Exhibit 13.1

Dear Fellow Shareholders:

In the year since our last letter to you, we have witnessed a recession that was deeper and more traumatic than any in recent memory. Unemployment levels entered double digits, mortgage delinquencies in the United States reached record levels, and foreclosure filings followed suit. And yet, despite these occurrences, Hudson City’s proven business model and conservative banking principles sheltered your investment from the worst of the storm. While the current economic conditions brought increasing levels of non-performing loans and charge-offs, they were not significant enough to imperil our 11th straight year of record earnings.

The Secret to Our Success

Hudson City’s financial performance is not the result of precarious financial engineering instruments, such as hedges or derivatives, nor is it an outgrowth of additional fees for investment banking or mortgage banking services. Instead, Hudson City achieved record performance by making sensible residential first mortgage loans, which we continue to keep on our own books. During 2009 we were able to fund substantially all of our loan production with deposit growth.

We believe in doing business “the right way.” Hudson City’s customers can feel confident that “what you see is what you get.” We have never offered payment-option loans or loans with negative amortization. And our deposit customers receive similar benefits of honesty and transparency, as well as assurance that our deposit products do not contain hidden fees and charges. Furthermore, to meet our customers’ service expectations, we manage the small details, such as ensuring that every Hudson City branch has its own phone number (answered by a person willing to help you) rather than requiring customers to talk to a machine or respond to telephone prompts. In turn, our business model and core values have led to a consistent track record of financial strength and a high degree of customer loyalty that increases long-term shareholder value.

Record Earnings and More

Earnings for the year totaled $527.2 million, or $1.07 per diluted share. This is an 18.3% increase over 2008. During 2009, our net interest margin grew to 2.21% from 1.96% in 2008 as funding costs decreased at a faster pace than the yields on our interest-earning assets. One important component of our earnings growth is expense management. Through our industry-leading efficiency ratio, we are able to maintain a competitive advantage in both deposit and loan products. In 2009, our efficiency ratio was 20.80%, meaning that it cost us $0.21 in overhead to produce one dollar of revenue. We maintain our efficiency, in part, because we stay focused on our customers’ mortgage and savings needs rather than trying to be “all things to all people.” We simply target customers looking for exceptional value and deliver competitive deposit yields, low fees, and competitive mortgage rates.

We grew our assets by $6.12 billion during 2009 to $60.27 billion at December 31, 2009, comprising loan growth of $2.28 billion and additions to our securities portfolio of $3.41 billion. This achievement was funded with deposit growth of $6.12 billion. Our loan production in 2009 amounted to $9.22 billion as compared to $8.10 billion in 2008. The increase in loan production was due in large part to customers who refinanced loans from other banks. We regard these as very high-quality loans because they meet our strict underwriting standards based on an updated property appraisal, and they were previously performing loans at other banks that are simply repricing to a lower rate.

Reality Check

With all of the good news to report about our performance during 2009, there is no escaping that the economic recession affected our asset quality, as it did with other banks. Our primary loan products are residential first mortgage loans. As unemployment rates rise, some borrowers find it difficult to make regular loan payments. Compounding the unemployment effects are weak housing markets that make it challenging to sell a home at just the time that declining house prices are reducing borrowers’ equity. Non-performing loans amounted to

$627.7 million at December 31, 2009, as compared to $217.6 million at December 31, 2008. At December 31, 2009, non-performing loans included $613.6 million of one- to four-family first mortgage loans as compared to $207.0 million at December 31, 2008. Although we experienced increased levels of charge-offs in 2009, which totaled $47.2 million, our charge-offs have been moderated by our loan product philosophy and underwriting standards which resulted in an average loan-to-value ratio, using appraised values at origination, of 61% at year-end which has helped to protect our portfolio.

We are very pleased with our record deposit growth in 2009. Many customers sought out Hudson City as a safe haven for their money during these tumultuous times. Our long-standing reputation and financial strength helped us to increase market share in 96% of our branch locations for the period June 2008 through June 2009. Furthermore, Hudson City branches average more than double the deposits-per-branch of the Bank’s competitors, amounting to $188 million in deposits-per-branch compared to the national average of $76 million for FDIC-insured institutions. We believe this is an important indication of customer satisfaction.

Our financial results since Hudson City’s initial public offering in 1999 demonstrate our ability to leverage capital and provide consistent earnings growth. We believe that as the economy emerges from the recession, there will be further opportunities for Hudson City to continue to grow its franchise and prosper. In December, we filed a shelf registration statement with the Securities and Exchange Commission. The shelf registration statement enables us to easily access the capital markets should an opportunistic transaction arise. In addition, we believe that the banking regulators, as well as the banking committees of the United States Congress, may be calling for increased regulatory capital requirements. While we are currently considered to be well capitalized with a Tier 1 leverage capital ratio of 7.59% and a total risk-based capital ratio of 21.02%, this shelf registration statement affords us greater flexibility to continue to execute our business model and to pursue opportunities that current market conditions may provide.

A Bond of Trust

In summary, Hudson City is performing admirably and is well positioned for the future. While there is uncertainty surrounding banking legislation and regulatory reform, we believe that our financial strength, strong capital position, and customer-focused business model will enable us to benefit from a housing market recovery and strengthening economic conditions when they occur. In the meantime, we expect our business model to continue to serve our shareholders well. It has been this strategy of sticking to our core values and principles that has yielded record earnings and allowed us to continue to prosper without the need for government assistance.

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.

/s/ Ronald E. Hermance, Jr.

Chairman, President
& Chief Executive Officer

/s/ Denis J. Salamone

Senior Executive Vice President
& Chief Operating Officer

Selected Consolidated Financial Information

The summary information presented below under “Selected Financial Condition Data,” “Selected Operating Data” and “Selected Financial Ratios and Other Data” at or for each of the years presented is derived in part from the audited consolidated financial statements of Hudson City Bancorp, Inc. Certain share, per share and dividend information reflects the 3.206 to 1 stock split effected in conjunction with our second-step conversion and stock offering completed on June 7, 2005.

		At December 31,
		2009				2008				2007				2006				2005
		(In thousands)
Selected Financial Condition Data:
Total assets		$	60,267,760			$	54,145,328			$	44,423,971			$	35,506,581			$	28,075,353
Total loans			31,779,921				29,418,888				24,192,281				19,083,617				15,062,449
Federal Home Loan Bank of New York stock			874,768				865,570				695,351				445,006				226,962
Investment securities held to maturity			4,187,704				50,086				1,408,501				1,533,969				1,534,216
Investment securities available for sale			1,095,240				3,413,633				2,765,491				4,379,615				3,962,511
Mortgage-backed securities held to maturity			9,963,554				9,572,257				9,565,526				6,925,210				4,389,864
Mortgage-backed securities available for sale			11,116,531				9,915,554				5,005,409				2,404,421				2,520,633
Total cash and cash equivalents			561,201				261,811				217,544				182,246				102,259
Foreclosed real estate, net			16,736				15,532				4,055				3,161				1,040
Total deposits			24,578,048				18,464,042				15,153,382				13,415,587				11,383,300
Total borrowed funds			29,975,000				30,225,000				24,141,000				16,973,000				11,350,000
Total stockholders’ equity			5,339,152				4,938,796				4,611,307				4,930,256				5,201,476

		For the Year Ended December 31,
		2009				2008				2007				2006				2005
		(In thousands)
Selected Operating Data:
Total interest and dividend income		$	2,941,786			$	2,653,225			$	2,127,505			$	1,614,843			$	1,178,908
Total interest expense			1,698,308				1,711,248				1,480,322				1,001,610				616,774
Net interest income			1,243,478				941,977				647,183				613,233				562,134
Provision for loan losses			137,500				19,500				4,800				—				65
Net interest income after provision for loan losses			1,105,978				922,477				642,383				613,233				562,069
Non-interest income:
Service charges and other income			9,399				8,485				7,267				6,287				5,267
Gains on securities transactions, net			24,185				—				6				4				2,740
Total non-interest income			33,584				8,485				7,273				6,291				8,007
Total non-interest expense			265,596				198,076				167,913				158,955				127,703
Income before income tax expense			873,966				732,886				481,743				460,569				442,373
Income tax expense			346,722				287,328				185,885				171,990				166,318
Net income		$	527,244			$	445,558			$	295,858			$	288,579			$	276,055

Selected Consolidated Financial Information (continued)

(Dollars in thousands, except per share data)

		At or for the Year Ended December 31,
		2009				2008				2007				2006				2005
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets			0.92	%			0.91	%			0.74	%			0.91	%			1.14	%
Return on average stockholders’ equity			10.18				9.36				6.23				5.70				7.52
Net interest rate spread (1)			1.92				1.57				1.11				1.31				1.84
Net interest margin (2)			2.21				1.96				1.65				1.96				2.35
Non-interest expense to average assets			0.46				0.41				0.42				0.50				0.53
Efficiency ratio (3)			20.80				20.84				25.66				25.66				22.40
Average interest-earning assets to average interest-bearing liabilities			1.10	x			1.11	x			1.14	x			1.20	x			1.20	x
Share and Per Share Data:
Basic earnings per share		$	1.08			$	0.92			$	0.59			$	0.54			$	0.49
Diluted earnings per share			1.07				0.90				0.58				0.53				0.48
Cash dividends paid per common share			0.59				0.45				0.33				0.30				0.27
Dividend pay-out ratio (4)			54.63	%			48.91	%			55.93	%			55.56	%			54.69	%
Book value per share (5)		$	10.85			$	10.10			$	9.55			$	9.47			$	9.44
Tangible book value per share (5)			10.53				9.77				9.22				9.15				9.44
Weighted average number of common shares outstanding:
Basic			488,908,260				484,907,441				499,607,828				536,214,778				567,789,397
Diluted			491,295,511				495,856,156				509,927,433				546,790,604				581,063,426
Capital Ratios:
Average stockholders’ equity to average assets			9.03	%			9.74	%			11.93	%			16.00	%			15.10	%
Stockholders’ equity to assets			8.86				9.12				10.38				13.89				18.53
Regulatory Capital Ratios of Bank:
Leverage capital			7.59	%			7.99	%			9.16	%			11.30	%			14.68	%
Total risk-based capital			21.02				21.52				24.83				30.99				41.31
Asset Quality Ratios:
Non-performing loans to total loans			1.98	%			0.74	%			0.33	%			0.16	%			0.13	%
Non-performing assets to total assets			1.07				0.43				0.19				0.09				0.07
Allowance for loan losses to non-performing loans			22.32				22.89				43.75				102.09				141.84
Allowance for loan losses to total loans			0.44				0.17				0.14				0.16				0.18
Branch and Deposit Data:
Number of deposit accounts			725,979				638,951				605,018				580,987				484,956
Branches			131				127				119				111				90
Average deposits per branch (thousands)		$	187,619			$	145,386			$	127,339			$	120,861			$	126,481

Pursuant to the regulations of the Securities and Exchange Commission, the graph below compares the performance of Hudson City Bancorp, Inc. with that of the Standard and Poor’s 500 Stock Index, and for all thrift stocks as reported by SNL Securities L.C. from December 31, 2004 through December 31, 2009. The graph assumes the reinvestment of dividends in all additional shares of the same class of equity securities as those listed below. The index level for all series was set to 100.00 on December 31, 2004.

				12/31/04					12/31/05					12/31/06					12/31/07					12/31/08					12/31/09
	Hudson City Bancorp, Inc.				100					108					127					140					153					138
	SNL Thrift Index				100					104					121					72					46					43
	S&P 500 Index				100					105					121					128					81					102

* Source: SNL Financial LC and Bloomberg Financial Database

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

We continue to focus on our traditional consumer-oriented business model by growing our franchise through the origination and purchase of one- to four-family mortgage loans. We have traditionally funded this loan production with customer deposits and borrowings. During 2009 we were able to fund substantially all of our loan production with deposit growth.

Our results of operations depend primarily on net interest income, which in part, is a direct result of the market 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 transaction accounts and borrowed funds. Net interest income is affected by the shape of the market yield curve, the timing of the placement and repricing of interest-earning assets and interest-bearing liabilities on our balance sheet, the prepayment rate on our mortgage-related assets and the calls of our borrowings. 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, credit quality, government policies and actions of regulatory authorities. Our results are also affected by the market price of our stock, as the expense of our employee stock ownership plan is related to the current price of our common stock.

The Federal Open Market Committee of the Board of Governors of the Federal Reserve System (the “FOMC”) noted that economic activity improved during the fourth quarter of 2009. The FOMC also noted that the housing sector has shown signs of improvement. However, the national unemployment rate continued to rise to 10.0% in December 2009 as compared to 9.8% in September 2009 and 7.4% in December 2008. The S&P/Case-Shiller Home Price Index for the New York metropolitan area, where most of our lending activity occurs, declined by approximately 7.1% in 2009 and by 9.2% in 2008. The S&P/Case-Shiller U.S. National Home Price Index decreased by 5.2% in 2009 and by 18.2% in 2008. 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 2009. As a result, short-term market interest rates have remained at low levels during 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 2009, rates on mortgage-related assets 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 for 2009 as compared to 2008.

Net income amounted to $527.2 million for 2009, as compared to $445.6 million for 2008. For the year ended December 31, 2009, our return on average assets and average shareholders’ equity were 0.92% and 10.18%, respectively, as compared to 0.91% and 9.36% for 2008. The increases in our return on average equity and average assets are due primarily to the increase in our net income during 2009 as compared to 2008. The increase in net income occurred despite significantly higher deposit insurance fees, including the special assessment imposed in the second quarter of 2009 by the Federal Deposit Insurance Corporation (the “FDIC”), as well as a significantly higher provision for loan losses.

Net interest income increased $301.5 million, or 32.0%, to $1.24 billion for the 2009 as compared to $942.0 million for 2008. During 2009, our net interest rate spread increased 35 basis points to 1.92% and our net interest margin increased 25 basis points to 2.21% as compared to 2008. The increases in our net interest rate spread and net interest margin were due to a steeper yield curve which allowed us to reduce deposit costs at a faster pace than the decrease in our mortgage yields.

