Chairman's Message
The past year will be remembered as one marked by unprecedented change and uncertainty for our economy, political landscape, regulatory environment, and banking industry. While institutions and consumers continued to rebuild their balance sheets, our country experienced a stubborn unemployment rate and a weak economic recovery.
Despite these challenges, we are very proud to report that Hudson City’s net income totaled $537.2 million or $1.09 per diluted share.
In retrospect, 2010’s results were more difficult to achieve than during any time in the last twelve years due to a prolonged period of low market interest rates resulting in heightened mortgage refinancing and prepayment activity.
These extremely low interest rates are largely the result of monetary actions taken by the Federal Reserve Board and the United States government-sponsored enterprises (the “GSEs”) commonly known as Fannie Mae and Freddie Mac. In the fall of 2008, the U.S. government became the conservator of both Fannie Mae and Freddie Mac. Since that time, the GSEs have been offering extremely low mortgage rates in an attempt to support the housing market. In 2010, the GSEs accounted for more than 90% of mortgage production in the U.S. In our primary market area (the New York metropolitan area), the GSEs are subsidizing loans up to $729,750 and are a significant competitor for our traditional prime mortgage product.
In July 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”). The enactment of the Reform Act will impose significant new regulatory burdens on the industry. The regulatory response to the recent financial crisis, the legislative directives to the banking regulators, and the related public reaction has resulted in significantly greater regulatory supervision of financial institutions, particularly larger institutions such as Hudson City. In fact, our industry is facing over 240 new regulations to be promulgated in 2011 as a result of the Reform Act. Hudson City is adapting to this new regulatory environment. We expect to enhance our operational and compliance functions in a number of areas in order to meet these additional regulations.
To put this burden in perspective, in 2010 our fees and tax expense to federal and state governments was $411.2 million, while our remaining overhead, including compensation, was $210.4 million. In other words, our ratio of government fees and taxes to overhead was 2 to 1.
As we look ahead to 2011, the combination of significant GSE participation in the marketplace, low market interest rates, and a more stringent regulatory environment is expected to produce substantial headwinds for Hudson City. During 2010, our management team began exploring ways to position our balance sheet for the future as market conditions change and allow for more profitable growth. We want to ensure that we are well positioned to capture an additional share of the mortgage market as conditions permit.
It is with these views that we look forward to 2011 and beyond. Changing times require bold leadership. We believe, after a period of adjustment to the “new normal”, that Hudson City will be well-positioned to capitalize on improving market conditions and enhance shareholder value. On behalf of the board of directors and all of our employees, we thank you for your confidence and pledge to continue to earn your trust. We will continue to lead the Bank in a way that makes you proud — with quality, passion, and integrity.
