UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                                          to                                           

Commission File Number: 0-26001

Hudson City Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Delaware		22-3640393
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
West 80 Century Road
Paramus, New Jersey		07652
(Address of Principal Executive Offices)		(Zip Code)

(201) 967-1900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

As of May 4, 2010, the registrant had 526,592,530 shares of common stock, $0.01 par value, outstanding.

 

 

Table of Contents

		Page Number
PART I — FINANCIAL INFORMATION
Item 1. — Financial Statements
Consolidated Statements of Financial Condition — March 31, 2010 (Unaudited) and December 31, 2009			4
Consolidated Statements of Income (Unaudited) — For the three months ended March 31, 2010 and 2009			5
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) — For the three months ended March 31, 2010 and 2009			6
Consolidated Statements of Cash Flows (Unaudited) — For the three months ended March 31, 2010 and 2009			7
Notes to Unaudited Consolidated Financial Statements			8
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. — Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. — Controls and Procedures			45
PART II — OTHER INFORMATION
Item 1. — Legal Proceedings			45
Item 1A. — Risk Factors			45
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3. — Defaults Upon Senior Securities			48
Item 4. — (Removed and Reserved)			48
Item 5. — Other Information			48
Item 6. — Exhibits			48
SIGNATURES			50
EX-10.2A
EX-10.2B
EX-10.34
EX-10.35
EX-10.36
EX-31.1
EX-31.24
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “predict,” “continue,” and “potential” or the negative of these terms or other corresponding terminology. Examples of forward-looking statements include, but are not limited to estimates with respect to the financial condition, results of operations and business of Hudson City Bancorp, Inc. These factors include, but are not limited to:

	•		the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;
	•		there may be increases in competitive pressure among the financial institutions or from non-financial institutions;
	•		changes in the interest rate environment may reduce interest margins or affect the value of our investments;
	•		changes in deposit flows, loan demand or real estate values may adversely affect our business;
	•		changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently;
	•		general economic conditions, including unemployment rates, either nationally or locally in some or all of the areas in which we do business, or conditions in the securities markets or the banking industry may be less favorable than we currently anticipate;
	•		legislative or regulatory changes may adversely affect our business;
	•		applicable technological changes may be more difficult or expensive than we anticipate;
	•		success or consummation of new business initiatives may be more difficult or expensive than we anticipate;
	•		litigation or matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than we anticipate;
	•		the risks associated with adverse changes to credit quality, including changes in the level of loan delinquencies and non-performing assets and charge-offs, the length of time our non-performing assets remain in our portfolio and changes in estimates of the adequacy of the allowance for loan losses;
	•		difficulties associated with achieving or predicting expected future financial results;
	•		our ability to diversify our finding sources and to continue to access the wholesale borrowing market and the capital markets; and
	•		the risk of a continued economic slowdown that would adversely affect credit quality and loan originations.

Our ability to predict results or the actual effects of our plans or strategies is inherently uncertain. As such, forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. We do not intend to update any of the forward-looking statements after the date of this Form 10-Q or to conform these statements to actual events.

