Oct. 21, 2009 (PR Newswire) -- PARAMUS, N.J., Oct. 21 /PRNewswire-FirstCall/ -- Hudson City Bancorp, Inc. (Nasdaq: HCBK), the holding company for Hudson City Savings Bank, reported today that net income for the third quarter of 2009 increased 10.8% to $135.1 million as compared to $121.9 million for the third quarter of 2008. Diluted earnings per share increased 8.0% to $0.27 for the third quarter of 2009 as compared to $0.25 for the third quarter of 2008. For the nine months ended September 30, 2009, net income increased 21.6% to $390.7 million as compared to $321.3 million for the same period in 2008. Diluted earnings per share increased 23.1% to $0.80 for the nine months ended September 30, 2009 as compared to $0.65 for the same period in 2008. Net interest margin widened to 2.30% for the third quarter of 2009 from 2.17% for the linked second quarter of 2009 and from 2.08% for the third quarter of 2008. The Board of Directors declared a quarterly cash dividend of $0.15 per share payable on November 27, 2009 to shareholders of record on November 6, 2009.

Ronald E. Hermance, Jr., Chairman, President and Chief Executive Officer commented, "As we all read the headlines describing an industry fraught with problems and reporting losses never thought possible, Hudson City has posted yet another quarterly earnings increase. These results are remarkable considering the economic and regulatory turmoil surrounding us and the headwinds provided by an $82.0 million increase in our provision for loan losses and a $21.1 million FDIC special assessment for the first nine months of 2009. We have consistently achieved earnings growth every quarter since the fourth quarter of 2006. In addition, we have rewarded our owners with a dividend every quarter since becoming a public company."

Mr. Hermance continued, "Our earnings growth was fueled by our net interest margin which expanded to 2.30% during the third quarter. Since short-term rates remained at very low levels, we were able to reprice our deposits to a lower cost. We grew our deposits 6.6% during the quarter which represents a 26% annualized growth rate. This growth is all in retail deposits as we do not accept brokered deposits or solicit municipal deposits."

Mr. Hermance further commented, "We also continued to increase our retail loan production by originating $1.7 billion of mortgage loans this quarter. Much of this loan production is due to the refinancing of mortgages from other banks. This same refinancing activity has resulted in increased mortgage prepayments for Hudson City. As a result, we grew our loan portfolio by $385.8 million during the quarter and $1.70 billion so far this year. However, our ability to handle the increased loan production is important to us because we believe that we are poised to capture additional market share as housing markets and the economy improve. Our non-performing loans increased to $517.6 million at September 30, 2009. We believe that our non-performing residential mortgage loans will continue to increase as long as unemployment levels continue to rise. It is important to remember that the primary driver of any loan charge-off is the value of the property. The average loan-to-value ratio of our loan portfolio was 61.8% and was 71.5% for our non-performing loans, using appraised values at the time of origination. These loan-to-value ratios have helped us to mitigate losses even as house prices declined. In addition, since we never originated riskier loan products such as loans with negative amortization, "teaser rate" ARM's and payment-option loans, our loss experience has been considerably less than the industry. While we are starting to observe that housing prices have stabilized in many parts of the country, including in the New York metropolitan area, it will take some time for housing inventories, especially those that are the result of foreclosures, to decrease so that the housing markets can return to a more traditional state."

Mr. Hermance concluded, "We believe that Hudson City is well-positioned to navigate these difficult times. Economic conditions, legislative changes and the regulatory environment all pose significant challenges. However, our simple, consumer-oriented, common-sense approach to banking is the reason Hudson City continues to thrive."

Financial highlights for the third quarter of 2009 are as follows:

    --  Basic and diluted earnings per common share were $0.28 and $0.27,
respectively, for the third quarter of 2009 as compared to $0.25 for
both basic and diluted earnings per share for the third quarter of 2008.
Basic and diluted earnings per common share were both $0.80 for the
first nine months of 2009 as compared to $0.66 and $0.65, respectively,
for the same period in 2008.

    --  The Board of Directors declared a quarterly cash dividend of $0.15 per
common share payable on November 27, 2009 to shareholders of record at
the close of business on November 6, 2009.

    --  Net income amounted to $135.1 million for the third quarter of 2009, as
compared to $121.9 million for the third quarter of 2008, an increase of
10.8%.  For the nine months ended September 30, 2009, net income
amounted to $390.7 million as compared to $321.3 million for the same
period in 2008, an increase of 21.6%.