The provision for loan losses amounted to $137.5 million for 2009 as compared to $19.5 million for 2008. The increase in the provision for loan losses reflects the risks inherent in our loan portfolio due to decreases in real estate values in our lending markets, the increase in non-performing and delinquent loans, the increase in loan charge-offs, the continued weakened economic conditions and rising levels of unemployment during 2009 as well as the growth of the loan portfolio in the past year. Non-performing loans were $627.7 million or 1.98% of total loans at December 31, 2009 as compared to $217.6 million or 0.74% of total loans at December 31, 2008. Significant increases in job losses and unemployment throughout 2009 have had a negative impact on the financial condition of residential borrowers and their ability to remain current on their mortgage loans, which has had a material adverse impact on the quality of our loan portfolio. As a result, we experienced an increase in loan delinquencies, as well as an adverse impact on our loan loss experience, reflected in an increase in our charge-offs. These factors contributed to a significant increase in our provision for loan losses for 2009 and resulted in an increase in our allowance for loan losses.

Total non-interest income was $33.6 million for 2009 as compared to $8.5 million for 2008. Included in non-interest income were net gains on securities transactions of $24.2 million, substantially all of which resulted from the sale of $761.6 million of mortgage-backed securities available-for-sale. Proceeds from the securities sale were primarily used to fund the purchase of first mortgage loans during the second quarter of 2009. In addition, total non-interest income includes service charges and other income which increased slightly for 2009 as compared to 2008.

Total non-interest expense increased $67.5 million, or 34.1%, to $265.6 million for 2009 from $198.1 million for 2008. The increase is primarily due to the FDIC special assessment of $21.1 million and increases of $30.8 million in Federal deposit insurance expense, $9.9 million in compensation and employee benefits expense, and $4.0 million in other non-interest expense.

We grew our assets by 11.3% to $60.27 billion at December 31, 2009 from $54.15 billion at December 31, 2008. We grew our assets by 21.9% during 2008. We slowed our growth rate in 2009 as mortgage refinancing activity caused an increase in loan repayments and available reinvestment yields on securities decreased. We may continue to grow at a slower rate than in the past until market conditions allow us to grow interest-earning assets with higher yields than currently available and at a more favorable interest rate spread to the funding cost of interest-bearing liabilities.

Loans increased $2.28 billion to $31.72 billion at December 31, 2009 from $29.44 billion at December 31, 2008. While the residential real estate markets have weakened considerably during the past year, low market interest rates and an increase in mortgage refinancing caused by market interest rates that are at near-historic lows have resulted in increased loan originations. The increase in refinancing activity has also resulted in an increase in principal repayments.

Total securities increased $3.41 billion to $26.36 billion at December 31, 2009 from $22.95 billion at December 31, 2008. The increase in securities was primarily due to purchases (including purchases recorded in the fourth quarter of 2009 with settlement dates after December 31, 2009) of mortgage-backed and investment securities of $6.87 billion and $5.87 billion, respectively, partially offset by principal collections on mortgage-backed securities of $4.73 billion and sales of mortgage-backed securities of $761.6 million and calls of investment securities of $4.02 billion.

The increase in our total assets during 2009 was funded primarily by an increase in customer deposits. Deposits increased $6.12 billion to $24.58 billion at December 31, 2009 from $18.46 billion at December 31, 2008. The increase in deposits was attributable to growth in our time deposits and money market accounts. Borrowed funds decreased $250.0 million to $29.98 billion at December 31, 2009 from $30.23 billion at December 31, 2008. We anticipate that we will be able to fund our future growth primarily with customer deposits, using borrowed funds as a supplemental funding source if deposit growth decreases.

Comparison of Financial Condition at December 31, 2009 and December 31, 2008

During 2009, our total assets increased $6.12 billion, or 11.3%, to $60.27 billion at December 31, 2009 from $54.15 billion at December 31, 2008.

Net loans increased $2.28 billion, or 7.7%, to $31.72 billion at December 31, 2009 from $29.44 billion at December 31, 2008 due primarily to 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 2009, we originated $6.06 billion and purchased $3.16 billion of loans, compared to originations of $5.04 billion and purchases of $3.06 billion for 2008. The origination and purchases of loans were partially offset by principal repayments of $6.77 billion in 2009 as compared to $2.82 billion for 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 also caused the increase in principal repayments during 2009.

Our first mortgage loan originations and purchases during 2009 were substantially all in one-to four-family mortgage loans. Approximately 47.0% of mortgage loan originations for 2009 were variable-rate loans as compared to approximately 58.0% for 2008. Approximately 61.0% of mortgage loans purchased during 2009 were fixed-rate mortgage loans. Fixed-rate mortgage loans accounted for 69.1% of our first mortgage loan portfolio at December 31, 2009 and 75.7% at December 31, 2008.

Non-performing loans amounted to $627.7 million or 1.98% of total loans at December 31, 2009 as compared to $217.6 million or 0.74% of total loans at December 31, 2008.

Total mortgage-backed securities increased $1.59 million to $21.08 billion at December 31, 2009 from $19.49 billion at December 31, 2008. This increase in total mortgage-backed securities resulted from the purchase of $6.87 billion of variable-rate mortgage-backed securities and collateralized mortgage obligations (“CMOs”), all of which were issued by U.S. government-sponsored enterprises (“GSEs”). The increase was partially offset by repayments of $4.73 billion and sales of $761.6 million. At December 31, 2009, variable-rate mortgage-backed securities accounted for 70.7% of our portfolio compared with 83.5% at December 31, 2008. The purchase of variable-rate mortgage-backed securities is a component of our interest rate risk management strategy. Since our loan portfolio includes a concentration of fixed-rate mortgage loans, the purchase of variable-rate mortgage-backed securities provides us with an asset that reduces our exposure to interest rate fluctuations.

Total investment securities increased $1.82 billion to $5.28 billion at December 31, 2009 as compared to $3.46 billion at December 31, 2008. The increase in investment securities is primarily due to purchases of $5.87 billion. The increase was partially offset by calls of investment securities of $4.02 billion.

Since we invest primarily in securities issued by GSEs, there were no debt 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 cash and cash equivalents increased $299.4 million to $561.2 million at December 31, 2009 as compared to $261.8 million at December 31, 2008. This increase is due to liquidity provided by strong deposit growth and increased repayments on mortgage-related assets. In addition, we have maintained a higher level of Federal funds sold since other types of short- and medium-term investments are currently providing relatively low yields. Other assets increased $119.1 million, primarily due to the prepayment of the FDIC insurance assessment for 2010, 2011 and 2012 in the amount of $162.5 million. The required prepayment of the insurance assessment was a measure taken by the FDIC to restore the reserve ratio of the Deposit Insurance Fund (DIF). This increase was partially offset by a decrease in deferred tax assets of $45.8 million.

Total liabilities increased $5.72 billion, or 11.6%, to $54.93 billion at December 31, 2009 from $49.21 billion at December 31, 2008. The increase in total liabilities primarily reflected a $6.12 billion increase in deposits, partially offset by a $250.0 million decrease in borrowed funds.

Total deposits increased $6.12 billion, or 33.2%, to $24.58 billion at December 31, 2009 as compared to $18.46 billion at December 31, 2008. The increase in total deposits included a $3.12 billion increase in our time deposits, a $2.34 billion increase in our money market checking accounts and a $575.5 million increase in our interest-bearing transaction accounts and savings accounts. The increases in our deposits reflect our growth strategy, competitive pricing and the apparent increases in the U.S. household savings rate during the recent recessionary economy. At December 31, 2009 we had 131 branches as compared to 127 at December 31, 2008. We also began accepting deposits through our internet banking service in December 2008, which had $224.3 million in deposits at December 31, 2009.

Borrowings amounted to $29.98 billion at December 31, 2009 as compared to $30.23 billion at December 31, 2008. The decrease in borrowed funds was the result of repayments of $1.00 billion with a weighted average rate of 1.62%, largely offset by $750.0 million of new borrowings at a weighted-average rate of 1.69%. Borrowed funds at December 31, 2009 were comprised of $14.88 billion of Federal Home Loan Bank of New York (“FHLB”) advances and $15.10 billion of securities sold under agreements to repurchase.

Substantially all of our borrowed funds are callable at the discretion of the lender after an initial no-call period. Our callable borrowings typically have a final maturity of ten years, are callable quarterly and may not be called for an initial period of one to five years. We have used this type of borrowing primarily to fund our loan growth because these borrowings have a longer duration than shorter-term non-callable borrowings and have a lower cost than a non-callable borrowing with a maturity date similar to the initial call date of the callable borrowing. If interest rates were to decrease, or remain consistent with current rates, these borrowings would probably not be called and our average cost of existing borrowings would not decrease even as market interest rates decrease. Conversely, if interest rates increase above the market interest rate for similar borrowings, these borrowings would likely be called at their next call date and our cost to replace these borrowings would increase. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be called will not increase substantially unless interest rates were to increase by at least 300 basis points.

During 2009, we have been able to fund our asset growth with deposit inflows. We anticipate that we will be able to continue to use deposit growth to fund our asset growth, however, we may use borrowings as a supplemental funding source if deposit growth decreases. We anticipate that we would use longer term fixed-maturity borrowings with terms of two to five years for this purpose. Our new borrowings during 2009 consisted of non-callable borrowings of $400.0 million with maturities of one to three months and $350.0 million of non-callable borrowings with maturities of two to three years. In addition, during 2009, we modified $1.73 billion of borrowings to extend the call dates of the borrowings by between three and four years while keeping the interest rate consistent.

The Company has two collateralized borrowings in the form of repurchase agreements totaling $100.0 million with Lehman Brothers, Inc. Lehman Brothers, Inc. is currently in liquidation under the Securities Industry Protection Act. Mortgage-backed securities with an amortized cost of approximately $114.5 million are pledged as collateral for these borrowings. We intend to pursue full recovery of the pledged collateral in accordance with the contractual terms of the repurchase agreements. There can be no assurances that the final settlement of this transaction will result in the full recovery of the collateral or the full amount of the claim. We have not recognized a loss in our financial statements related to these repurchase agreements.

Due to brokers amounted to $100.0 million at December 31, 2009 as compared to $239.1 million at December 31, 2008. Due to brokers at December 31, 2009 represents securities purchased in the fourth quarter of 2009 with settlement dates in the first quarter of 2010. Other liabilities decreased to $275.6 million at December 31, 2009 as compared to $278.4 million at December 31, 2008. The decrease is primarily the result of a decrease in

accrued expenses of $31.6 million, partially offset by an increase in accrued taxes of $25.8 million and in accrued interest payable on borrowings of $3.5 million. The decrease in accrued expenses is due primarily to a $39.9 million decrease in accrued pension liabilities that resulted from an increase in the pension plan’s funded status.

Total shareholders’ equity increased $400.4 million to $5.34 billion at December 31, 2009 from $4.94 billion at December 31, 2008. The increase was primarily due to net income of $527.2 million for 2009 and a $136.9 million increase in accumulated other comprehensive income, primarily due to an increase in the net unrealized gain on securities available-for-sale. The net unrealized gain reflects the general increase in value of our available-for-sale securities portfolio in the generally low prevailing interest rate environment at year-end. These increases to shareholders’ equity were partially offset by cash dividends paid to common shareholders of $288.4 million and repurchases of our common stock of $43.5 million.

As of December 31, 2009, there remained 50,123,550 shares that may be purchased under our existing stock repurchase programs. During 2009, we repurchased 4.0 million shares of our outstanding common stock at a total cost of $43.5 million. The average price per share repurchased in 2009 was $10.95. Our capital ratios remain in excess of the regulatory requirements for a well-capitalized bank. See “Liquidity and Capital Resources”.

The accumulated other comprehensive income of $184.5 million at December 31, 2009 includes a $205.8 million after-tax net unrealized gain on securities available-for-sale ($347.9 million pre-tax) partially offset by a $21.3 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans.

At December 31, 2009, our shareholders’ equity to asset ratio was 8.86% compared with 9.12% at December 31, 2008. For 2009, the ratio of average shareholders’ equity to average assets was 9.03% compared with 9.74% for 2008. The lower equity-to-assets ratios reflect our strategy to grow assets and pay dividends. Our book value per share, using the period-end number of outstanding shares, less purchased but unallocated employee stock ownership plan shares and less purchased but unvested recognition and retention plan shares, was $10.85 at December 31, 2009 and $10.10 at December 31, 2008. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from shareholders’ equity, was $10.53 as of December 31, 2009 and $9.77 at December 31, 2008.

Analysis of Net Interest Income

Net interest income represents the difference between the interest income we earn on our interest-earning assets, such as mortgage loans, mortgage-backed securities and investment securities, and the expense we pay on interest-bearing liabilities, such as time deposits and borrowed funds. Net interest income depends on our volume of interest-earning assets and interest-bearing liabilities and the interest rates we earned or paid on them.

Average Balance Sheet. The following table presents certain information regarding our financial condition and net interest income for 2009, 2008, and 2007. The table presents the average yield on interest-earning assets and the average cost of interest-bearing liabilities for the periods indicated. We derived the yields and costs by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we considered adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Non-accrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase premiums and discounts that are amortized or accreted to interest income.