PART I — FINANCIAL INFORMATION

Item 1. — Financial Statements

Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition

		March 31,				December 31,
		2010				2009
(In thousands, except share and per share amounts)		(unaudited)
Assets:
Cash and due from banks		$	124,780			$	198,752
Federal funds sold and other overnight deposits			350,318				362,449
Total cash and cash equivalents			475,098				561,201
Securities available for sale:
Mortgage-backed securities			12,662,490				11,116,531
Investment securities			457,538				1,095,240
Securities held to maturity:
Mortgage-backed securities (fair value of $9,432,191 at March 31, 2010 and $10,324,831 at December 31, 2009)			9,110,956				9,963,554
Investment securities (fair value of $4,856,434 at March 31, 2010 and $4,071,005 at December 31, 2009)			4,887,949				4,187,704
Total securities			27,118,933				26,363,029
Loans			32,090,987				31,779,921
Net deferred loan costs			87,695				81,307
Allowance for loan losses			(165,830	)			(140,074	)
Net loans			32,012,852				31,721,154
Federal Home Loan Bank of New York stock			874,768				874,768
Foreclosed real estate, net			19,563				16,736
Accrued interest receivable			301,174				304,091
Banking premises and equipment, net			70,647				70,116
Goodwill			152,109				152,109
Other assets			206,507				204,556
Total Assets		$	61,231,651			$	60,267,760
Liabilities and Shareholders’ Equity:
Deposits:
Interest-bearing		$	24,813,775			$	23,992,007
Noninterest-bearing			575,025				586,041
Total deposits			25,388,800				24,578,048
Repurchase agreements			15,100,000				15,100,000
Federal Home Loan Bank of New York advances			14,875,000				14,875,000
Total borrowed funds			29,975,000				29,975,000
Due to brokers			125,580				100,000
Accrued expenses and other liabilities			346,194				275,560
Total liabilities			55,835,574				54,928,608
Common stock, $0.01 par value, 3,200,000,000 shares authorized; 741,466,555 shares issued; 526,620,063 shares outstanding at March 31, 2010 and 526,493,676 shares outstanding at December 31, 2009			7,415				7,415
Additional paid-in capital			4,689,151				4,683,414
Retained earnings			2,476,277				2,401,606
Treasury stock, at cost; 214,846,492 shares at March 31, 2010 and 214,972,879 shares at December 31, 2009			(1,726,563	)			(1,727,579	)
Unallocated common stock held by the employee stock ownership plan			(208,692	)			(210,237	)
Accumulated other comprehensive income, net of tax			158,489				184,533
Total shareholders’ equity			5,396,077				5,339,152
Total Liabilities and Shareholders’ Equity		$	61,231,651			$	60,267,760

See accompanying notes to unaudited consolidated financial statements

Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)

		For the Three Months
		Ended March 31,
		2010				2009
		(In thousands, except per share data)
Interest and Dividend Income:
First mortgage loans		$	428,161			$	414,208
Consumer and other loans			4,759				5,990
Mortgage-backed securities held to maturity			110,126				121,931
Mortgage-backed securities available for sale			121,592				128,983
Investment securities held to maturity			47,064				2,358
Investment securities available for sale			10,346				43,303
Dividends on Federal Home Loan Bank of New York stock			12,373				6,373
Federal funds sold			449				176
Total interest and dividend income			734,870				723,322
Interest Expense:
Deposits			103,919				138,824
Borrowed funds			299,806				300,667
Total interest expense			403,725				439,491
Net interest income			331,145				283,831
Provision for Loan Losses			50,000				20,000
Net interest income after provision for loan losses			281,145				263,831
Non-Interest Income:
Service charges and other income			2,230				2,125
Gain on securities transactions, net			30,768				148
Total non-interest income			32,998				2,273
Non-Interest Expense:
Compensation and employee benefits			34,162				32,731
Net occupancy expense			8,347				8,480
Federal deposit insurance assessment			12,627				2,616
Other expense			11,395				10,967
Total non-interest expense			66,531				54,794
Income before income tax expense			247,612				211,310
Income Tax Expense			98,727				83,647
Net income		$	148,885			$	127,663
Basic Earnings Per Share		$	0.30			$	0.26
Diluted Earnings Per Share		$	0.30			$	0.26
Weighted Average Number of Common Shares Outstanding:
Basic			492,564,183				487,567,802
Diluted			493,694,756				491,326,567

See accompanying notes to unaudited consolidated financial statements

Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)