    --  Net interest income increased 27.6% to $325.5 million for the third
quarter of 2009 as compared to $255.1 million for the third quarter of
2008 and 33.8% to $911.7 million for the nine months ended September 30,
2009 as compared to $681.5 million for the same period in 2008.

    --  Our annualized return on average assets and annualized return on average
shareholders' equity for the third quarter of 2009 were 0.93% and
10.34%, respectively. Our annualized return on average assets and
annualized return on average shareholders' equity for the nine months
ended September 30, 2009 were 0.92% and 10.17%, respectively.

    --  Our net interest rate spread and net interest margin were 2.02% and
2.30%, respectively, for the third quarter of 2009 and 1.88% and 2.18%,
respectively, for the first nine months of 2009.

--  Our efficiency ratio was 19.18% for the third quarter of 2009 and 21.49%
for the first nine months of 2009.

--  Our loan production was $7.11 billion for the nine months ended
September 30, 2009, which resulted in a net increase of $1.70 billion in
total loans to $31.12 billion at September 30, 2009 from $29.42 billion
at December 31, 2008.

    --  Deposits increased $4.65 billion, or 25.2%, to $23.11 billion at
September 30, 2009 from $18.46 billion at December 31, 2008.

    --  Borrowed funds decreased $200.0 million to $30.03 billion at September
30, 2009 from $30.23 billion at December 31, 2008.

Statement of Financial Condition Summary

Total assets increased $4.73 billion, or 8.7%, to $58.88 billion at September 30, 2009 from $54.15 billion at December 31, 2008. The increase in total assets reflected a $1.65 billion increase in loans, a $1.89 billion increase in investment securities, and an $814.9 million increase in total mortgage-backed securities.

The increase in loans reflected our focus on loan portfolio growth through the origination of one- to four-family first mortgage loans in New Jersey, New York and Connecticut, as well as our continued loan purchase activity. For the first nine months of 2009, we originated $4.66 billion and purchased $2.45 billion of loans, compared to originations of $4.01 billion and purchases of $2.55 billion for the first nine months of 2008. The origination and purchases of loans were partially offset by principal repayments of $5.34 billion for the first nine months of 2009 as compared to $2.22 billion for the comparable period in 2008. Loan originations have increased primarily due to our competitive rates and an increase in mortgage refinancing caused by market interest rates that are at near-historic lows. The increase in refinancing activity occurring in the marketplace has also caused the increase in principal repayments during the first nine months of 2009.

Total investment securities increased $1.89 billion during the first nine months of 2009. The increase in investment securities is primarily due to purchases of $4.57 billion, partially offset by calls of investment securities of $2.68 billion. Total mortgage-backed securities increased $814.9 million during the first nine months of 2009, reflecting purchases of $4.77 billion which were primarily collateralized mortgage obligations ("CMOs"), all of which were issued by U.S. government-sponsored enterprises ("GSEs"). The increase was partially offset by repayments of $3.43 billion and sales of $761.6 million. The sales of the mortgage-backed securities resulted in a net gain of $24.0 million. We used the proceeds from the securities sales to fund the purchase of first mortgage loans. We decided to use securities sales as a funding source because the yields on the purchased loans were similar to those of the securities sold and we believe that if we held the securities, the unrealized gains would diminish since prepayment speeds are relatively high. There were no debt or equity securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the security.

Total liabilities increased $4.40 billion, or 8.9%, to $53.61 billion at September 30, 2009 from $49.21 billion at December 31, 2008. The increase in total liabilities primarily reflected a $4.65 billion increase in deposits, partially offset by a $200.0 million decrease in borrowed funds. The increase in total deposits reflected a $2.39 billion increase in our time deposits, a $1.84 billion increase in our money market checking accounts and a $337.6 million increase in our interest-bearing transaction accounts and savings accounts. The decrease in borrowed funds was the result of repayments of $950.0 million with a weighted average rate of 1.63% largely offset by $750.0 million of new borrowings at a weighted-average rate of 1.69%. During the first nine months of 2009, we modified $650.0 million of borrowings to extend the call dates of the borrowings by between two and four years. Due to brokers amounted to $200.0 million as compared to $239.1 million at December 31, 2008. Due to brokers at September 30, 2009 represents securities purchased in the third quarter of 2009 with settlement dates in the fourth quarter of 2009.