		For the Year Ended December 31,
		2009												2008												2007
										Average												Average												Average
		Average								Yield/				Average								Yield/				Average								Yield/
		Balance				Interest				Cost				Balance				Interest				Cost				Balance				Interest				Cost
		(Dollars in thousands)
Assets:
Interest-earning assets:
First mortgage loans, net (1)		$	30,126,469			$	1,678,789				5.57	%		$	26,379,724			$	1,523,521				5.78	%		$	21,208,167			$	1,205,461				5.68	%
Consumer and other loans			381,029				21,676				5.69				422,097				26,184				6.20				431,491				28,247				6.55
Federal funds sold			566,079				1,186				0.21				209,607				4,295				2.05				248,201				12,293				4.95
Mortgage-backed securities, at amortized cost			19,768,874				983,658				4.98				16,694,279				875,008				5.24				11,391,487				587,905				5.16
Federal Home Loan Bank stock			876,736				43,103				4.92				790,305				48,009				6.07				586,021				39,492				6.74
Investment securities, at amortized cost			4,577,148				213,374				4.66				3,602,206				176,208				4.89				5,358,155				254,107				4.74
Total interest-earning assets			56,296,335				2,941,786				5.23				48,098,218				2,653,225				5.52				39,223,522				2,127,505				5.42
Noninterest-earning assets			1,044,983												788,032												621,860
Total assets		$	57,341,318											$	48,886,250											$	39,845,382
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Savings accounts		$	749,439				5,640				0.75	%		$	724,943				5,485				0.76	%		$	775,802				6,330				0.82	%
Interest-bearing transaction accounts			1,789,361				31,903				1.78				1,578,419				48,444				3.07				1,806,203				60,641				3.36
Money market accounts			3,823,116				69,008				1.81				2,227,261				73,180				3.29				1,176,185				47,172				4.01
Time deposits			14,771,051				376,917				2.55				11,546,958				454,248				3.93				10,005,377				492,793				4.93
Total interest-bearing deposits			21,132,967				483,468				2.29				16,077,581				581,357				3.62				13,763,567				606,936				4.41
Repurchase agreements			15,100,221				611,776				4.05				13,465,540				561,301				4.17				10,305,216				432,852				4.20
FHLB advances			15,035,798				603,064				4.01				13,737,057				568,590				4.14				10,286,869				440,534				4.28
Total borrowed funds			30,136,019				1,214,840				4.03				27,202,597				1,129,891				4.15				20,592,085				873,386				4.24
Total interest-bearing liabilities			51,268,986				1,698,308				3.31				43,280,178				1,711,248				3.95				34,355,652				1,480,322				4.31
Noninterest-bearing liabilities:
Noninterest-bearing deposits			576,575												554,584												514,685
Other noninterest-bearing liabilities			317,972												289,930												222,760
Total noninterest-bearing liabilities			894,547												844,514												737,445
Total liabilities			52,163,533												44,124,692												35,093,097
Stockholders’ equity			5,177,785												4,761,558												4,752,285
Total liabilities and stockholders’ equity		$	57,341,318											$	48,886,250											$	39,845,382
Net interest income						$	1,243,478											$	941,977											$	647,183
Net interest rate spread (2)											1.92												1.57												1.11
Net interest-earning assets		$	5,027,349											$	4,818,040											$	4,867,870
Net interest margin (3)											2.21	%											1.96	%											1.65	%
Ratio of interest-earning assets to interest-bearing liabilities											1.10	x											1.11	x											1.14	x

Rate/Volume Analysis. The following table presents the extent to which the changes in interest rates and the changes in volume of our interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to:

•		changes attributable to changes in volume (changes in volume multiplied by prior rate);
•		changes attributable to changes in rate (changes in rate multiplied by prior volume); and
•		the net change.

The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

		2009 Compared to 2008												2008 Compared to 2007
		Increase (Decrease) Due To												Increase (Decrease) Due To
		Volume				Rate				Net				Volume				Rate				Net
		(In thousands)
Interest-earning assets:
First mortgage loans, net		$	211,866			$	(56,598	)		$	155,268			$	296,643			$	21,417			$	318,060
Consumer and other loans			(2,443	)			(2,065	)			(4,508	)			(597	)			(1,466	)			(2,063	)
Federal funds sold			3,014				(6,123	)			(3,109	)			(1,677	)			(6,321	)			(7,998	)
Mortgage-backed securities			153,977				(45,327	)			108,650				277,849				9,254				287,103
Federal Home Loan Bank stock			4,857				(9,763	)			(4,906	)			12,737				(4,220	)			8,517
Investment securities			45,780				(8,614	)			37,166				(85,698	)			7,799				(77,899	)
Total			417,051				(128,490	)			288,561				499,257				26,463				525,720
Interest-bearing liabilities:
Savings accounts			215				(60	)			155				(400	)			(445	)			(845	)
Interest-bearing transaction accounts			5,835				(22,376	)			(16,541	)			(7,241	)			(4,956	)			(12,197	)
Money market accounts			37,937				(42,109	)			(4,172	)			35,760				(9,752	)			26,008
Time deposits			106,911				(184,242	)			(77,331	)			69,745				(108,290	)			(38,545	)
Repurchase agreements			66,928				(16,453	)			50,475				131,568				(3,119	)			128,449
FHLB advances			52,690				(18,216	)			34,474				142,921				(14,865	)			128,056
Total			270,516				(283,456	)			(12,940	)			372,353				(141,427	)			230,926
Net change in net interest income		$	146,535			$	154,966			$	301,501			$	126,904			$	167,890			$	294,794

Comparison of Operating Results for the Years Ended December 31, 2009 and 2008

General. Net income was $527.2 million for 2009, an increase of $81.6 million, or 18.3%, compared with net income of $445.6 million for 2008. Basic and diluted earnings per common share were $1.08 and $1.07, respectively for 2009 as compared to basic and diluted earnings per share of $0.92 and $0.90, respectively for 2008. For 2009, our return on average shareholders’ equity was 10.18%, compared with 9.36% for 2008. Our return on average assets for 2009 was 0.92% as compared to 0.91% for 2008. The increase in the return on average equity and assets is primarily due to the increase in net income during 2009.

Interest and Dividend Income. Total interest and dividend income for 2009 increased $288.6 million, or 10.9%, to $2.94 billion as compared to $2.65 billion for 2008. The increase in total interest and dividend income was primarily due to an $8.20 billion, or 17.0%, increase in the average balance of total interest-earning assets to $56.30 billion for 2009 as compared to $48.10 billion for 2008. The increase in the average balance of total

interest-earning assets was partially offset by a decrease of 29 basis points in the weighted-average yield on total interest-earning assets to 5.23% for 2009 from 5.52% for 2008.

Interest on first mortgage loans increased $155.3 million, or 10.2%, to $1.68 billion for 2009 as compared to $1.52 billion for 2008. This was primarily due to a $3.75 billion increase in the average balance of first mortgage loans to $30.13 billion during 2009 as compared to $26.38 billion for 2008, which reflected our continued emphasis on the growth of our mortgage loan portfolio and an increase in mortgage originations due to the refinancing activity caused by market interest rates that are at near-historic lows. The positive impact on first mortgage loan interest income from the increase in the average balance was partially offset by a 21 basis point decrease in the weighted-average yield to 5.57% for 2009 as compared to 5.78% for 2008. The decrease in the average yield earned was due to lower market interest rates on mortgage products and also due to the continued mortgage refinancing activity. During 2009, existing mortgage customers refinanced or modified approximately $2.80 billion in mortgage loans with a weighted average rate of 5.78% to a new rate of 5.03%. We allow existing customers to modify their mortgage loans, for a fee, with the intent of maintaining our customer relationship in periods of extensive refinancing due to a low interest rate environment. The modification changes the existing interest rate to the market rate for a product currently offered by us with a similar or reduced term. We generally do not extend the maturity date of the loan. To qualify for a modification, the loan should be current and our review of past payment performance should indicate that no payments were past due in any of the 12 preceding months. In general, all other terms and conditions of the existing mortgage remain the same.

Interest on consumer and other loans decreased $4.5 million to $21.7 million for 2009 from $26.2 million for 2008. The average balance of consumer and other loans decreased $41.1 million to $381.0 million for 2009 as compared to $422.1 million for 2008 and the average yield earned decreased 51 basis points to 5.69% as compared to 6.20% for 2008.

Interest on mortgage-backed securities increased $108.7 million, or 12.4%, to $983.7 million for 2009 as compared to $875.0 million for 2008. This increase was due primarily to a $3.08 billion increase in the average balance of mortgage-backed securities to $19.77 billion during 2009 as compared to $16.69 billion for 2008, partially offset by a 26 basis point decrease in the weighted-average yield to 4.98% as compared to 5.24% for the same respective periods.

The increase in the average balance of mortgage-backed securities is due to purchases of these securities during 2009 which 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 for 2009 compared to the yields on the $4.73 billion of mortgage-backed securities that matured during the year.

Interest on investment securities increased $37.2 million to $213.4 million for 2009 as compared to $176.2 million for 2008. This increase was due primarily to a $974.9 million increase in the average balance of investment securities to $4.58 billion for 2009 from $3.60 billion for 2008. The impact on interest income from the increase in the average balance of investment securities was partially offset by a decrease in the average yield of investment securities of 23 basis points to 4.66% in 2009 as compared to 4.89% in 2008.

Dividends on FHLB stock decreased $4.9 million, or 10.2%, to $43.1 million for 2009 as compared to $48.0 million for 2008. The decrease was due primarily to a 115 basis point decrease in the average yield to 4.92% as compared to 6.07% for 2008. The decrease in the average yield earned was partially offset by an $86.4 million increase in the average balance to $876.7 million for 2009 as compared to $790.3 million for 2008.

Interest Expense. Total interest expense for 2009 decreased $12.9 million to $1.70 billion as compared to $1.71 billion for 2008. This decrease was primarily due to a 64 basis point decrease in the weighted-average cost of total interest-bearing liabilities to 3.31% for 2009 compared with 3.95% for 2008. The decrease was

partially offset by a $7.99 billion, or 18.5%, increase in the average balance of total interest-bearing liabilities to $51.27 billion for the year ended December 31, 2009 as compared to $43.28 billion for 2008.

Interest expense on our time deposit accounts decreased $77.3 million to $376.9 million for 2009 as compared to $454.2 million for 2008. This decrease was due to a decrease in the weighted-average cost of 138 basis points to 2.55% for 2009 from 3.93% for 2008. This decrease was partially offset by a $3.22 billion increase in the average balance of time deposit accounts to $14.77 billion for 2009 from $11.55 billion for 2008. Interest expense on money market accounts decreased $4.2 million to $69.0 million for 2009 as compared to $73.2 million for the same period in 2008. This decrease was due to a 148 basis point decrease in the weighted-average cost to 1.81%, partially offset by a $1.59 billion increase in the average balance to $3.82 billion as compared to $2.23 billion for 2008. Interest expense on our interest-bearing transaction accounts decreased $16.5 million to $31.9 million for 2009 as compared to $48.4 million for 2008. The decrease is due to a 129 basis point decrease in the weighted-average cost to 1.78%, partially offset by a $210.9 million increase in the average balance to $1.79 billion.

The increases in the average balances of interest-bearing deposits reflect our plan to expand our branch network and to grow deposits in our existing branches by offering competitive rates. Also, in response to the economic recession, we believe that households have increased their personal savings and customers have sought insured bank deposit products as an alternative to investments such as equity securities and bonds. We believe these factors contributed to our deposit growth. The decrease in the average cost of deposits for 2009 reflected lower market interest rates.

Interest expense on borrowed funds increased $84.9 million to $1.21 billion for 2009 as compared to $1.13 billion for 2008. This was primarily due to a $2.94 billion increase in the average balance of borrowed funds to $30.14 billion, partially offset by a 12 basis point decrease in the weighted-average cost of borrowed funds to 4.03%.

The decrease in the average cost of borrowings for 2009 reflected new borrowings in 2009 and 2008, when market interest rates were lower than existing borrowings and borrowings that matured. Substantially all of our borrowings are callable quarterly at the discretion of the lender after an initial no-call period of one to five years with a final maturity of ten years. At December 31, 2009, we had $22.25 billion of borrowed funds with a weighted-average rate of 4.14% and with call dates within one year. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be called will not increase substantially unless interest rates were to increase by at least 300 basis points. During 2009, we modified $1.73 billion of borrowings to extend the call dates of the borrowings by between three and four years while keeping the interest rates consistent. See “Liquidity and Capital Resources.”

Net Interest Income. Net interest income increased $301.5 million, or 32.0%, to $1.24 billion for 2009 compared to $942.0 million for 2008. Our net interest rate spread increased 35 basis points to 1.92% for 2009 from 1.57% for 2008. Our net interest margin increased 25 basis points to 2.21% for 2009 from 1.96% for 2008.

The increase in our net interest margin and net interest rate spread was primarily due to the decrease in the weighted-average cost of interest-bearing liabilities. The yield curve steepened during 2009, with short-term rates decreasing slightly while longer-term rates increased. Notwithstanding the increase in long-term rates, market rates on mortgage loans remain at near-historic lows, resulting in increased refinancing activity which resulted in a decrease in the yield we earned on mortgage-related assets. However, we were able to reduce deposit costs to a greater extent than the decrease in mortgage yields thereby increasing our net interest rate spread and net interest margin.

Provision for Loan Losses. The provision for loan losses amounted to $137.5 million for 2009 as compared to $19.5 million for 2008. The allowance for loan losses (“ALL”) amounted to $140.1 million and $49.8 million

at December 31, 2009 and 2008, respectively. We recorded our provision for loan losses during 2009 based on our ALL methodology that considers a number of quantitative and qualitative factors, including the amount of non-performing loans, the loss experience of our non-performing loans, conditions in the real estate and housing markets, current economic conditions, particularly increasing levels of unemployment, and growth in the loan portfolio. See “Critical Accounting Policies — Allowance for Loan Losses.”

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. Our loan growth is primarily concentrated in one- to four-family mortgage loans with original loan-to-value (“LTV”) ratios of less than 80%. The average LTV ratio of our 2009 one- to four-family first mortgage loan originations and our total one- to four-family first mortgage loan portfolio were 60.5% and 60.8%, respectively using the appraised value at the time of origination. The value of the property used as collateral for our loans is dependent upon local market conditions. As part of our estimation of the ALL, we monitor changes in the values of homes in each market using indices published by various organizations. Based on our analysis of the data for the fourth quarter of 2009, we concluded that home values in the Northeast quadrant of the United States, where most of our lending activity occurs, have continued to decline from 2008 levels, as evidenced by reduced levels of sales, increasing inventories of houses on the market, declining house prices and an increase in the length of time houses remain on the market. However, the rate of decline in home values decreased during the second half of 2009. We define the Northeast quadrant of the country generally as those states that are east of the Mississippi River and as far south as South Carolina.

The following table presents the geographic distribution of our loan portfolio as a percentage of total loans and of our non-performing loans as a percentage of total non-performing loans. The LTV ratio is for non-performing first mortgage loans and is based on appraised value at the time of origination.