		For the Three Months
		Ended March 31,
		2010				2009
		(In thousands, except per share data)
Common Stock		$	7,415			$	7,415
Additional paid-in capital:
Balance at beginning of year			4,683,414				4,641,571
Stock option plan expense			2,583				3,736
Tax benefit from stock plans			256				1,505
Allocation of ESOP stock			1,708				1,332
RRP stock granted			—				(6,771	)
Vesting of RRP stock			1,190				1,179
Balance at end of period			4,689,151				4,642,552
Retained Earnings:
Balance at beginning of year			2,401,606				2,196,235
Net Income			148,885				127,663
Dividends paid on common stock ($0.15 and $0.14 per share, respectively)			(74,023	)			(68,328	)
Exercise of stock options			(191	)			(2,209	)
Balance at end of period			2,476,277				2,253,361
Treasury Stock:
Balance at beginning of year			(1,727,579	)			(1,737,838	)
Purchase of common stock			—				(40,695	)
Exercise of stock options			1,016				3,147
RRP stock granted			—				6,771
Balance at end of period			(1,726,563	)			(1,768,615	)
Unallocated common stock held by the ESOP:
Balance at beginning of year			(210,237	)			(216,244	)
Allocation of ESOP stock			1,545				1,502
Balance at end of period			(208,692	)			(214,742	)
Accumulated other comprehensive income(loss):
Balance at beginning of year			184,533				47,657
Net unrealized gains (losses) on securities available for sale arising during period, net of tax benefit (expense) of $5,597 and $(59,751) in 2010 and 2009, respectively			(8,105	)			86,605
Reclassification adjustment for gains in net income, net of tax of expense of $12,569 and $61 in 2010 and 2009, respectively			(18,199	)			(87	)
Pension and other postretirement benefits adjustment, net of tax (expense) benefit of $(180) and $930 for 2010 and 2009, respectively			260				(1,348	)
Other comprehensive income, net of tax			(26,044	)			85,170
Balance at end of period			158,489				132,827
Total Shareholders’ Equity		$	5,396,077			$	5,052,798
Summary of comprehensive income
Net income		$	148,885			$	127,663
Other comprehensive income, net of tax			(26,044	)			85,170
Total comprehensive income		$	122,841			$	212,833

See accompanying notes to unaudited consolidated financial statements.

Hudson City Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)

		For the Three Months
		Ended March 31,
		2010				2009
		(In thousands)
Cash Flows from Operating Activities:
Net income		$	148,885			$	127,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, accretion and amortization expense			21,832				11,747
Provision for loan losses			50,000				20,000
Gains on securities transactions, net			(30,768	)			(148	)
Share-based compensation, including committed ESOP shares			7,026				7,749
Deferred tax benefit			(8,630	)			(7,184	)
Decrease (increase) in accrued interest receivable			2,917				(907	)
Decrease (increase) in other assets			22,245				(4,750	)
Increase in accrued expenses and other liabilities			73,063				79,337
Net Cash Provided by Operating Activities			286,570				233,507
Cash Flows from Investing Activities:
Originations of loans			(1,399,557	)			(1,315,546	)
Purchases of loans			(404,167	)			(723,293	)
Principal payments on loans			1,446,075				1,345,615
Principal collection of mortgage-backed securities held to maturity			892,402				333,280
Purchases of mortgage-backed securities held to maturity			(47,110	)			(300,000	)
Principal collection of mortgage-backed securities available for sale			661,965				365,801
Purchases of mortgage-backed securities available for sale			(2,719,940	)			(1,242,355	)
Proceeds from sales of mortgage backed securities available for sale			604,476				—
Proceeds from maturities and calls of investment securities held to maturity			300,000				50,000
Purchases of investment securities held to maturity			(1,100,294	)			(450,097	)
Proceeds from maturities and calls of investment securities available for sale			650,000				725,000
Proceeds from sales of investment securities available for sale			—				317
Purchases of investment securities available for sale			—				(849,450	)
Purchases of Federal Home Loan Bank of New York stock			—				(29,250	)
Redemption of Federal Home Loan Bank of New York stock			—				27,000
Purchases of premises and equipment, net			(2,738	)			(2,525	)
Net proceeds from sale of foreclosed real estate			8,405				3,033
Net Cash Used in Investment Activities			(1,110,483	)			(2,062,470	)
Cash Flows from Financing Activities:
Net increase in deposits			810,752				1,971,874
Proceeds from borrowed funds			—				650,000
Principal payments on borrowed funds			—				(600,000	)
Dividends paid			(74,023	)			(68,328	)
Purchases of treasury stock			—				(40,695	)
Exercise of stock options			825				938
Tax benefit from stock plans			256				1,505
Net Cash Provided by Financing Activities			737,810				1,915,294
Net (Decrease) increase in Cash and Cash Equivalents			(86,103	)			86,331
Cash and Cash Equivalents at Beginning of Year			561,201				261,811
Cash and Cash Equivalents at End of Period		$	475,098			$	348,142
Supplemental Disclosures:
Interest paid		$	404,820			$	441,684
Loans transferred to foreclosed real estate		$	14,362			$	1,302
Income tax payments		$	20,277			$	2,163

See accompanying notes to unaudited consolidated financial statements.