Total shareholders' equity increased $331.4 million to $5.27 billion at September 30, 2009 from $4.94 billion at December 31, 2008. The increase was primarily due to net income of $390.7 million for the nine months ended September 30, 2009 and a $148.6 million increase in accumulated other comprehensive income primarily due to an increase in the net unrealized gain on securities available-for-sale. These increases to shareholders' equity were partially offset by cash dividends paid to common shareholders of $214.9 million and repurchases of our common stock of $43.5 million. At September 30, 2009, our shareholders' equity to asset ratio was 8.95% and our tangible book value per share was $10.43.

The accumulated other comprehensive income of $196.3 million at September 30, 2009 includes a $223.9 million after-tax net unrealized gain on securities available for sale ($378.5 million pre-tax) partially offset by a $27.6 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans.

Statement of Income Summary

The Federal Open Market Committee of the Federal Reserve Bank (the "FOMC") noted that there is evidence that the pace of economic contraction has slowed since April 2009. However, the national unemployment rate increased to 9.8% in September 2009 as compared to 9.5% in June 2009 and 8.5% in March 2009. Lower household wealth and tight credit conditions in addition to the increase in the national unemployment rate has resulted in the FOMC maintaining the overnight lending rate at zero to 0.25% during the third quarter of 2009. As a result, short-term market interest rates have remained at low levels during the third quarter of 2009. This allowed us to continue to re-price our short-term deposits thereby reducing our cost of funds. While longer-term market interest rates increased during the third quarter of 2009, rates on mortgage-related assets have declined slightly, although to a lesser extent than the decline in our cost of funds. As a result, our net interest rate spread and net interest margin increased from the second quarter of 2009 as well as from the third quarter of 2008.

Net interest income increased $70.4 million, or 27.6%, to $325.5 million for the third quarter of 2009 as compared to $255.1 million for the third quarter of 2008. During the third quarter of 2009, our net interest rate spread increased 32 basis points to 2.02%, as compared to 1.70% for the same quarter in 2008. Our net interest margin increased 22 basis points to 2.30% as compared to 2.08% for the third quarter of 2008. Net interest income increased $230.2 million, or 33.8%, to $911.7 million for the first nine months of 2009 as compared to $681.5 million for the first nine months of 2008. During the first nine months of 2009, our net interest rate spread increased 36 basis points to 1.88% and our net interest margin increased 25 basis points to 2.18% as compared to the same period in 2008.

Total interest and dividend income for the third quarter of 2009 increased $62.9 million, or 9.2%, to $744.2 million as compared to $681.3 million for the third quarter of 2008. The increase in total interest and dividend income was primarily due to a $7.59 billion, or 15.3%, increase in the average balance of total interest-earning assets to $57.11 billion for the third quarter of 2009 as compared to $49.52 billion for the third quarter of 2008. The increase in the average balance of total interest-earning assets was partially offset by a decrease of 29 basis points in the annualized weighted-average yield to 5.21% for the quarter ended September 30, 2009 from 5.50% for the same quarter in 2008.

Total interest and dividend income for the nine months ended September 30, 2009 increased $254.0 million, or 13.1%, to $2.20 billion as compared to $1.94 billion for the nine months ended September 30, 2008. The increase in total interest and dividend income was primarily due to an $8.62 billion, or 18.4%, increase in the average balance of total interest-earning assets to $55.59 billion for the nine months ended September 30, 2009 as compared to $46.97 billion for the same period in 2008. The increase in the average balance of total interest-earning assets was partially offset by a decrease of 24 basis points in the annualized weighted-average yield on total interest-earning assets to 5.27% for the nine months ended September 30, 2009 from 5.51% for the comparable period in 2008.

Interest and fees on mortgage loans increased $29.8 million to $424.5 million for the third quarter of 2009 as compared to $394.7 million for the same period in 2008. This was primarily due to a $3.01 billion increase in the average balance of first mortgage loans, reflecting our continued emphasis on the growth of our mortgage loan portfolio. The increase in the average balance of first mortgage loans was partially offset by an 18 basis point decrease in the weighted-average yield to 5.58% from 5.76% for the 2008 third quarter.

For the nine months ended September 30, 2009, interest and fees on mortgage loans increased $141.9 million to $1.25 billion as compared to $1.11 billion for the nine months ended September 30, 2008 primarily due to a $4.09 billion increase in the average balance of first mortgage loans to $29.83 billion as compared to $25.74 billion for the same period in 2008. The increase in the average balance of first mortgage loans was partially offset by a decrease of 15 basis points in the weighted-average yield to 5.60%.