		At December 31, 2009
										Average LTV ratio
										of Non-performing
		Total loans				Non-performing loans				first mortgage loans
New Jersey			43.0	%			41.6	%			69	%
New York			18.2				18.0				70
Connecticut			12.6				4.2				72
Total New York metropolitan area			73.8				63.8				69
Virginia			4.6				6.2				78
Illinois			3.9				5.6				78
Maryland			3.5				5.1				76
Massachusetts			2.7				2.3				75
Pennsylvania			2.0				1.9				75
Minnesota			1.4				1.8				82
Michigan			1.3				4.2				75
All others			6.8				9.1				71
Total Outside New York metropolitan area			26.2				36.2				75
			100.0	%			100.0	%			72	%

The national economy has been in a recessionary cycle for approximately 2 years with the housing and real estate markets suffering significant losses in value. The faltering economy has been marked by contractions in the availability of business and consumer credit, increases in corporate borrowing rates, falling home prices,

increasing home foreclosures and rising levels of unemployment. Economic conditions have improved slightly during the second half of 2009 although unemployment rates continued to increase. We continue to closely monitor the local and national real estate markets and other factors related to risks inherent in our loan portfolio. We determined the provision for loan losses for 2009 based on our evaluation of the foregoing factors, the growth of the loan portfolio, the recent increases in delinquent loans, non-performing loans and net loan charge-offs, and the increasing trend in the unemployment rate.

At December 31, 2009, first mortgage loans secured by one-to four-family properties accounted for 98.7% of total loans. Fixed-rate mortgage loans represent 69.1% of our first mortgage loans. Compared to adjustable-rate loans, fixed-rate loans possess less inherent credit risk since loan payments do not change in response to changes in interest rates. In addition, we do not originate or purchase loans with payment options, negative amortization loans or sub-prime loans.

Included in our loan portfolio at December 31, 2009 and December 31, 2008 are interest-only loans of approximately $4.59 billion and $3.47 billion, respectively. These loans are originated as adjustable rate mortgage loans with initial terms of five, seven or ten years with the interest-only portion of the payment based upon the initial loan term, or offered on a 30-year fixed-rate loan, with interest-only payments for the first 10 years of the obligation. At the end of the initial 5-, 7- or 10-year interest-only period, the loan payment will adjust to include both principal and interest and will amortize over the remaining term so the loan will be repaid at the end of its original life. These loans are underwritten using the fully-amortizing payment amount. We had $82.2 million and $16.6 million of non-performing interest-only loans at December 31, 2009 and December 31, 2008, respectively.

Non-performing loans amounted to $627.7 million at December 31, 2009 as compared to $217.6 million at December 31, 2008. Non-performing loans at December 31, 2009 included $613.6 million of one- to four-family first mortgage loans as compared to $207.0 million at December 31, 2008. The ratio of non-performing loans to total loans was 1.98% at December 31, 2009 compared with 0.74% at December 31, 2008. Loans delinquent 60 to 89 days amounted to $182.5 million at December 31, 2009 as compared to $104.7 million at December 31, 2008. Foreclosed real estate amounted to $16.7 million at December 31, 2009 as compared to $15.5 million at December 31, 2008. As a result of our conservative underwriting policies, our borrowers typically have a significant amount of equity, at the time of origination, in the underlying real estate that we use as collateral for our loans. Due to the steady deterioration of real estate values over the last three years, the LTV ratios based on appraisals obtained at time of origination do not necessarily indicate the extent to which we may incur a loss on any given loan that may go into foreclosure. However, our lower average LTV ratios have helped to moderate our charge-offs as there has generally been adequate equity behind our first lien as of the foreclosure date to satisfy our loan.

As a result of the increase in non-performing loans, the ratio of the ALL to non-performing loans decreased from 102.09% at December 31, 2006 to 22.32% at December 31, 2009. During this same period, the ratio of the ALL to total loans increased from 0.17% to 0.44%. Historically, our non-performing loans have been a negligible percentage of our total loan portfolio and, as a result, our ratio of the ALL to non-performing loans was high and did not serve as a reasonable measure of the adequacy of our ALL. The decline in the ratio of the ALL to non-performing loans is not, absent other factors, an indication of the adequacy of the ALL since there is not necessarily a direct relationship between changes in various asset quality ratios and changes in the ALL and non-performing loans. In the current economic environment, a loan generally becomes non-performing when the borrower experiences financial difficulty. In many cases, the borrower also has a second mortgage or home equity loan on the property. In substantially all of these cases, we do not hold the second mortgage or home equity loan as this is not a business we have actively pursued.

The Company’s losses on non-performing loans increased in 2009 but, overall, have been modest due to our first lien position and relatively low average LTV ratios. We generally obtain new collateral values for loans after 180 days of delinquency. If the estimated fair value of the collateral (less estimated selling costs) is less

than the recorded investment in the loan, we charge-off an amount to reduce the loan to the fair value of the collateral less estimated selling costs. As a result, certain losses inherent in our non-performing loans are being recognized as charge-offs which may result in a lower ratio of the ALL to non-performing loans when accompanied by a concurrent increase in total non-performing loans (i.e. due to the addition of new non-performing loans). Charge-offs amounted to $47.2 million, consisting of 517 loans, for 2009 and $4.4 million, consisting of 47 loans, in 2008. These charge-offs were primarily due to the results of our reappraisal process for our non-performing residential first mortgage loans with only 55 loans disposed of through the foreclosure process during 2009 with a final loss on sale (after previous charge-offs) of $2.4 million. The results of our reappraisal process and our recent charge-off history are also considered in the determination of the ALL. At December 31, 2009 the average LTV ratio (using appraised values at the time of origination) of our non-performing loans was 72.4% and was 60.8% for our total mortgage loan portfolio. Thus, the ratio of the ALL to non-performing loans needs to be viewed in the context of the underlying LTV’s of the non-performing loans and the relative decline in home values.

As part of our estimation of the ALL, we monitor changes in the values of homes in each market using indices published by various organizations including the Office of Federal Housing Enterprise Oversight and Case-Shiller. Our Asset Quality Committee (“AQC”) uses these indices and a stratification of our loan portfolio by state as part of its quarterly determination of the ALL. We do not apply different loss factors based on geographic locations since, at December 31, 2009, 73.8% of our loan portfolio and 63.8% of our non-performing loans are located in the New York metropolitan area. In addition, we obtain updated collateral values when a loan becomes 180 days past due which we believe identifies potential charge-offs more accurately than a house price index that is based on a wide geographic area and includes many different types of houses. However, we use the house price indices to identify geographic areas experiencing weaknesses in housing markets to determine if an overall adjustment to the ALL is required based on loans we have in those geographic areas and to determine if changes in the loss factors used in the ALL quantitative analysis are necessary. Our quantitative analysis of the ALL accounts for increases in non-performing loans by applying progressively higher risk factors to loans as they become more delinquent.

Due to the nature of our loan portfolio, our evaluation of the adequacy of our ALL is performed primarily on a “pooled” basis. Each month we prepare an analysis which categorizes the entire loan portfolio by certain risk characteristics such as loan type (one- to four-family, multi-family, commercial, construction, etc.), loan source (originated or purchased) 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. These factors are periodically reviewed for appropriateness giving consideration to charge-off history, delinquency trends, portfolio growth and the status of the regional economy and housing market, in order to ascertain that the loss factors cover probable and estimable losses inherent in the portfolio. Based on our recent loss experience on non-performing loans, we increased the loss factors used in our quantitative analysis of the ALL for our one- to four-family first mortgage loans during 2009. If our future loss experience requires additional increases in our loss factors, this may result in increased levels of loan loss provisions.

In addition to our quantitative systematic methodology, we also use qualitative analyses to determine the adequacy of our ALL. Our qualitative analyses include further evaluation of economic factors, such as trends in the unemployment rate, as well as a ratio analysis to evaluate the overall measurement of the ALL. This analysis includes a review of delinquency ratios, net charge-off ratios and the ratio of the ALL to both non-performing loans and total loans. This qualitative review is used to reassess the overall determination of the ALL and to ensure that directional changes in the ALL and the provision for loan losses are supported by relevant internal and external data.

We consider the average LTV of our non-performing loans and our total portfolio in relation to the overall changes in house prices in our lending markets when determining the ALL. This provides us with a “macro” indication of the severity of potential losses that might be expected. Since substantially all our portfolio consists

of first mortgage loans on residential properties, the LTV is particularly important to us when a loan becomes non-performing. The weighted average LTV in our one- to four-family mortgage loan portfolio at December 31, 2009 was 60.8%, using appraised values at the time of origination. The average LTV ratio of our non-performing loans was 72.4% at December 31, 2009. Based on the valuation indices, house prices have declined in the New York metropolitan area, where 63.8% of our non-performing loans were located at December 31, 2009, by approximately 20% from the peak of the market in 2006 through November 2009 and by 29% nationwide during that period. Changes in house values may affect our loss experience which may require that we change the loss factors used in our quantitative analysis of the allowance for loan losses. There can be no assurance whether significant further declines in house values may occur and result in a higher loss experience and increased levels of charge-offs and loan loss provisions.

Net charge-offs amounted to $47.2 million for 2009 as compared to net charge-offs of $4.4 million for 2008. Our charge-offs on non-performing loans have historically been low relative to the size of our portfolio due to the amount of underlying equity in the properties collateralizing our first mortgage loans. Until this current recessionary cycle, it was our experience that as a non-performing loan approached foreclosure, the borrower sold the underlying property or, if there was a second mortgage or other subordinated lien, the subordinated lien holder would purchase the property to protect their interest thereby resulting in the full payment of principal and interest to Hudson City Savings Bank (“Hudson City Savings”). This process normally took approximately 12 months. However, due to the unprecedented level of foreclosures and the desire by most states to slow the foreclosure process, we are now experiencing a time frame to repayment or foreclosure ranging from 24 to 30 months from the initial non-performing period. If real estate prices decline further, this extended time may result in further charge-offs. In addition, current conditions in the housing market have made it more difficult for borrowers to sell homes to satisfy the mortgage and second lien holders are less likely to purchase the property and repay our loan if the value of the property is not enough to satisfy their loan. We continue to monitor closely the property values underlying our non-performing loans during this timeframe and take appropriate charge-offs when the loan balances exceed the underlying property values.

At December 31, 2009 and December 31, 2008, commercial and construction loans evaluated for impairment in accordance with Financial Accounting Standards Board (“FASB”) guidance amounted to $11.2 million and $9.5 million, respectively. Based on this evaluation, we established an ALL of $2.1 million for loans classified as impaired at December 31, 2009 compared to $818,000 at December 31, 2008.

The markets in which we lend have experienced significant declines in real estate values which we have taken into account in evaluating our ALL. Although we believe that we have established and maintained the ALL at adequate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment. Increases in our loss experience on non-performing loans, the loss factors used in our quantitative analysis of the ALL and continued increases in overall loan delinquencies can have a significant impact on our need for increased levels of loan loss provisions in the future. No assurance can be given in any particular case that our LTV ratios will provide full protection in the event of borrower default. Although we use the best information available, the level of the ALL remains an estimate that is subject to significant judgment and short-term change. See “Critical Accounting Policies.”

Non-Interest Income. Total non-interest income was $33.6 million for 2009 as compared to $8.5 million for 2008. Non-interest income primarily consists of service charges on loans and deposits. Included in non-interest income of 2009 were net gains on securities transactions of $24.2 million which resulted primarily from the sale of $761.6 million of mortgage-backed securities available-for-sale. Proceeds from the securities sale were primarily used to fund the purchase of first mortgage loans during the second quarter of 2009.

Non-Interest Expense. Total non-interest expense for the year ended December 31, 2009 was $265.6 million as compared to $198.1 million during 2008. The increase is primarily due to the FDIC special assessment of $21.1 million, a $30.8 million increase in Federal deposit insurance expense, a $9.9 million increase in compensation and employee benefits expense, and a $4.0 million increase in other non-interest expense. The special assessment and the increase in Federal deposit insurance expense were the result of the restoration plan implemented by the FDIC to recapitalize the Deposit Insurance Fund. The increase in compensation and

employee benefits expense included a $6.0 million increase in compensation costs, due primarily to normal increases in salary as well as additional full time employees, a $3.3 million increase in pension costs and a $3.4 million increase in costs related to our health plan. These increases were partially offset by a $2.8 million decrease in expense related to our stock benefit plans. This decrease was due primarily to a decrease in ESOP expense as a result of changes in the price of our common stock during 2009. Included in other non-interest expense for the year ended December 31, 2009 were write-downs on foreclosed real estate and net losses on the sale of foreclosed real estate, of $2.4 million as compared to $1.3 million for 2008.

Our efficiency ratio was 20.80% for 2009 as compared to 20.84% for 2008. The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income. Our ratio of non-interest expense to average total assets for 2009 was 0.46% as compared to 0.41% for 2008.

Income Taxes. Income tax expense amounted to $346.7 million for 2009 compared with $287.3 million for 2008. Our effective tax rate for 2009 was 39.67% compared with 39.21% for 2008.

Comparison of Operating Results for the Years Ended December 31, 2008 and 2007

General. Net income was $445.6 million for 2008, an increase of $149.7 million, or 50.6%, as compared to $295.9 million for 2007. Basic and diluted earnings per common share were $0.92 and $0.90, respectively, for 2008, as compared to $0.59 and $0.58, respectively, for 2007. For 2008, our return on average shareholders’ equity was 9.36%, compared with 6.23% for 2007. Our return on average assets for 2008 was 0.91% as compared to 0.74% for 2007. The increase in the return on average equity and assets is primarily due to the increase in net income during 2008.

Interest and Dividend Income. Total interest and dividend income for 2008 increased $525.7 million, or 24.7%, to $2.65 billion as compared to $2.13 billion for 2007. The increase in total interest and dividend income was primarily due to an $8.88 billion, or 22.6%, increase in the average balance of total interest-earning assets to $48.10 billion for 2008 as compared to $39.22 billion for 2007. The increase in interest and dividend income was also partially due to an increase of 10 basis points in the weighted-average yield on total interest-earning assets to 5.52% for 2008 from 5.42% for 2007.

