period ended
March 31, 2004 from 2.86% for the three-month period ended March 31, 2003. These decreases reflected the larger decrease in the annualized yield on total
interest-earning assets compared with the decrease in the annualized cost of
total interest-bearing liabilities due to the continued decline in long-term
market interest rates during 2003 and the first three months of 2004, and the
timing of the impact on earnings of the market rate changes. However, the net
interest rate spread and the net interest margin for both the first quarter of
2004 and the fourth quarter of 2003 increased when compared to the previous
reported quarter, primarily due to the decrease in prepayment activity on our
mortgage-related assets and the subsequent decrease in the amortization of the
net premium. If market interest rates remain stable or increase, and the
prepayment activity continues to decrease or stabilize, we expect the resulting
environment could have a positive impact on our earnings, net interest margin
and net interest spread for the remaining quarters in 2004. Provision for Loan Losses.Our provision for loan losses for the quarters
ended March 31, 2004 and 2003 was $225,000. Net charge-offs for the first
quarter of 2004 were $7,000 compared with net charge-offs of $2,000 for the
first quarter of 2003. The allowance for loan losses increased $218,000, or
0.8%, to $26.7 million at March 31, 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 and the level
of delinquent and non-performing loans. Non-performing loans, defined as non-accruing loans and accruing loans
delinquent 90 days or more, increased $2.1 million to $22.4 million at March
31, 2004 from $20.3 million at December 31, 2003. The ratio of non-performing
loans to total loans was 0.24% at March 31, 2004 compared with 0.23% at
December 31, 2003. The ratio of the allowance for loan losses to
non-performing loans was 119.32% at March 31, 2004 compared with 131.09% at
December 31, 2003. The ratio of the allowance for loan losses to total loans
was 0.28% at March 31, 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 $1.9 million to
$3.6 million for the quarter ended March 31, 2004 from $5.5 million for the
quarter ended March 31, 2003. The decrease in non-interest income primarily
reflected a $1.8 million decrease in gains on securities transactions, net to
$2.4 Page 19




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Hudson City Bancorp, Inc.
Form 10-Q million for the first quarter of 2004 from $4.2 million for the first quarter
of 2003 primarily due to decreases in sales of mortgage-backed securities. The
$2.4 million gain on securities transactions during the first quarter of 2004
resulted from an opportunity to realize gains from the sale of certain
available for sale mortgage-backed securities prior to an interest rate change,
such as seen in April 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 total cash flow from the
sales of these securities was $126.4 million. We may continue to realize gains
on the sale of securities during the remainder of 2004 if given the opportunity
to sell these assets in a favorable interest rate environment where we can
invest the proceeds in an interest-earning asset with an equivalent yield. Non-Interest Expense.Total non-interest expense increased $3.6 million, or
14.1%, to $29.1 million for the quarter ended March 31, 2004 from $25.5 million
for the quarter ended March 31, 2003. The increase was primarily due to an
increase of $2.8 million in compensation and employee benefits reflecting
routine salary increases and increases in stock-related compensation expense.
Of the $2.8 million increase in compensation and employee benefits, $2.0
million was due to an increase in the expense of our employee stock ownership
plan due to increases in the current average market price of our common stock. Our efficiency ratio, determined by dividing total non-interest expense by the
sum of net interest income and non-interest income was 24.38% for the first
three months of 2004 compared with 23.62% for the first three months of 2003.
Our ratio of annualized non-interest expense to average total assets for the
first quarter of 2004 was 0.67% compared with 0.70% for the first quarter of
2003. The relative stability of these ratios reflected our efforts to control
costs, notwithstanding the actual increase in non-interest expense, as our
assets grew in excess of 5%. Income Taxes.Income tax expense increased $3.6 million, or 12.0%, to $33.7
million for the quarter ended March 31, 2004 from $30.1 million for the quarter
ended March 31, 2003, primarily due to the 9.2% increase in income before
income tax expense. Our effective tax rate increased for the first
quarter of 2004 to 37.45% from 36.58% for the first quarter of 2003, primarily due to the
increase in 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 tends to occur and our loan
origination and purchase activity Page 20