Interest on mortgage-backed securities increased $18.5 million to $243.8 million for the third quarter of 2009 as compared to $225.3 million for the third quarter of 2008. This increase was due primarily to a $2.65 billion increase in the average balance of mortgage-backed securities to $19.94 billion during the third quarter of 2009 as compared to $17.29 billion for the third quarter of 2008, partially offset by a 32 basis point decrease in the weighted-average yield to 4.89%.

Interest on mortgage-backed securities increased $111.0 million to $743.2 million for the nine months ended September 30, 2009 as compared to $632.2 million for the nine months ended September 30, 2008. This increase was due primarily to a $3.63 billion increase in the average balance of mortgage-backed securities to $19.74 billion during the first nine months of 2009 as compared to $16.11 billion for the first nine months of 2008, partially offset by a 21 basis point decrease in the weighted-average yield to 5.02%.

The increases in the average balances of mortgage-backed securities provide us with a source of cash flow from monthly principal and interest payments. The decrease in the weighted average yield on mortgage-backed securities is a result of lower yields on securities purchased during the second half of 2008 and the first nine months of 2009 when market interest rates were lower than the yield earned on the existing portfolio.

Dividends on Federal Home Loan Bank of New York ("FHLB") stock decreased $229,000, or 1.8%, to $12.3 million for the third quarter of 2009 as compared to $12.5 million for the third quarter of 2008. This decrease was due primarily to a 46 basis point decrease in the average yield earned to 5.59% as compared to 6.05% for the third quarter of 2008. The decrease in the average yield earned was partially offset by a $51.4 million increase in the average balance to $878.8 million for the third quarter of 2009 as compared to $827.4 million for the same period in 2008.

Dividends on FHLB stock decreased $10.0 million, or 24.6%, to $30.7 million for the first nine months of 2009 as compared to $40.7 million for same period in 2008. This decrease was due primarily to a 234 basis point decrease in the average yield earned to 4.67% as compared to 7.01% for the nine months ended September 30, 2008. The decrease in the average yield earned was partially offset by a $102.1 million increase in the average balance to $876.8 million for the first nine months of 2009 as compared to $774.7 million for the same period in 2008. We cannot predict the future amount of dividends that the FHLB will pay or the timing of any changes in the dividend yield.

Total interest expense for the quarter ended September 30, 2009 decreased $7.5 million, or 1.8%, to $418.7 million as compared to $426.2 million for the quarter ended September 30, 2008. This decrease was primarily due to a 61 basis point decrease in the weighted-average cost of total interest-bearing liabilities to 3.19% for the quarter ended September 30, 2009 compared with 3.80% for the quarter ended September 30, 2008. The decrease was partially offset by a $7.45 billion, or 16.7%, increase in the average balance of total interest-bearing liabilities to $52.08 billion for the quarter ended September 30, 2009 compared with $44.63 billion for the third quarter of 2008. This increase in interest-bearing liabilities was primarily used to fund asset growth.

Total interest expense for the nine months ended September 30, 2009 increased $23.8 million, or 1.9%, to $1.28 billion as compared to $1.26 billion for the nine months ended September 30, 2008. This increase was primarily due to an $8.45 billion, or 20.0%, increase in the average balance of total interest-bearing liabilities to $50.61 billion for the nine months ended September 30, 2009 as compared to $42.16 billion for the corresponding period in 2008. The increase in the average balance of total interest-bearing liabilities was partially offset by a 60 basis point decrease in the weighted-average cost of total interest-bearing liabilities to 3.39% for the nine months ended September 30, 2009 as compared to 3.99% for the nine months ended September 30, 2008.

Interest expense on deposits decreased $21.1 million, or 15.7%, to $112.9 million for the third quarter of 2009 as compared to $134.0 million for the third quarter of 2008. This decrease is due primarily to a decrease in the average cost of interest-bearing deposits of 124 basis points to 2.04% for the 2009 quarter as compared to 3.28% for the 2008 quarter. The decrease was partially offset by a $5.75 billion increase in the average balance of interest-bearing deposits to $22.01 billion during the third quarter of 2009 as compared to $16.26 billion for the comparable period in 2008.

For the nine months ended September 30, 2009, interest expense on deposits decreased $58.4 million to $375.0 million as compared to $433.4 million for the nine months ended September 30, 2008.