Interest on first mortgage loans increased $318.1 million to $1.52 billion for 2008 as compared to $1.21 billion for 2007. This was primarily due to a $5.17 billion increase in the average balance of first mortgage loans to $26.38 billion for 2008 as compared to $21.21 billion for 2007. This increase reflected our continued emphasis on the growth of our mortgage loan portfolio. The increase in first mortgage loan interest income was also due to a 10 basis point increase in the weighted-average yield to 5.78% for 2008. Notwithstanding the decrease in long-term market interest rates noted above, mortgage rates have remained at a wider spread relative to U.S. Treasury securities resulting in higher yields on mortgage loans.

Interest on consumer and other loans decreased $2.0 million to $26.2 million for 2008 as compared to $28.2 million for 2007. The average balance of consumer and other loans decreased $9.4 million to $422.1 million for 2008 as compared to $431.5 million for 2007 and the average yield earned decreased 35 basis points to 6.20% as compared to 6.55% for the same periods.

Interest on mortgage-backed securities increased $287.1 million to $875.0 million for 2008 as compared to $587.9 million for 2007. This increase was due primarily to a $5.30 billion increase in the average balance of mortgage-backed securities to $16.69 billion during 2008 as compared to $11.39 billion for 2007, and an 8 basis point increase in the weighted-average yield to 5.24% for 2008.

The increases in the average balances of mortgage-backed securities were due to purchases of variable-rate mortgage-backed securities as part of our interest rate risk management strategy. Since a substantial portion of our loan production consists of fixed-rate mortgage loans, the purchase of variable-rate mortgage-backed

securities provides us with an asset that reduces our exposure to interest rate fluctuations while providing a source of cash flow from monthly principal and interest payments. The increase in the weighted average yields for 2008 on mortgage-backed securities is a result of the purchase of new securities during the second half of 2007 and the first half of 2008 when market interest rates were higher than the yield earned on the existing portfolio.

Interest on investment securities decreased $77.9 million to $176.2 million during 2008 as compared to $254.1 million for 2007. This decrease was due primarily to a $1.76 billion decrease in the average balance of investment securities to $3.60 billion for 2008 as compared to $5.36 billion for 2007. The decrease in the average balance of investment securities was due to increased call activity as a result of the decrease in market rates of securities with a shorter duration during 2008. The average yield on investment securities increased 15 basis points to 4.89% during 2008.

Dividends on FHLB stock increased $8.5 million, or 21.5%, to $48.0 million for 2008 as compared to $39.5 million for 2007. This increase was due to a $204.3 million increase in the average balance to $790.3 million for 2008 as compared to $586.0 million for 2007. The increase was partially offset by a 67 basis point decrease in the average yield to 6.07% as compared to 6.74% for 2007.

Interest Expense. Total interest expense for 2008 increased $230.9 million, or 15.6%, to $1.71 billion as compared to $1.48 billion for 2007. This increase was primarily due to an $8.92 billion, or 26.0%, increase in the average balance of total interest-bearing liabilities to $43.28 billion for 2008 compared with $34.36 billion for 2007. The increase in the average balance of total interest-bearing liabilities was partially offset by a 36 basis point decrease in the weighted-average cost of total interest-bearing liabilities to 3.95% for 2008 compared with 4.31% for 2007.

Interest expense on our time deposit accounts decreased $38.6 million to $454.2 million for 2008 as compared to $492.8 million for 2007. This decrease was due primarily to a decrease of 100 basis points in the weighted-average cost to 3.93%. This decrease was partially offset by a $1.54 billion increase in the average balance of time deposit accounts to $11.55 billion for 2008 from $10.01 billion for 2007. Interest expense on money market accounts increased $26.0 million to $73.2 million for 2008 as compared to $47.2 million for 2007. This increase was due to a $1.05 billion increase in the average balance to $2.23 billion, partially offset by a 72 basis point decrease in the weighted-average cost to 3.29% for 2008. The increase in our time deposits and money market checking accounts reflects our competitive pricing, our branch expansion and customer preference for short-term deposit products. In addition, the turmoil in the credit and equity markets has made deposit products in strong financial institutions desirable for many customers.

Interest expense on our interest-bearing transaction accounts decreased $12.2 million to $48.4 million for 2008 as compared to $60.6 million for 2007. This decrease was primarily due to a $227.8 million decrease in the average balance to $1.58 billion and a 29 basis point decrease in the average cost to 3.07% for 2008. The decrease in the average balance reflects customer preferences for short-term time and money market deposit products.

Interest expense on borrowed funds increased $256.5 million to $1.13 billion for 2008 as compared to $873.4 million for 2007 primarily due to a $6.61 billion increase in the average balance of borrowed funds to $27.20 billion as compared to $20.59 billion for 2007. The weighted average cost of borrowed funds decreased 9 basis points to 4.15% for 2008 as compared to 4.24% for 2007.

Borrowed funds were used to fund a significant portion of the growth in interest-earning assets in 2008. The decrease in the average cost of borrowings during 2008 reflected new borrowings in 2008, when market interest rates were lower than existing borrowings and borrowings that were called. Substantially all of our borrowings are callable quarterly at the discretion of the lender after an initial non-call period of one to five years with a final maturity of ten years.

Net Interest Income. Net interest income increased $294.8 million, or 45.6%, to $942.0 million for 2008 as compared with $647.2 million for 2007. Our net interest rate spread increased 46 basis points to 1.57% for 2008 from 1.11% for 2007. Our net interest margin increased 31 basis points to 1.96% from 1.65% for the same respective periods.

The increase in our net interest margin and net interest rate spread was primarily due to the increase in the weighted-average yield on interest-earning assets and a decrease in the weighted-average cost of interest-bearing liabilities. The decreases in market interest rates that began during the second half of 2007 and continued through 2008 allowed us to lower the cost of our deposits while the yields on our mortgage-related assets remained stable. As a result, our net interest rate margin and net interest rate spread increased during 2008.

Provision for Loan Losses. The provision for loan losses amounted to $19.5 million for 2008 as compared to $4.8 million for 2007. The ALL amounted to $49.8 million and $34.7 million at December 31, 2008 and 2007, respectively. We recorded our provision for loan losses during 2008 based on our ALL methodology that considers a number of quantitative and qualitative factors, including the amount of non-performing loans, which increased to $217.6 million at December 31, 2008 as compared to $79.4 million at December 31, 2007. The higher provision for loan losses during 2008 reflects the risks inherent in our loan portfolio due to weakening real estate markets, the increases in non-performing loans and net charge-offs and the overall growth in the loan portfolio. See “Critical Accounting Policies — Allowance for Loan Losses.”

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. Our loan growth was primarily concentrated in one- to four-family mortgage loans with original loan-to-value ratios of less than 80%. The average loan-to-value ratio of our 2008 first mortgage loan originations and our total first mortgage loan portfolio was 60% and 61%, respectively using the appraised value at the time of origination. The value of the property used as collateral for our loans is dependent upon local market conditions. As part of our estimation of the ALL, we monitor changes in the values of homes in each market using indices published by various organizations. Based on our analysis of the data for 2008, we concluded that home values in the Northeast quadrant of the United States, where most of our lending activity occurs, deteriorated during 2007 and 2008 as evidenced by reduced levels of sales, increasing inventories of houses on the market, declining house prices and an increase in the length of time houses remain on the market. In addition, general economic conditions in the United States also worsened and entered a recession by the first quarter of 2008. We considered these trends in economic and market conditions in determining the provision for loan losses also taking into account the continued growth of our loan portfolio.

We define the Northeast quadrant of the country generally as those states that are east of the Mississippi River and as far south as South Carolina. At December 31, 2008, approximately 69.7% of our total loans are in the New York metropolitan area. Additionally, the states of Virginia, Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania accounted for 5.5%, 4.3%, 4.2%, 3.0%, 1.8%, 1.7% and 1.5%, respectively of total loans. The remaining 8.3% of the loan portfolio is secured by real estate primarily in the remainder of the Northeast quadrant of the United States. With respect to our non-performing loans, approximately 65.3% are in the New York metropolitan area and 4.2%, 3.5%, 5.4%, 2.7%, 3.8%, 3.7% and 1.5% are located in the states of Virginia, Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania, respectively. The remaining 9.9% of our non-performing loans are secured by real estate primarily in the remainder of the Northeast quadrant of the United States.

During 2008, the fallout from the sub-prime mortgage market continued and the national economy entered a recession with particular emphasis on the deterioration of the housing and real estate markets. The faltering economy was marked by contractions in the availability of business and consumer credit, increases in corporate borrowing rates, falling home prices, increasing home foreclosures and unemployment. As a result, the

financial, capital and credit markets experienced significant adverse conditions. These conditions caused significant deterioration in the activity of the secondary residential mortgage market and a lack of available liquidity. The disruptions were exacerbated by the acceleration of the decline of the real estate and housing market. We determined the provision for loan losses for 2008 based on our evaluation of the foregoing factors, the growth of the loan portfolio, the recent increases in non-performing loans and net loan charge-offs and expected growth in non-performing loans.

At December 31, 2008, first mortgage loans secured by one-to four-family properties accounted for 98.4% of total loans. Fixed-rate mortgage loans represent 75.7% of our first mortgage loans. Compared to adjustable-rate loans, fixed-rate loans possess less inherent credit risk since loan payments do not change in response to changes in interest rates. In addition, we do not originate or purchase loans with payment options, negative amortization loans or sub-prime loans.

Non-performing loans amounted to $217.6 million at December 31, 2008 as compared to $79.4 million at December 31, 2007. Non-performing loans at December 31, 2008 included $207.0 million of one- to four-family first mortgage loans as compared to $75.8 million at December 31, 2007. The ratio of non-performing loans to total loans was 0.74% at December 31, 2008 compared with 0.33% at December 31, 2007. The ALL as a percent of total loans and non-performing loans was 0.17% and 22.89%, respectively at December 31, 2008 as compared to 0.14% and 43.75%, respectively at December 31, 2007. Loans delinquent 60 to 89 days amounted to $104.7 million at December 31, 2008 as compared to $40.6 million at December 31, 2007. Foreclosed real estate amounted to $15.5 million at December 31, 2008 as compared to $4.1 million at December 31, 2007. As a result of our underwriting policies, our borrowers typically have a significant amount of equity, at the time of origination, in the underlying real estate that we use as collateral for our loans. At December 31, 2008, our non-performing mortgage loans had an average loan-to-value ratio of approximately 68.3% based on the appraised value at the time of origination. Due to the steady deterioration of real estate values, the loan-to-value ratios based on appraisals obtained at time of origination do not necessarily indicate the extent to which we may incur a loss on any given loan that may go into foreclosure. In January 2009, our non-performing loans increased by $37.0 million to $254.6 million.

Net charge-offs amounted to $4.4 million for 2008 as compared to net charge-offs of $684,000 for 2007. The increase in charge-offs was primarily related to non-performing residential loans for which current appraised values indicated declines in the value of the underlying collateral. Our charge-offs on non-performing loans have historically been low due to the amount of underlying equity in the properties collateralizing our first mortgage loans. Typically, as a non-performing loan approaches foreclosure, the borrower will sell the underlying property or, if there is a subordinated lien eliminating the borrower’s equity, the subordinated lien holder would purchase the property to protect its interest resulting in the full payment of principal and interest to Hudson City Savings. In normal markets this process takes 6 to 12 months. However, due to the unprecedented level of foreclosures and the desire by most states to slow the foreclosure process, we are now experiencing a time frame to repayment or foreclosure ranging from 18 to 24 months from the initial non-performing period. As real estate prices continue to decline, this extended time may result in further charge-offs. In addition, current conditions in the housing market have made it more difficult for borrowers to sell homes to satisfy the mortgage and second lien holders are less likely to purchase the property and repay our loan if the value of the property is not enough to satisfy their loan. We continue to monitor closely the property values underlying our non-performing loans during this timeframe and take appropriate charge-offs when the loan balances exceed the underlying property values.

At December 31, 2008 and 2007, commercial and construction loans evaluated for impairment in accordance with FASB guidance amounted to $9.5 million and $3.5 million, respectively. Based on this evaluation, we established an ALL of $818,000 for loans classified as impaired at December 31, 2008 compared to $268,000 at December 31, 2007.

Non-Interest Income. Total non-interest income was $8.5 million for 2008 compared with $7.3 million for 2007. The increase in non-interest income is primarily due to an increase in service charges on deposits as a result of deposit account growth.

Non-Interest Expense. Total non-interest expense increased $30.2 million, or 18.0%, for the year ended December 31, 2008 to $198.1 million compared with $167.9 million during 2007. The increase is primarily due to a $20.6 million increase in compensation and employee benefits expense, a $2.6 million increase in Federal deposit insurance expense and a $5.9 million increase in other non-interest expense. The increase in compensation and employee benefits expense included an $8.4 million increase in expense related to our employee stock ownership plan primarily as a result of increases in our stock price, a $6.3 million increase in compensation costs, due primarily to normal increases in salary and additional full time employees for our new branches, and a $2.3 million increase in stock option plan expense. The increase in the Federal deposit insurance expense is the result of an assessment credit that was used to offset 100% of our 2007 deposit insurance assessment of $7.3 million. During 2008, we used the remaining assessment credit of $5.1 million to offset a portion of our 2008 deposit insurance. Included in other non-interest expense for the year ended December 31, 2008 were write-downs on foreclosed real estate and net losses on the sale of foreclosed real estate, of $1.3 million as compared to $112,000 for 2007.

Our efficiency ratio was 20.84% for 2008 as compared to 25.66% for the year ended December 31, 2007. Our ratio of non-interest expense to average total assets for 2008 was 0.41% as compared to 0.42% for 2007.

Income Taxes. Income tax expense amounted to $287.3 million for 2008 compared with $185.9 million for 2007. Our effective tax rate for 2008 was 39.21% compared with 38.59% for 2007.

