Oct. 3, 2008— -- As employees of Lehman Brothers emptied out their desks, as big banks crumbled and Wall Street threatened to bring down Main Street, there was a little bank that quietly moved forward and watched its status rise.
Looking over the most recent ranking of banks and savings and loans, Ron Hermance, president and CEO of Hudson City Bank, pointed out his bank's status. With the demise of Wachovia and Washington Mutual, Hudson City is moving up the list.
"Citigroup became No. 1, Bank of America No. 2, JPMorgan Chase, No. 3. That puts us at No. 11 on old figures," Hermance said. "But I can tell you on newer figures through June we'd probably be No. 8."
More than just a river separates Hudson City Bank from the big boys of Wall Street. There's a difference in philosophy too.
"First of all, you have to operate with two fundamental strengths," he explained. "It goes back to Vince Lombardi football. We do two things well: block and tackle. ... We underwrite every loan, and our operating efficiency is very low."
Hudson City has been around for 140 years. It operates 125 branches in New York, New Jersey and Connecticut. The secret to success? A small-town feel and playing it safe. It does only two things -- take in deposits and make mortgages.
"Nothing has changed in the way we underwrite loans or do business, it's absolutely the same," said Hermance. "So in other words, we still look at every application and underwrite it one at a time.
"We have 80,000 mortgages at this point," he said. "And as of June 30 we had 328 that are on nonaccrual, which comes out to about .25 percent of our portfolio."
This means a very small delinquent rate.
Bank Thrives on Good Management
That means that of those 80,000 loans, 23 are in foreclosure. The bank's low default loan record is due, in part, to its thorough screening process.
Applicants are more than just a credit score. At a time when other banks were creating "exotic" mortgages -- requiring no income verification, no down payment and other "exotic" products, Hudson City was rigorous in requiring full documentation and no less than a 10 or 20 percent down payment. Many customers, Hermance said, chose to put down more.
"They really don't have to," he said. "It's their doing. They've come here because they like the rates and they like the service and ... they don't have to call some other state to handle their mortgage. They can walk into a branch. They can call a branch on the phone. It's still a high-touch service item.
Earlier this year, Forbes magazine named Hudson City the best managed bank of 2007, and it has also received the stamp of approval from Jim Cramer, host of MSNBC's "Mad Money."
Recently, Cramer has compared the quiet, unassuming Hermance to the George Bailey character in the Frank Capra classic "It's a Wonderful Life."
Hermance said he's just focused -- slow and steady wins the race.
"Let everybody else do what they're going to do," he said.
Low risk and a return to traditional banking -- it harkens back to the days when knowing your local banker was the norm, and at Hudson City, it remains that way.
"It's like family," said Eleanor Chenel. "I came in the other day, didn't have any proof, but Kari Harrison [the branch manager] helped me out. She knows who I am. It's great when you can walk in. It's like family."
Customers told "Nightline" that it was the small-town feel at Hudson City that keeps them coming back.
"When you walk into the branch here, they just make you feel like a friend, honestly," said Chenel's husband, George. "It's like coming home. They are great to do business with."
"It's like dealing with a small-town bank, but they have big-city smarts," said Howard Galkin, a seven-year customer who moved from Chicago to Paramus, N.J.
"I like when you walk into a branch and everyone knows who you are," said Galkin's wife, Susan. "They ask about your kids and how things are, and it's nice to know that you are secure and that you have the knowledge to take care of you in any way."
Branch manager Harrison said bank employees know their customers so well they often send birthday cards to seniors who don't receive much mail and baby gifts to customers who are new parents or grandparents.
"I think because we really do get involved with their needs and we know them, we really do know our customers because they come in several times a week," Harrison said. "They bring their children. We ask questions about their family as a way of figuring out what their needs [are], but also then because we end up caring. So we see pictures of their grandchildren, we know that their children are buying a home, and we actually end up having a real relationship with them."
'We Understand Risk'
For Hudson City, the collapse of Wall Street hasn't had a huge effect. The stock dropped 13 percent on the day the market fell 777 points, which customers viewed as proof of the bank's sound management. And it's why, many customers say, they go from savers to borrowers, and then to shareholders.
"Well, fortunately, I was so impressed, I also got involved with their stock," said customer Kevin Emery. "So I'm sleeping at night -- and I'm probably one of the few that has invested in a bank that is sleeping at night. And I'm very happy that I did, because it's really old-fashioned quality values that they've practiced. And it's paid off -- pretty much for everybody involved, not just for stock holders. Even as a mortgage holder, when they qualified me they wanted to make sure that I could pay this mortgage."
And that's exactly the secret to success of Hudson City Bank. The people there want to provide customers with a loan they can afford so they will not wind up facing foreclosure.
As other banks were making money hand over fist, they also taking a tremendous risk.
"And you know I won't say we're that clairvoyant, but we do understand risk and we stayed tighter to what we know," Hermance said.
Hudson Bancorp has a record number of deposits, ensuring its stability and growth, which could make it ripe for a takeover.
Asked if he would sell, Hermance said, "Maybe. You know, if someone loves us more than we love ourselves, probably so."
In the end, Hermance said, being the tortoise as opposed to the hare might not be a bad way to operate.
"Take a look," he said. "You're hearing depositors. You're hearing customers. Our employees are happy. Our shareholders are happy. So it is a wonderful life."