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Hudson City Bancorp, Inc.
Form 10-Q becomes increasingly dependent on the strength of our residential real
estate market, home purchases and new construction activity. Principal repayments on loans were $377.0 million during the quarter ended
March 31, 2004 compared with $884.4 million for the quarter ended March 31,
2003. Principal payments received on mortgage-backed securities totaled $336.2
million during the first three months of 2004 compared with $956.9 million
during the first three months of 2003. The decrease in payments on loans and
mortgage-backed securities reflected the relative stability of the interest
rate environment and the declining prepayment activity on these assets.
Maturities and calls of investment securities totaled $826.3 million during the
three-month period ended March 31, 2004 compared with maturities and calls of
$134.2 million during the corresponding period in 2003. The higher amount of
calls during the first quarter of 2004 was due to the continuing low interest
rate environment experienced during 2003 and the first quarter of 2004 and the
larger balance of callable investment securities held during the first quarter
of 2004 compared with the amount of callable investment securities held during
the first quarter of 2003. Total deposits increased $306.2 million during the quarter ended March 31, 2004
compared with an increase of $473.1 million during the quarter ended March 31,
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 deposit products, primarily on our interest-bearing High Value Checking
account. Time deposit accounts scheduled to mature within one year were $4.43
billion at March 31, 2004. Based on our deposit retention experience and
current pricing strategy, we anticipate that a significant portion of these
time deposits will remain with us. We are committed to maintaining a strong
liquidity position; therefore we monitor our liquidity position on a daily
basis. We anticipate that we will have sufficient resources to meet this
current funding commitment. For the quarter ended March 31, 2004 we borrowed $650.0 million compared with
new borrowings of $250.0 million for the quarter ended March 31, 2003.
Principal payments on borrowed funds during the first three months of 2004 were
$150.0 million. There were no principal payments on borrowed funds during the
first three months of 2003. The funds borrowed during 2004 had initial call
dates of three months to three years from the date of borrowing and final
maturities of ten years. At March 31, 2004, there were $50.0 million of
borrowed funds scheduled to mature within one year, and $1.75 billion of
borrowed funds with the potential to reprice 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, from our usual cash flow sources. 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 $265.9 million during the quarter ended March 31,
2004 compared with $405.3 million during the quarter ended March 31, 2003. The
decrease in originations reflected the decrease in refinancing and prepayment
activity in 2004. During the first three months of 2004 we purchased total
loans of $761.1 million compared with $418.0 million during the first three
months of 2003. The larger volume of purchased mortgage loans, when compared to
loans originated in the first quarter of 2004, allowed us to grow and diversify
our mortgage loan portfolio at a relatively low cost during a slow period for
originating loans. The increase in loan purchases also reflected the growth
strategies we have employed during recent periods, using customer deposits and
borrowed funds as our funding sources. Page 21