Asset Quality

One of our key operating objectives has been, and continues to be, to maintain a high level of asset quality. Through a variety of strategies we have been proactive in addressing problem loans and non-performing assets. The national economy has been in a recessionary cycle for approximately two years. The faltering economy has been marked by contractions in the availability of business and consumer credit, falling home prices, increasing home foreclosures and rising unemployment levels. See “Critical Accounting Policies – Allowance for Loan Losses” and “Comparison of Operating Results for the Years Ended December 31, 2009 and 2008 – Provision for Loan Losses”.

Loans delinquent 60 days to 89 days and 90 days or more were as follows as of the dates indicated:

		At December 31,
		2009																				2008																2007
		60-89 Days								90 Days or More								60-89 Days								90 Days or More								60-89 Days								90 Days or More
						Principal								Principal								Principal								Principal								Principal								Principal
		No. of				Balance				No. of				Balance				No. of				Balance				No. of				Balance				No. of				Balance				No. of				Balance
		Loans				of Loans				Loans				of Loans				Loans				of Loans				Loans				of Loans				Loans				of Loans				Loans				of Loans
		(Dollars in thousands)
One- to four-family first mortgages			408			$	171,913				1,480			$	581,786				265			$	100,604				527			$	200,642				103			$	32,448				198			$	71,614
FHA/VA first mortgages			35				8,650				115				31,855				5				874				30				6,407				12				1,995				21				4,157
Multi-family and commercial mortgages			2				1,088				1				1,414				1				1,417				4				1,854				3				1,393				2				2,028
Construction loans			—				—				6				9,764				—				—				5				7,610				3				4,457				1				647
Consumer and other loans			14				882				34				2,876				11				1,850				14				1,061				7				329				12				956
Total delinquent loans (60 days and over)			459			$	182,533				1,636			$	627,695				282			$	104,745				580			$	217,574				128			$	40,622				234			$	79,402
Delinquent loans (60 days and over) to total loans							0.57	%							1.98	%							0.36	%							0.74	%							0.17	%							0.33	%

The following table presents information regarding non-performing assets as of the dates indicated.

		At December 31,
		2009				2008				2007				2006				2005
		(Dollars in thousands)
Non-accrual first mortgage loans		$	583,200			$	202,496			$	71,932			$	20,053			$	9,649
Non-accrual construction loans			6,624				7,610				647				3,098				—
Non-accrual consumer and other loans			1,916				626				956				1,217				2
Accruing loans delinquent 90 days or more			35,955				6,842				5,867				5,630				9,661
Total non-performing loans			627,695				217,574				79,402				29,998				19,312
Foreclosed real estate, net			16,736				15,532				4,055				3,161				1,040
Total non-performing assets		$	644,431			$	233,106			$	83,457			$	33,159			$	20,352
Non-performing loans to total loans			1.98	%			0.74	%			0.33	%			0.16	%			0.13	%
Non-performing assets to total assets			1.07				0.43				0.19				0.09				0.07

Liquidity and Capital Resources

The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan and security purchases, deposit withdrawals, repayment of borrowings and operating expenses. Our primary sources of funds are deposits, borrowings, the proceeds from principal and interest payments on loans and mortgage-backed securities, the maturities and calls of investment securities and funds provided by our operations. 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 receipt of these sources of funds. Our membership in the FHLB provides us access to additional sources of borrowed funds, which is generally limited to approximately twenty times the amount of FHLB stock owned. We also have the ability to access the capital markets from time to time, depending on market conditions.

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. These activities are funded primarily by deposit growth, borrowings and principal and interest payments on loans, mortgage-backed securities and investment securities. We originated $6.06 billion and purchased $3.16 billion of loans during of 2009 as compared to $5.04 billion and $3.06 billion during 2008. While the residential real estate markets have slowed during the past year, our competitive rates and an increase in mortgage refinancing have resulted in increased origination production for 2009. The increase in refinancing activity occurring in the marketplace has also caused an increase in principal repayments which amounted to $6.77 billion for 2009 as compared to $2.82 billion for 2008. At December 31, 2009, commitments to originate and purchase mortgage loans amounted to $538.0 million and $157.5 million, respectively as compared to $337.6 million and $219.1 million, respectively at December 31, 2008. Conditions in the secondary mortgage market have made it more difficult for us to purchase loans that meet our underwriting standards. We expect that the amount of loan purchases may be at reduced levels for the near-term.

Purchases of mortgage-backed securities during 2009 were $7.11 billion as compared to $7.18 billion during 2008. The slight decrease in the purchases of mortgage-backed securities was due to our ability to utilize deposit growth for the increased mortgage loan production during 2009. In addition, we increased our purchases of investment securities since the yields on these securities were more attractive than the yields currently being earned on mortgage-backed securities. We sold $761.6 million of mortgage-backed securities during 2009, resulting in a gain of $24.0 million. We used the proceeds from the sales to fund the purchase of first mortgage loans. There were no securities sales in 2008.

We purchased $5.87 billion of investment securities during 2009 as compared to $2.10 billion during 2008. Proceeds from the calls of investment securities amounted to $4.02 billion during 2009 as compared to $2.81 billion for 2008.

During 2009, principal repayments on loans totaled $6.77 billion as compared to $2.82 billion for 2008. Principal payments on mortgage-backed securities amounted to $4.73 billion and $2.31 billion for those same respective periods. These increases in principal repayments were due primarily to the refinancing activity caused by market interest rates that are at near-historic lows.

As part of the membership requirements of the FHLB, we are required to hold a certain dollar amount of FHLB common stock based on our mortgage-related assets and borrowings from the FHLB. During 2009, we purchased a net $9.2 million of FHLB common stock compared with net purchases of $170.2 million during 2008.

Our primary financing activities consist of gathering deposits, engaging in wholesale borrowings, repurchases of our common stock and the payment of dividends.

Total deposits increased $6.12 billion during 2009 as compared to an increase of $3.31 billion for 2008. These increases reflect our growth strategy, competitive pricing and the apparent recent increases in the U.S. household savings rate during the recent recessionary economy. Deposit flows are typically affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets, and other factors. Time deposits scheduled to mature within one year were $13.08 billion at December 31, 2009. These time deposits have a weighted average rate of 1.87%. We anticipate that we will have sufficient resources to meet this current funding commitment. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain with us as renewed time deposits or as transfers to other deposit products at the prevailing interest rate.

We have historically used wholesale borrowings to fund our investing and financing activities. However, during 2009, we were able to fund substantially all of our growth with deposit inflows. Principal repayments of borrowed funds totaled $1.00 billion, largely offset by $750.0 million in new borrowings. At December 31, 2009, we had $22.25 billion of borrowed funds with a weighted-average rate of 4.14% and with call dates within one year. We anticipate that none of these borrowings will be called assuming current market interest rates remain stable. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be called will not increase substantially unless interest rates were to increase by at least 300 basis points. However, in the event borrowings are called, we anticipate that we will have sufficient resources to meet this funding commitment by borrowing new funds at the prevailing market interest rate, using funds generated by deposit growth or by using proceeds from securities sales. In addition, at December 31, 2009 we had $300.0 million of borrowings with a weighted average rate of 5.68% that are scheduled to mature within one year.

Our borrowings have traditionally consisted of structured callable borrowings with ten year final maturities and initial non-call periods of one to five years. We have used this type of borrowing primarily to fund our loan growth because they have a longer duration than shorter-term non-callable borrowings and have a slightly lower cost than a no-callable borrowing with a maturity date similar to the initial call date of the callable borrowing.

During 2009, we were able to fund our asset growth primarily with deposit inflows. In order to effectively manage our interest rate risk and liquidity risk resulting from our current callable borrowing position, we are pursuing a variety of strategies to reduce callable borrowings while continuing to pursue our growth plans. We intend to continue focusing on funding our growth primarily with customer deposits, using borrowed funds as a supplemental funding source if deposit growth decreases which will allow us to achieve a greater balance between deposits and borrowings. If necessary to fund our growth and provide for liquidity, we may borrow a combination of short- term borrowings with maturities of three to six months and longer-term fixed-maturity borrowings with terms of two to five years. We also intend to modify certain borrowings to extend their call dates, which we began to do during 2009. During 2009, we modified approximately $1.73 billion of callable borrowings to extend the call dates of the borrowings by between three and four years as part of this strategy. In addition, we are considering prepayment of certain borrowings; however, at this time, we have no immediate plans to make any such prepayments, and we anticipate that any prepayment of borrowings will be limited. Our new borrowings in 2009 consisted of non-callable borrowings of $400.0 million with maturities of one to three months and $350.0 million of non-callable borrowings with maturities of two to three years.

Total cash and cash equivalents increased $299.4 million to $561.2 million at December 31, 2009 as compared to $261.8 million at December 31, 2008. This increase is due to liquidity being provided by the strong deposit growth and increased repayments on mortgage-related assets. In addition, we have maintained a higher level of Federal funds sold since other types of short- and medium-term investments are currently providing relatively low yields.

Cash dividends paid during 2009 were $288.4 million. During 2009, we purchased 4.0 million shares of our common stock at an aggregate cost of $43.5 million. At December 31, 2009, there remained 50,123,550 shares that may be purchased under existing stock repurchase programs.

The primary source of liquidity for Hudson City Bancorp, the holding company of Hudson City Savings, is capital distributions from Hudson City Savings. During 2009, Hudson City Bancorp received $338.5 million in dividend payments from Hudson City Savings. The primary use of these funds is the payment of dividends to our shareholders and, when appropriate as part of our capital management strategy, the repurchase of our outstanding common stock. Hudson City Bancorp’s ability to continue these activities is dependent upon capital distributions from Hudson City Savings. Applicable federal law may limit the amount of capital distributions Hudson City Savings may make. At December 31, 2009, Hudson City Bancorp had total cash and due from banks of $224.6 million.

At December 31, 2009, 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 7.59%, 7.59% and 21.02%, respectively.

Off-Balance Sheet Arrangements and Contractual Obligations

Hudson City Bancorp 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 mortgage-backed securities. We are also obligated under a number of non-cancelable operating leases.

The following table summarizes contractual obligations of Hudson City by contractual payment period, as of December 31, 2009.

		Payments Due By Period
						Less Than				One Year to				Three Years to				More Than
Contractual Obligation		Total				One Year				Three Years				Five Years				Five Years
		(In thousands)
Mortgage loan originations		$	537,997			$	537,997			$	—			$	—			$	—
Mortgage loan purchases			157,476				157,476				—				—				—
Mortgage-backed security purchases			1,251,000				1,251,000				—				—				—
Operating leases			151,453				8,974				18,302				17,695				106,482
Total		$	2,097,926			$	1,955,447			$	18,302			$	17,695			$	106,482

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, overdraft and commercial/construction lines of credit, which do not have fixed expiration dates, of approximately $179.7 million, $2.9 million, and $12.8 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 mortgage-backed securities had a normal period from trade date to settlement date of approximately 60 days.

Recent Accounting Pronouncements

In January 2010, the FASB issued an accounting standards update regarding disclosure requirements for fair value measurement. This update provides amendments to fair value measurement that require new disclosures related to transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. The update also provides amendments clarifying level of disaggregation and disclosures about inputs and valuation techniques along with conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010. We do not expect that this accounting standard update will have a material impact on our financial condition, results of operations or financial statement disclosures.

In June 2009, the FASB Codification (the “Codification”) was issued. The Codification is the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. The Codification was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of the Codification did not have an impact on our consolidated financial condition and results of operations.

In June 2009, the FASB issued an accounting standards update to the accounting and disclosure requirements for the consolidation of variable interest entities. The guidance affects the overall consolidation analysis and requires enhanced disclosure on involvement with variable interest entities. The guidance is effective for fiscal years beginning after November 15, 2009. We do not expect that the guidance will have a material impact on our financial condition, results of operations or financial statement disclosures.

In June 2009, the FASB issued an accounting standards update to the accounting and disclosure requirements for transfers of financial assets. The guidance defines the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. If the transfer does not meet those conditions, a transferor should account for the transfer as a sale only if it transfers an entire financial asset or a group of entire financial assets and surrenders control over the entire transferred asset(s). The guidance requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. We do not expect that the guidance will have a material impact on our financial condition, results of operations or financial statement disclosures.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements of Hudson City Bancorp have been prepared in accordance with U.S. generally accepted accounting principles, commonly referred as GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than do the effects of inflation.

Critical Accounting Policies

We have identified the accounting policies below as critical to understanding our financial results. In addition, Note 2 to the Audited Consolidated Financial Statements contains a summary of our significant accounting policies. We believe our policies with respect to the methodology for our determination of the ALL, the measurement of stock-based compensation expense and the measurement of the funded status and cost of our pension and other post-retirement benefit plans involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are continually reviewed by management, and are periodically reviewed with the Audit Committee and our Board of Directors.

Allowance for Loan Losses

The ALL has been determined in accordance with GAAP, under which we are required to maintain an adequate ALL at December 31, 2009. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our ALL 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.

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 resulting in a loan concentration in residential first mortgage loans at December 31, 2009. As a result of our lending practices, we also have a concentration of loans secured by real property located primarily in New Jersey, New York and Connecticut. At December 31, 2009, approximately 73.8% of our total loans were in the New York metropolitan area. Additionally, the states of Virginia, Illinois, Maryland, Massachusetts, Minnesota, Michigan and Pennsylvania accounted for 4.6%, 3.9%, 3.5%, 2.7%, 1.4%, 1.3% and 2.0%, respectively, of total loans. The remaining 6.8% of the loan portfolio is secured by real estate primarily in the remainder of the Northeast quadrant of the United States. 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 the continued weakened economic conditions due to the recent U.S. recession, continued high levels of unemployment, rising interest rates in the markets we lend and a continuing decline in real estate market values. Any one or a combination of these adverse trends may adversely affect our loan portfolio resulting in increased delinquencies, non-performing assets, loan losses and future levels of loan loss provisions. We consider these trends in market conditions in determining the ALL.