1. Organization

Hudson City Bancorp, Inc. (“Hudson City Bancorp” or the “Company”) is a Delaware corporation and is the thrift holding company for Hudson City Savings Bank and its subsidiaries (“Hudson City Savings”).

On March 4, 2010, Hudson City Savings filed an application with the Office of the Comptroller of the Currency (“OCC”) to convert from a federally chartered stock savings bank to a national bank (the “Application”). If the Application is approved, Hudson City Savings will no longer be a federal savings bank subject to the regulation and examination of the Office of Thrift Supervision (“OTS”) and will become a national bank subject to the regulation and examination of the OCC. In addition, the Company will cease being a savings and loan holding company subject to the regulation and supervision of the OTS and will become a bank holding company subject to the regulation and supervision of the Board of Governors of the Federal Reserve System.

While the Company and Hudson City Savings will be subject to different regulatory frameworks upon completion of the Conversion, the Company does not expect its business or operations to be materially affected by this change in regulation.

2. Basis of Presentation

The accompanying consolidated financial statements include the accounts of Hudson City Bancorp and its wholly-owned subsidiary, Hudson City Savings.

In our opinion, all the adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three-month period ended March 31, 2010 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2010. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the period. Actual results could differ from these estimates. The allowance for loan losses is a material estimate that is particularly susceptible to near-term change. The current economic environment has increased the degree of uncertainty inherent in this material estimate.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with Hudson City Bancorp’s audited consolidated financial statements and notes to consolidated financial statements included in Hudson City Bancorp’s 2009 Annual Report to Shareholders and incorporated by reference into Hudson City Bancorp’s 2009 Annual Report on Form 10-K.

3. Earnings Per Share

The following is a summary of our earnings per share calculations and reconciliation of basic to diluted earnings per share.

		For the Three Months Ended March 31,
		2010												2009
										Per												Per
						Average				Share								Average				Share
		Income				Shares				Amount				Income				Shares				Amount
		(In thousands, except per share data)
Net income		$	148,885											$	127,663
Basic earnings per share:
Income available to common stockholders		$	148,885				492,564			$	0.30			$	127,663				487,568			$	0.26
Effect of dilutive common stock equivalents			—				1,131								—				3,759
Diluted earnings per share:
Income available to common stockholders		$	148,885				493,695			$	0.30			$	127,663				491,327			$	0.26

4. Fair Value and Unrealized Losses of Securities

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2010 and December 31, 2009.

		Less Than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
March 31, 2010
Held to maturity:
Investment securities		$	2,969,983			$	(29,329	)		$	490,420			$	(9,345	)		$	3,460,403			$	(38,674	)
Mortgage-backed securities			705,057				(9,155	)			171,896				(4,157	)			876,953				(13,312	)
Total temporarily impaired securities held to maturity			3,675,040				(38,484	)			662,316				(13,502	)			4,337,356				(51,986	)
Available for sale:
Investment securities			—				—				368,038				(6,670	)			368,038				(6,670	)
Mortgage-backed securities			1,012,104				(6,179	)			114,780				(6,694	)			1,126,884				(12,873	)
Total temporarily impaired securities available for sale			1,012,104				(6,179	)			482,818				(13,364	)			1,494,922				(19,543	)
Total		$	4,687,144			$	(44,663	)		$	1,145,134			$	(26,866	)		$	5,832,278			$	(71,529	)
December 31, 2009
Held to maturity:
Investment securities		$	3,930,974			$	(117,614	)		$	—			$	—			$	3,930,974			$	(117,614	)
Mortgage-backed securities			618,105				(10,749	)			171,665				(5,727	)			789,770				(16,476	)
Total temporarily impaired securities held to maturity			4,549,079				(128,363	)			171,665				(5,727	)			4,720,744				(134,090	)
Available for sale:
Investment securities			472,545				(7,263	)			263,730				(11,161	)			736,275				(18,424	)
Mortgage-backed securities			1,328,008				(16,319	)			19,690				(3	)			1,347,698				(16,322	)
Total temporarily impaired securities available for sale			1,800,553				(23,582	)			283,420				(11,164	)			2,083,973				(34,746	)
Total		$	6,349,632			$	(151,945	)		$	455,085			$	(16,891	)		$	6,804,717			$	(168,836	)