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Hudson City Bancorp, Inc.
Form 10-Q Purchases of mortgage-backed securities during the quarter ended March 31, 2004
were $586.0 million compared with $1.00 billion during the quarter ended March
31, 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. During the quarter ended March 31, 2004, we purchased $899.8 million of
investment securities compared with purchases of $1.09 billion during the
quarter ended March 31, 2004. This decrease in purchases was primarily due to
lower prepayment activity on our mortgage-related assets. Of the investment
securities purchased during 2004, $562.5 million were classified as held to
maturity. Of these securities, $446.6 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. During the first three months of
2004, we redeemed $4.9 million of FHLB common stock due to calls of funds
borrowed from the FHLB. During the first three months of 2003, we purchased
$12.5 million of FHLB stock. The redemptions made during 2004 brought our
total investment in FHLB stock to $160.0 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 quarter ended March 31, 2004, we purchased 700,000 shares of our common
stock at an aggregate cost of $27.4 million compared with purchases of 917,600
shares during the quarter ended March 31, 2003 at an aggregate cost of $17.5
million. At March 31, 2004, there were 6,966,421 shares remaining to be
repurchased under the existing stock repurchase program. During the first
quarter of 2004, the trustee of our recognition and retention plan purchased
100,000 shares of common stock for our recognition and retention plan at an
aggregate cost of $3.9 million due to awards to employees made during the
quarter. Cash dividends declared and paid during the first three months of 2004 were
$9.6 million compared with $21.2 million during the first three months of 2003.
In the first quarter of 2004, Hudson City, MHC applied for and was granted
approval to waive receipt of dividend payments from Hudson City Bancorp. This
dividend waiver will provide additional operating capital and liquidity at
Hudson City Bancorp. The cash dividend paid to common stockholders in the first
quarter of 2004 reflected an approximate $17.9 million decrease from the fourth
quarter 2003 dividend payment of $27.5 million due to the waiver of the dividend
payment by Hudson City, MHC. The dividend pay-out ratio for the first quarter
of 2004 was 51.61% compared with 37.93% for the first quarter of 2003. On
April 15, 2004, the Board of Directors declared a quarterly cash dividend of
seventeen cents ($0.17) per common share. The dividend is payable on June 1,
2004 to stockholders of record at the close of business on May 7, 2004. At March 31, 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 7.00%, 7.00% and 19.77%,
respectively. Page 22




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Hudson City Bancorp, Inc.
Form 10-Q 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 quarter of 2004, Hudson City Bancorp received $50.5 million in
dividend payments from Hudson City Savings, which amounted to 90.8% of Hudson
City Savings net income for that quarter. The primary use of these funds is
the payment 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 three
months of 2004 and did not have any such hedging transactions in place at March
31, 2004, which would create other off-balance sheet arrangements. The following table reports the amounts of contractual obligations for Hudson
City as of March 31, 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
    
    $
    163,625
    
    
    $
    163,625
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage loan purchases
    
    
    403,716
    
    
    
    403,716
    
    
    
    
    
    
    
    
    
    
    
    Security purchases
    
    
    352,784
    
    
    
    352,784
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    56,680
    
    
    
    3,627
    
    
    
    7,845
    
    
    
    7,543
    
    
    
    37,665Total
    
    $
    976,805
    
    
    $
    923,752
    
    
    $
    7,845
    
    
    $
    7,543
    
    
    $
    37,665
 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 $84.8 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 Page 23




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Hudson City Bancorp, Inc.
Form 10-Q 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. 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 March 31, 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. 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 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 Page 24




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Hudson City Bancorp, Inc.
Form 10-Q current operating environment. Although management uses 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. 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 the value of 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 three months of 2004 and did not have any such
hedging transactions in place at March 31, 2004. In the future, we may, with
approval of our Board of Directors, engage in hedging transactions utilizing
derivative instruments. Interest Rate Risk Compliance.Hudson City Bancorp continues to monitor the
impact of interest rate volatility upon the present value of equity in the same
manner as at December 31, 2003. The following table presents the estimated
present value of equity over a range of interest rate change scenarios at March
31, 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 Page 25




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Hudson City Bancorp, Inc.
Form 10-Q 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
    
    
    
    
    
    PercentInterest Rates
    
    Amount
    
    Change
    
    Change
    
    Present Value Ratio
    
    Change(Basis points)
    
    (Dollars in thousands)200
    
    $
    1,438,822
    
    
    $
    (835,547
    )
    
    
    (36.74
    )%
    
    
    8.71
    %
    
    
    (30.54
    )%100
    
    
    1,970,090
    
    
    
    (304,279
    )
    
    
    (13.38
    )
    
    
    11.34
    
    
    
    (9.57
    )50
    
    
    2,133,695
    
    
    
    (140,674
    )
    
    
    (6.19
    )
    
    
    12.02
    
    
    
    (4.15
    )0
    
    
    2,274,369
    
    
    
    
    
    
    
    
    
    
    
    12.54
    
    
    
    (50)
    
    
    2,201,254
    
    
    
    (73,115
    )
    
    
    (3.21
    )
    
    
    12.03
    
    
    
    (4.07
    )(100)
    