Due to the nature of our loan portfolio, our evaluation of the adequacy of our ALL is performed primarily on a “pooled” basis. Each month we prepare an analysis which categorizes the entire loan portfolio by certain risk characteristics such as loan type (one- to four-family, multi-family, commercial, construction, etc.), loan source (originated or purchased) 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. These factors are periodically reviewed for appropriateness giving consideration to charge-off history, delinquency trends,

portfolio growth and the status of the regional economy and housing market, in order to ascertain that the loss factors cover probable and estimable losses inherent in the portfolio. Based on our recent loss experience on non-performing loans, we increased the loss factors used in our quantitative analysis of the ALL for our one- to four-family first mortgage loans during 2009. We use this analysis, as a tool, together with principal balances and delinquency reports, to evaluate the adequacy of the ALL. Other key factors we consider in this process are current real estate market conditions in geographic areas where our loans are located, changes in the trend of non-performing loans, the results of our foreclosed property transactions, the current state of the local and national economy, changes in interest rates and loan portfolio growth. Any one or a combination of these adverse trends may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of provisions.

We maintain the ALL through provisions for loan losses that we charge to income. We charge losses on loans against the ALL when we believe the collection of loan principal is unlikely. We establish the provision for loan losses after considering the results of our review as described above. We apply this process and methodology in a consistent manner and we reassess and modify the estimation methods and assumptions used in response to changing conditions. Such changes, if any, are approved by our AQC each quarter.

Hudson City Savings defines the population of potential impaired loans to be all non-accrual construction, commercial real estate and multi-family loans. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral or the present value of the loan’s expected future cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and consumer loans, are specifically excluded from the impaired loan analysis.

We believe that we have established and maintained the ALL at adequate levels. Additions may be necessary if future economic and other conditions differ substantially from the current operating environment. Although management uses the best information available, the level of the ALL remains an estimate that is subject to significant judgment and short-term change.

Stock-Based Compensation

We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value for all awards granted, modified, repurchased or cancelled after January 1, 2006 and for the portion of outstanding awards for which the requisite service was not rendered as of January 1, 2006, in accordance with ASC 718-10. We have made annual grants of performance-based stock options since 2006 that vest if certain financial performance measures are met. In accordance with ASC 718-10-30-6, we assess the probability of achieving these financial performance measures and recognize the cost of these performance-based grants if it is probable that the financial performance measures will be met. This probability assessment is subjective in nature and may change over the assessment period for the performance measures.

We estimate the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are based on our analysis of our historical option exercise experience and our judgments regarding future option exercise experience and market conditions. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.

The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction of changes in the expected dividend yield. For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield

decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

Pension and Other Post-retirement Benefit Assumptions

Non-contributory retirement and post-retirement defined benefit plans are maintained for certain employees, including retired employees hired on or before July 31, 2005 who have met other eligibility requirements of the plans. We adopted ASC 715, Retirement Benefits. This ASC requires an employer to: (a) recognize in its statement of financial condition an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit post-retirement plan in the year in which the changes occur.

We provide our actuary with certain rate assumptions used in measuring our benefit obligation. We monitor these rates in relation to the current market interest rate environment and update our actuarial analysis accordingly. The most significant of these is the discount rate used to calculate the period-end present value of the benefit obligations, and the expense to be included in the following year’s financial statements. A lower discount rate will result in a higher benefit obligation and expense, while a higher discount rate will result in a lower benefit obligation and expense. The discount rate assumption was determined based on a cash flow/yield curve model specific to our pension and post-retirement plans. We compare this rate to certain market indices, such as long-term treasury bonds, or the Moody’s bond indices, for reasonableness. A discount rate of 6.00% was selected for the December 31, 2009 measurement date and the 2010 expense calculation.

For our pension plan, we also assumed an annual rate of salary increase of 4.00% for future periods. This rate is corresponding to actual salary increases experienced over prior years. We assumed a return on plan assets of 8.25% for future periods. We actuarially determine the return on plan assets based on actual plan experience over the previous ten years. The actual return on plan assets was 12.9% for 2009 and a net loss of 28.2% in 2008. Our net loss on plan assets during 2008 was a result of the economic recession and conditions in the equity and credit markets during that year. There can be no assurances with respect to actual return on plan assets in the future. We continually review and evaluate all actuarial assumptions affecting the pension plan, including assumed return on assets.

For our post-retirement benefit plan, the assumed health care cost trend rate used to measure the expected cost of other benefits for 2009 was 8.50%. The rate was assumed to decrease gradually to 4.75% for 2016 and remain at that level thereafter. Changes to the assumed health care cost trend rate are expected to have an immaterial impact as we capped our obligations to contribute to the premium cost of coverage to the post-retirement health benefit plan at the 2007 premium level.

Securities Impairment

Our available-for-sale securities portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in shareholders’ equity. Debt securities which we have the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values for our securities are obtained from an independent nationally recognized pricing service.

Substantially all of our securities portfolio is comprised of mortgage-backed securities and debt securities issued by a GSE. The fair value of these securities is primarily impacted by changes in interest rates. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience.

In April 2009, the FASB issued guidance which changes the method for determining whether an other-than-temporary impairment exists for debt securities and the amount of the impairment to be recognized in earnings. This staff position requires that an entity assess whether an impairment of a debt security is other-than-temporary and, as part of that assessment, determine its intent and ability to hold the security. If the entity intends to sell the debt security, an other-than-temporary impairment shall be considered to have occurred. In addition, an other-than-temporary impairment shall be considered to have occurred if it is more likely than not that it will be required to sell the security before recovery of its amortized cost.

We conduct a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. Our evaluation of other-than-temporary impairment considers the duration and severity of the impairment, our intent and ability to hold the securities and our assessments of the reason for the decline in value and the likelihood of a near-term recovery. The unrealized losses on securities in our portfolio were due primarily to changes in market interest rates subsequent to purchase. In addition, we only purchase securities issued by GSEs. As a result, the unrealized losses on our securities were not considered to be other-than-temporary and, accordingly, no impairment loss was recognized during 2009.

Management of Market Risk

General

As a financial institution, our primary component of market risk is interest rate volatility. Our net income is primarily based on net interest 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 our interest-earning assets and interest-bearing liabilities, 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. 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 2009 and did not have any such hedging transactions in place at December 31, 2009. Our mortgage loan and mortgage-backed security portfolios, which comprise 87.1% of our balance sheet, are subject to risks associated with the economy in the New York metropolitan area, the general economy of the United States and the recent pressure on housing prices. We continually analyze our asset quality and believe our allowance for loan losses is adequate to cover known or potential losses.

The difference between rates on the yield curve, or the shape of the yield curve, impacts our net interest income. The Federal Open Market Committee of the Board of Governors of the Federal Reserve System (the “FOMC”) noted that economic activity has continued to improve during the fourth quarter of 2009. The FOMC also noted that the housing sector has shown signs of improvement. However, the national unemployment rate continued to rise to 10.0% in December 2009 as compared to 9.8% in September 2009 and 7.4% in December 2008. The S&P/Case-Shiller Home Price Index for the New York metropolitan area, where most of our lending activity occurs, declined by approximately 7.1% in 2009 and by 9.2% in 2008. The S&P/Case-Shiller U.S. National Home Price Index decreased by 5.3% in 2009 and by 18.2% in 2008. 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 fourth quarter of 2009, with plans to maintain this level for an “extended period.”

As a result, short-term market interest rates have remained at low levels during the fourth 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 fourth quarter of 2009, thus steepening the slope of the market yield curve, rates on mortgage-related assets declined slightly, although to a lesser extent than the decline in our cost of funds. Due to our investment and financing decisions, the more positive the slope of the yield curve the more favorable the environment is for our ability to generate net interest income. Our interest-bearing liabilities

generally reflect movements in short- and intermediate-term rates, while our interest-earning assets, a majority of which have initial terms to maturity or repricing greater than one year, generally reflect movements in intermediate- and long-term interest rates. A positive slope of the yield curve allows us to invest in interest-earning assets at a wider spread to the cost of interest-bearing liabilities. Due to these changes in market rates, our net interest rate spread and net interest margin increased for the fourth quarter and full year of 2009 from the three and twelve-month periods ended December 31, 2008.

The impact of interest rate changes on our interest income is generally felt in later periods than the impact on our interest expense due to differences in the timing of the recognition of items on our balance sheet. The timing of the recognition of interest-earning assets on our balance sheet generally lags the current market rates by 60 to 90 days due to the normal time period between commitment and settlement dates. In contrast, the recognition of interest-bearing liabilities on our balance sheet generally reflects current market interest rates as we generally fund purchases at the time of settlement. During a period of decreasing short-term interest rates, as was experienced during these past 12 months, this timing difference had a positive impact on our net interest income as our interest-bearing liabilities reset to the current lower interest rates. If short-term interest rates were to increase, the cost of our interest-bearing liabilities would also increase and have an adverse impact on our net interest income.

Also impacting our net interest income and net interest rate spread is the level of prepayment activity on our interest-sensitive 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, availability of credit, seasonal factors and demographic variables. 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 prevailing lower market interest rate. Prepayment rates are generally inversely related to the prevailing market interest rate, thus, as market interest rates increase, prepayment rates tend to decrease. Prepayment rates on our mortgage-related assets have increased during 2009, due to the current low market interest rate environment. We believe the higher level of prepayment activity may continue as market interest rates are expected to remain at the current low levels through at least the first half of 2010.

Calls of investment securities and borrowed funds are also impacted by the level of market interest rates. The level of calls of investment securities are generally inversely related to the prevailing market interest rate, meaning as rates decrease the likelihood of a security being called would increase. The level of call activity generally affects the yield earned on these assets, as the payment received on the security would be reinvested at the prevailing lower market interest rate. During 2009 we saw an increase in call activity on our investment securities as market interest rates remained at these historic lows. We anticipate continued calls of investment securities due to the anticipated continuation of the low current market interest rate environment. However, the level of calls may not be as great as in 2009 as we experienced significant turnover of the portfolio in 2009 and the interest rates for the new securities are already close to current market.

Our borrowings have traditionally consisted of structured callable borrowings with ten year final maturities and initial non-call periods of one to five years. We have used this type of borrowing primarily to fund our loan growth because they have a longer duration than shorter-term non-callable borrowings and have a slightly lower cost than a non-callable borrowing with a maturity date similar to the initial call date of the callable borrowing. Our new borrowings in 2009 consisted of non-callable borrowings of

$400.0 million with maturities of one to three months and $350.0 million of non-callable borrowings with maturities of two to three years.

During 2009, we were able to fund our asset growth primarily with deposit inflows. In order to effectively manage our interest rate risk and liquidity risk resulting from our current callable borrowing position, we are pursuing a variety of strategies to reduce callable borrowings while continuing to pursue our growth plans. We intend to continue focusing on funding our growth primarily with customer deposits, using borrowed funds as a supplemental funding source if deposit growth decreases which will allow us to achieve a greater balance between deposits and borrowings. If necessary to fund our growth and provide for liquidity, we may borrow a combination of short- term borrowings with maturities of three to six months and longer-term fixed-maturity borrowings with terms of two to five years. We also intend to modify certain borrowings to extend their call dates, which we began to do during 2009. During 2009, we modified approximately $1.73 billion of callable borrowings to extend the call dates of the borrowings by between three and four years as part of this strategy. In addition, we are considering prepayment of certain borrowings; however, at this time, we have no immediate plans to make any such prepayments, and we anticipate that any prepayment of borrowings will be limited.

The likelihood of a borrowing being called is directly related to the current market interest rates, meaning the higher that interest rates move, the more likely the borrowing would be called. The level of call activity generally affects the cost of our borrowed funds, as the call of a borrowing would generally necessitate the re-borrowing of the funds at the higher current market interest rate. During 2009 we experienced no call activity on our borrowed funds due to the continued low levels of market interest rates. At December 31, 2009, we had $22.25 billion of borrowed funds, with a weighted-average rate of 4.14%, with call dates within one year. We anticipate that none of these borrowings will be called assuming current market interest rates remain stable or increase modestly. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be called will not increase substantially unless interest rates were to increase by at least 300 basis points. However, in the event borrowings are called, we anticipate that we will have sufficient resources to meet this funding commitment by borrowing new funds at the prevailing market interest rate, using funds generated by deposit growth or by using proceeds from securities sales.

Management of Interest Rate Risk

The primary objectives of our interest rate risk management strategy are to:

	•		evaluate the interest rate risk inherent in our balance sheet accounts;
	•		determine the appropriate level of interest rate risk given our business plan, the current business environment and our capital and liquidity requirements; and
	•		manage interest rate risk in a manner consistent with the approved guidelines and policies set by our Board of Directors.

We seek to manage our asset/liability mix to help minimize the impact that interest rate fluctuations may have on our earnings. To achieve the objectives of managing interest rate risk, our Asset/Liability Committee meets weekly to discuss and monitor the market interest rate environment compared to interest rates that are offered on our products. This committee consists of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and other senior officers of the institution as required. The Asset/Liability Committee presents periodic reports to the Board of Directors at its regular meetings and, on a quarterly basis, presents a comprehensive report addressing the results of activities and strategies and the effect that changes in interest rates will have on our results of operations and the present value of our equity.

Historically, our lending activities have emphasized one- to four-family fixed-rate first and second mortgage loans, while purchasing variable-rate or hybrid mortgage-backed securities to offset our predominantly fixed-rate loan portfolio. The current prevailing interest rate environment and the desires of our customers have resulted in a demand for long-term hybrid and fixed-rate mortgage loans. In the past several years, we have attempted to originate and purchase a larger percentage of variable-rate mortgage-related assets in order to better manage our interest rate risk. Variable-rate mortgage-related assets include those loans or securities with a contractual annual rate adjustment after an initial fixed-rate period of one to ten years. These variable-rate instruments are more rate-sensitive, given the potential interest rate adjustment, than the long-term fixed-rate loans that we have traditionally held in our portfolio. This growth in variable-rate mortgage-related assets has helped reduce our exposure to interest rate fluctuations and is expected to benefit our long-term profitability, as the rate earned on the mortgage loan will increase as prevailing market rates increase. However, this strategy to originate a higher percentage of variable-rate instruments may have an initial adverse impact on our net interest

income and net interest margin in the short-term, as variable-rate interest-earning assets generally have initial interest rates lower than alternative fixed-rate investments.