    
    2,022,324
    
    
    
    (252,045
    )
    
    
    (11.08
    )
    
    
    11.01
    
    
    
    (12.20
    )
 The percent change in the present value of equity in the 200 basis point
increase scenario was negative 36.74% at March 31, 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 growth of our fixed-rate investment and
mortgage-backed securities. The percent change in the present value of equity
in the 100 basis point decrease was negative 11.08% at March 31, 2004 compared
with negative 8.26% at December 31, 2003. 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. GAP Analysis.The table on the following page presents the amounts of our
interest-earning assets and interest-bearing liabilities outstanding at March
31, 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 March 31, 2004 analysis was 24% compared
with 30% 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 increase in long-term interest rates experienced during April
2004. At March 31, 2004, we have reported no callable bonds or 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 $6,142,000 from the table. The cumulative one-year gap as a percent of total assets was negative 0.31% at
March 31, 2004 compared with positive 2.55% at December 31, 2003. This increase
in the negative cumulative one-year gap primarily reflected the change in
prepayment rate assumptions used for our mortgage-related assets. Had the
assumptions used at December 31, 2003 been applied to our March 31, 2004 gap
analysis, the cumulative one-year gap as a percent of total assets would have
been positive 4.33%. Page 26




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##### Table of Contents



Hudson City Bancorp, Inc.
Form 10-Q At March 31, 2004More than six
    
    More than one year
    
    More than two yearsSix months or less
    
    months to one year
    
    to two years
    
    to three years(Dollars in thousands)Interest-earning assets:First mortgage loans
    
    $
    1,173,045
    
    
    $
    1,165,032
    
    
    $
    1,681,208
    
    
    $
    1,284,839Consumer and other loans
    
    
    28,619
    
    
    
    444
    
    
    
    1,217
    
    
    
    2,354Federal funds sold
    
    
    113,900
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    1,046,160
    
    
    
    960,442
    
    
    
    876,678
    
    
    
    644,364FHLB stock
    
    
    160,000
    
    
    
    
    
    
    
    
    
    
    
    Investment securities
    
    
    10,817
    
    
    
    195
    
    
    
    
    
    
    
    12Total interest-earning assets
    
    
    2,532,541
    
    
    
    2,126,113
    
    
    
    2,559,103
    
    
    
    1,931,569Interest-bearing liabilities:Savings accounts
    
    
    23,612
    
    
    
    26,419
    
    
    
    47,223
    
    
    
    47,223Interest-bearing demand accounts
    
    
    79,097
    
    
    
    79,097
    
    
    
    316,390
    
    
    
    316,390Money market accounts
    
    
    15,304
    
    
    
    15,304
    
    
    
    61,216
    
    
    
    61,216Time deposits
    
    
    3,134,382
    
    
    
    1,291,363
    
    
    
    809,750
    
    
    
    164,545Borrowed funds
    
    
    50,000
    
    
    
    
    
    
    
    100,000
    
    
    
    550,000Total
interest-bearing liabilities
    
    
    3,302,395
    
    
    
    1,412,183
    
    
    
    1,334,579
    
    
    
    1,139,374Interest rate sensitivity gap
    
    $
    (769,854
    )
    
    $
    713,930
    
    
    $
    1,224,524
    
    
    $
    792,195Cumulative interest rate sensitivity
gap
    
    $
    (769,854
    )
    
    $
    (55,924
    )
    
    $
    1,168,600
    
    
    $
    1,960,795Cumulative interest rate sensitivity gap
as a percent of total assets
    
    
    (4.30
    )%
    
    
    (0.31
    )%
    
    
    6.52
    %
    
    
    10.94
    %Cumulative interest-earning assets
as a percent of interest-bearing
liabilities
    
    
    76.69
    %
    
    
    98.81
    %
    
    
    119.32
    %
    
    
    127.28
    %
   [Continued from above table, first column(s) repeated] At March 31, 2004More than threeyears to five years
    
    More than five years
    
    Total(Dollars in thousands)Interest-earning assets:First mortgage loans
    
    $
    1,215,155
    
    
    $
    2,787,596
    
    
    $
    9,306,875Consumer and other loans
    
    
    15,778
    
    
    
    88,798
    
    
    
    137,210Federal funds sold
    
    
    
    
    
    
    
    
    
    
    113,900Mortgage-backed securities
    
    
    506,199
    
    
    
    1,531,987
    
    
    
    5,565,830FHLB stock
    
    
    
    
    
    
    
    
    
    
    160,000Investment securities
    
    
    851,347
    
    
    
    1,473,740
    
    
    
    2,336,111Total interest-earning assets
    
    
    2,588,479
    
    
    
    5,882,121
    
    
    
    17,619,926Interest-bearing liabilities:Savings accounts
    
    
    94,446
    
    
    
    708,346
    
    
    
    947,269Interest-bearing demand accounts
    
    
    632,779
    
    
    
    1,740,146
    
    
    
    3,163,899Money market accounts
    
    
    122,432
    
    
    
    336,689
    
    
    
    612,161Time deposits
    
    
    226,617
    
    
    
    
    
    
    
    5,626,657Borrowed funds
    
    
    100,000
    
    
    
    4,850,000
    
    
    
    5,650,000Total
interest-bearing liabilities
    
    
    1,176,274
    
    
    
    7,635,181
    
    
    
    15,999,986Interest rate sensitivity gap
    
    $
    1,412,205
    
    
    $
    (1,753,060
    )
    
    $
    1,619,940Cumulative interest rate sensitivity
gap
    
    $
    3,373,000
    
    
    $
    1,619,940Cumulative interest rate sensitivity gap
as a percent of total assets
    
    
    18.82
    %
    
    
    9.04
    %Cumulative interest-earning assets
as a percent of interest-bearing
liabilities
    
    
    140.32
    %
    
    
    110.12
    %
 Page 27




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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 March 31, 2004. Based upon their evaluation, they each
found that our disclosure controls and procedures were effective 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 have materially
affected, or are 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.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities The following table reports information regarding repurchases of our common
stock during the first quarter of 2004 and the stock repurchase plans approved
by our Board of Directors. Total Number of Shares
    
    Maximum Number of SharesPurchased as Part of
    
    that May Yet BeTotal Number of Shares
    
    Average Price Paid
    
    Publicly Announced Plans
    
    Purchased Under thePeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    Plans or Programs (1)(2)January 1-January 31, 2004
    
    
    60,000
    
    
    $
    39.98
    
    
    
    60,000
    
    
    
    7,606,421February 1-February 29, 2004
    
    
    615,000
    
    
    
    39.08
    
    
    
    615,000
    
    
    
    6,991,421March 1-March 31, 2004
    
    
    25,000
    
    
    
    39.01
    
    
    
    25,000
    
    
    
    6,966,421Total
    
    
    700,000
    
    
    
    39.15
    
    
    
    700,000
   (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 6,966,421 shares yet to be purchased as of March 31, 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 28




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##### Table of Contents



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 March 31, 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 and Reports on Form 8-K (a) 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. (b) Hudson City Bancorp, Inc. filed two Current Reports on Form 8-K during the
quarter ended March 31, 2004 detailed as follows.  (1)
    
    On January 23, 2004, a Form 8-K was filed following the
issuance of a press release announcing fourth quarter and year-end
financial results for the period ended December 31, 2003. A copy of
the press release was filed as an exhibit.(2)
    
    On February 25, 2004, a Form 8-K was filed following the
issuance of a press release announcing the appointment of Scott A.
Belair to the Board of Directors of Hudson City Bancorp, Inc. A copy
of the press release was filed as an exhibit. Page 29




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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: May 6, 2004
    
    By:
    
    /s/ Ronald E. Hermance, Jr.Ronald E. Hermance, Jr.President and Chief Executive Officer(principal executive officer)Date: May 6, 2004
    
    By:
    
    /s/ Denis J. SalamoneDenis J. SalamoneSenior Executive Vice President andChief Operating Officer(principal financial and accounting officer)
 Page 30