Variable-rate products constituted 47.4% of loan originations, 60.6% of loan purchases and 36.5% of mortgage-backed security purchases made during 2009. In aggregate, 45.0% of our mortgage-related asset originations and purchases had variable rates. Of the growth in our total mortgage-related assets, 30.5% was due to growth in our variable-rate products. In 2010, we intend to originate and purchase similar percentages to 2009 of variable-rate mortgage loans, but increase the percent of variable-rate mortgage-backed security purchases as we believe more variable-rate product will be available. Our percentage of fixed-rate interest-earning assets to total interest-earning assets was 49.6% at December 31, 2009, slightly increased from 48.2% at December 31, 2008. Our fixed-rate interest earning assets may have an adverse impact on our earnings in a rising rate environment as the interest rate on these interest-earning assets would not reprice to current market interest rates as fast as the interest rates on our interest-bearing deposits and callable borrowed funds.

Our primary sources of funds have traditionally been deposits, consisting primarily of time deposits and interest-bearing demand accounts, and borrowings. Our deposits have substantially shorter terms to maturity than our mortgage loan portfolio and borrowed funds. The borrowings have been generally long-term to maturity, in an effort to offset our short-term deposit liabilities and assist in managing our interest rate risk. These long-term borrowings have call options that could shorten their maturities in a changing interest rate environment. If we experience a significant rising interest rate environment where interest rates increase above the interest rate for the borrowings, these borrowings will likely be called at their next call date and our cost to replace these borrowings would likely increase. Of our borrowings outstanding at December 31, 2009, $29.33 billion were structured callable borrowings. Of these, $22.25 billion with a weighted-average rate of 4.14% have the contractual right to be called within the next twelve months. Given the current market rate environment, we believe none of these borrowings will be called during the next twelve months. As of December 31, 2009, we had $300.0 million of borrowings with terms to maturity of less than one year.

Cash Flow Determination. In preparing the following analyses, we were required to estimate the future cash flows of our interest-earning assets and interest-bearing liabilities. These items are generally reported at their maturity date, subject to assumptions regarding prepayment rates, non-maturity deposit decay rates, and the call of certain of our investment securities and borrowed funds. These assumptions can have a significant impact on the simulation model. While we believe our assumptions are reasonable, there can be no assurance that assumed prepayment rates, assumed calls of securities and borrowed funds, and deposit decay rates will approximate actual future cash flows. Increases in market interest rates may tend to reduce prepayment speeds on our mortgage-related assets, as fewer borrowers refinance their loans, and reduce the anticipated calls of our investment securities. At the same time, deposit decay rates and calls of our borrowed funds may tend to increase. If these trends occur, we could experience larger negative percent changes in our model results in the varying rate shock scenarios.

The information presented in the following tables is based on the following assumptions:

	•		we assumed an annual prepayment rate for our first mortgage loans using market prepayment speeds appropriate for the loan type;
	•		we assumed an annual prepayment rate for our mortgage-backed securities using the prepayment rate associated with the security type;
	•		for savings accounts that had no stated maturity, we used decay rates (the assumed rate at which the balance of existing accounts would decline) of: 7.5% in less than six months, 7.5% in six months to one year, 10.0% in one year to two years, 10.0% in two years to three years, 25.0% in three years to five years, and 40.0% in more than five years;

	•		for our High Value Checking product, which is included in interest-bearing transaction accounts, we used decay rates of: 10.0% in less than six months, 10.0% in six months to one year, 15% in one to two years, 15% in two to three years, 25% in three to five years, and 25% in more than five years;
	•		for other interest-bearing transaction accounts that had no stated maturity, we used decay rates of : 7.5% in less than six months, 7.5% in six months to one year, 10.0% in one to two years, 10.0% in two to three years, 25.0% in three years to five years, and 40.0% in more than five years;
	•		for money market accounts that had no stated maturity, we used decay rates of: 10.0% in less than six months, 10.0% in six months to one year, 20.0% in one to two years, 20.0% in two to three years, 35.0% in three years to five years, and 5.0% in more than five years;
	•		for the net interest income simulation model and GAP analysis, callable investment securities are shown at the earlier of their probable call date, maturity date or the next rate adjustment date (step-up securities); the model assumed calls of investment securities of $250.0 million over the next year in the current (zero basis point) change scenario; we currently hold $4.15 billion of step-up bonds, none of which were reported at their next call date; and
	•		for the net interest income simulation model and GAP analysis, borrowed funds are shown at the earlier of their probable call date or maturity date given the rate of the instrument in relation to the current market rate environment and the call option frequency; the model assumed there were no calls of borrowed funds over the next year in the current (zero basis point) change scenario.

Simulation Model. We use simulation models as our primary means to calculate and monitor the interest rate risk inherent in our portfolio. These models report changes to net interest income and the present value of equity in different interest rate environments, assuming an instantaneous and permanent interest rate shock to all interest rate-sensitive assets and liabilities. We assume maturing or called instruments are reinvested into the same type of product, with the rate earned or paid reset to our currently offered rate for loans and deposits, or the current market rate for securities and borrowed funds. We have not reported the minus 200 basis point or minus 100 basis point interest rate shock scenarios in either of our simulation model analyses, as we believe, given the current interest rate environment and historical interest rate levels, the resulting information would not be meaningful.

Net Interest Income. As a primary means of managing interest rate risk, we monitor the impact of interest rate changes on our net interest income over the next twelve-month period. This model does not purport to provide estimates of net interest income over the next twelve-month period, but attempts to assess the impact of a simultaneous and parallel interest rate change on our net interest income.

The following table reports the changes to our net interest income over the next 12 months ending December 31, 2010 assuming incremental and permanent changes in interest rates for the given rate shock scenarios. The incremental interest rate changes occur over a 12 month period.

Change in				Percent Change in
Interest Rates				Net Interest Income
(Basis points)
	200				(1.66	)%
	100				(0.90	)
	50				(0.47	)
	(50	)			0.01

The preceding table indicates that at December 31, 2009, in the event of a 200 basis point increase in interest rates over the next 12 months, we would expect to experience a 1.66% decrease in net interest income from the base case (no interest rate changes) analysis. If market rates were to increase 200 basis points instantaneously, we would expect to experience a 6.02% decrease in net interest income from the base case analysis. The negative change to net interest income in the increasing interest rate scenarios in both these analyses was primarily due to the increased expense of our short-term time deposits. Our internal policy sets a maximum change of 20.0% given an instantaneous 200 basis point increase or decrease shock in interest rates.

The preceding table also indicates that at December 31, 2009, in the event of a 50 basis point decrease in interest rates over the next 12 months, we would expect to experience a 0.01% increase in net interest income from the base case analysis. In this analysis, where the rates change over the 12 month period, the decrease in deposit expense offsets the decrease in interest income on assets, which will decrease due to accelerated prepayments on these instruments. If market rates were to decrease 50 basis points instantaneously, we would expect to experience a 4.83% decrease in net interest income from the base case. This decrease is primarily due to the acceleration of prepayment speeds on our mortgage-related assets and calls of our investment securities in the lower shocked environment, and the subsequent replacement of these instruments at the lower prevailing market rate.

Present Value of Equity. We also monitor our interest rate risk by monitoring changes in the present value of equity in the different rate environments. The present value of equity is the difference between the estimated fair value of interest rate-sensitive assets and liabilities. The changes in market value of assets and liabilities due to changes in interest rates reflect the interest sensitivity of those assets and liabilities as their values are derived from the characteristics of the asset or liability (i.e., fixed-rate, adjustable-rate, caps, floors) relative to the current interest rate environment. For example, in a rising interest rate environment the fair market value of a fixed-rate asset will decline, whereas the fair market value of an adjustable-rate asset, depending on its repricing characteristics, may not decline. Increases in the market value of assets will increase the present value of equity whereas decreases in the market value of assets will decrease the present value of equity. Conversely, increases in the market value of liabilities will decrease the present value of equity whereas decreases in the market value of liabilities will increase the present value of equity.

The following table presents the estimated present value of equity over a range of interest rate change scenarios at December 31, 2009. 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. Our current policy sets a minimum ratio of the present value of equity to the fair value of assets in the current interest rate environment (no rate shock) of 6.00% and a minimum present value ratio of 4.00% in the plus 200 basis point interest rate shock

scenario. Additionally, our current policy sets a maximum basis point change in the plus 200 basis point change scenario of 400 basis points.

Present Value of Equity
As Percent of Present
Value of Assets
Change in				Present				Basis Point
Interest Rates				Value Ratio				Change
(Basis points)
	200				4.81	%			(258	)
	100				6.73				(66	)
	50				7.25				(14	)
	0				7.39
	(50	)			7.07				(32	)

In the 200 basis point increase scenario, the present value ratio was 4.81% at December 31, 2009 as compared to 3.84% at December 31, 2008. The change in the present value ratio was negative 258 basis points at December 31, 2009 as compared to positive 8 basis points at December 31, 2008. The decreases in the present value ratio and the sensitivity measure in the current period positive 200 basis point shock scenario reflect the decrease in the value of our primarily fixed-rate assets below par while the value of our borrowing portfolio remains above par due to call options. The increase in the present value ratio in the base case and the 200 basis point shock scenario from December 31, 2008 reflects the higher long-term market interest rates and steeper market yield curve as short-term rates did not change as much as long-term rates during the year. The increase in the present value ratio is also due to the growth of our deposit portfolio during 2009 as deposits price closer to par in the base case analysis. The decrease in the present value ratio in the negative basis point change was primarily due to higher pricing of our borrowed funds as the structures will increase in duration.

The methods we used in simulation modeling are inherently imprecise. This type of modeling requires that we make assumptions that may not reflect the manner in which actual yields and costs respond to changes in market interest rates. For example, we assume the composition of the interest rate-sensitive assets and liabilities will remain constant over the period being measured and that all interest rate shocks will be uniformly reflected across the yield curve, regardless of the duration to maturity or repricing. The table assumes that we will take no action in response to the changes in interest rates. In addition, prepayment estimates and other assumptions within the model are subjective in nature, involve uncertainties, and, therefore, cannot be determined with precision. Accordingly, although the previous two tables may provide an estimate of our interest rate risk at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in interest rates on our net interest income or present value of equity.

Gap Analysis. The matching of the repricing characteristics of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate-sensitive” and by monitoring a financial institution’s interest rate sensitivity “gap.” An asset or liability is said to be “interest rate-sensitive” within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period.

A gap is considered negative when the amount of interest-bearing liabilities maturing or repricing within a specific time period exceeds the amount of interest-earning assets maturing or repricing within that same period. A gap is considered positive when the amount of interest-earning assets maturing or repricing within a specific time period exceeds the amount of interest-bearing liabilities maturing or repricing within that same time period. During a period of rising interest rates, a financial institution with a negative gap position would be expected,

absent the effects of other factors, to experience a greater increase in the costs of its interest-bearing liabilities relative to the yields of its interest-earning assets and thus a decrease in the institution’s net interest income. An institution with a positive gap position would be expected, absent the effect of other factors, to experience the opposite result. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to reduce net interest income.

The following table presents the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2009, which we anticipate to reprice or mature in each of the future time periods shown. Except for prepayment or call activity and non-maturity deposit decay rates, we determined the amounts of assets and liabilities that reprice or mature during a particular period in accordance with the earlier of the term to rate reset or the contractual maturity of the asset or liability. Assumptions used for decay rates are the same as those used in the preparation of our December 31, 2008 model. Prepayment speeds on our mortgage-related assets have increased from our December 31, 2008 analysis to reflect actual prepayment speeds for these items. Callable investment securities and borrowed funds are reported at the anticipated call date, for those that are callable within one year, or at their contractual maturity date. Investment securities with step-up features, totaling $4.15 billion, are reported at the earlier of their next step-up date or anticipated call date. We reported $250.0 million of investment securities at their anticipated call date. We have reported no borrowings at their anticipated call date due to the low interest rate environment. We have excluded non-accrual mortgage loans of $589.8 million and non-accrual other loans of $1.9 million from the table.

		At December 31, 2009
														More than				More than
						More than				More than				two years				three years
		Six months				six months				one year to				to three				to five				More than
		or less				to one year				two years				years				years				five years				Total
		(Dollars in thousands)
Interest-earning assets:
First mortgage loans		$	2,796,213			$	2,923,905			$	4,034,420			$	3,495,763			$	5,438,851			$	12,151,578			$	30,840,730
Consumer and other loans			125,942				3,413				19,222				3,293				11,305				184,276				347,451
Federal funds sold			362,449				—				—				—				—				—				362,449
Mortgage-backed securities			2,663,458				2,380,191				4,621,713				4,020,140				5,296,600				2,097,983				21,080,085
FHLB stock			874,768				—				—				—				—				—				874,768
Investment securities			257,080				300,100				1,000,000				1,750,000				1,000,000				975,764				5,282,944
Total interest-earning assets			7,079,910				5,607,609				9,675,355				9,269,196				11,746,756				15,409,601				58,788,427
Interest-bearing liabilities:
Savings accounts			58,992				58,992				78,656				78,656				196,640				314,623				786,559
Interest-bearing demand accounts			202,270				202,270				300,781				300,781				518,794				550,279				2,075,175
Money market accounts			505,884				505,884				1,011,768				1,011,768				1,770,595				252,943				5,058,842
Time deposits			10,636,606				2,445,111				2,146,191				497,046				346,477				—				16,071,431
Borrowed funds			—				300,000				450,000				250,000				600,000				28,375,000				29,975,000
Total interest-bearing liabilities			11,403,753				3,512,256				3,987,396				2,138,250				3,432,507				29,492,845				53,967,007
Interest rate sensitivity gap		$	(4,323,843	)		$	2,095,353			$	5,687,959			$	7,130,946			$	8,314,249			$	(14,083,244	)		$	4,821,420
Cumulative interest rate sensitivity gap		$	(4,323,843	)		$	(2,228,490	)		$	3,459,469			$	10,590,415			$	18,904,664			$	4,821,420
Cumulative interest rate sensitivity gap as a percent of total assets			(7.17	)%			(3.70	)%			5.74	%			17.57	%			31.37	%			8.00	%
Cumulative interest-earning assets as a percent of interest-bearing liabilities			62.08	%			85.06	%			118.30	%			150.33	%			177.24	%			108.93	%