The unrealized losses are primarily due to the changes in market interest rates subsequent to purchase. We only purchase securities issued by U.S. government-sponsored enterprises (“GSEs”) and do not own any unrated or private label securities or other high-risk securities such as those backed by sub-prime loans. Accordingly, it is expected that the securities would not be settled at a price less than the Company’s amortized cost basis. We do not consider these investments to be other-than-temporarily impaired at March 31, 2010 and December 31, 2009 since the decline in market value is attributable to changes in interest rates and not credit quality, the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity and it is not more likely than not that we will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. As a result no impairment loss was recognized during the quarter ended March 31, 2010 or for the year ended December 31, 2009.

5. Stock Repurchase Programs

Under our previously announced stock repurchase programs, shares of Hudson City Bancorp common stock may be purchased in the open market and through other privately negotiated transactions, depending on market conditions. The repurchased shares are held as treasury stock, which may be reissued for

general corporate use. We have not purchased any of our common shares during the three months ended March 31, 2010. As of March 31, 2010, there remained 50,123,550 shares that may be purchased under the existing stock repurchase programs.

6. Fair Value Measurements

a) Fair Value Measurements

The Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

We use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. We did not have any liabilities that were measured at fair value at March 31, 2010 and December 31, 2009. Our securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned, certain impaired loans and goodwill. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

In accordance with ASC Topic 820-10-35-01, we group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

We base our fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets that we measure on a recurring basis are limited to our available-for-sale securities portfolio. Our available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in shareholders’ equity. Substantially all of our available-for-sale portfolio consists of mortgage-backed securities and investment securities issued by GSEs. The fair values for substantially all of these securities are obtained from an independent nationally recognized pricing service. Based on the nature of our securities, our independent pricing

service provides us with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in our portfolio. Various modeling techniques are used to determine pricing for our mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. We also own equity securities with a carrying value of $7.1 million at March 31, 2010 and December 31, 2009 for which fair values are obtained from quoted market prices in active markets and, as such, are classified as Level 1.

The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a recurring basis at March 31, 2010 and December 31, 2009.

						Fair Value Measurements at March 31, 2010 using
						Quoted Prices in Active				Significant Other				Significant
		Carrying				Markets for Identical				Observable Inputs				Unobservable Inputs
Description		Value				Assets (Level 1)				(Level 2)				(Level 3)
										(In thousands)
Available for sale debt securities:
Mortgage-backed securities		$	12,662,490			$	—			$	12,662,490			$	—
U.S. government-sponsored enterprises debt			450,403								450,403				—
Total available for sale debt securities		$	13,112,893			$	—			$	13,112,893			$	—
Available for sale equity securities:
Financial services industry		$	7,135			$	7,135			$	—			$	—
Total available for sale equity securities			7,135				7,135				—				—
Total available for sale securities		$	13,120,028			$	7,135			$	13,112,893			$	—
						Fair Value Measurements at December 31, 2009 using
						Quoted Prices in Active				Significant Other				Significant
		Carrying				Markets for Identical				Observable Inputs				Unobservable Inputs
Description		Value				Assets (Level 1)				(Level 2)				(Level 3)
										(In thousands)
Available for sale debt securities:
Mortgage-backed securities		$	11,116,531			$	—			$	11,116,531			$	—
U.S. government-sponsored enterprises debt			1,088,165				—				1,088,165				—
Total available for sale debt securities			12,204,696				—				12,204,696				—
Available for sale equity securities:
Financial services industry		$	7,075			$	7,075			$	—			$	—
Total available for sale equity securities			7,075				7,075				—				—
Total available for sale securities		$	12,211,771			$	7,075			$	12,204,696			$	—

Assets that were measured at fair value on a non-recurring basis at March 31, 2010 were limited to non-performing commercial and construction loans that are collateral dependent and foreclosed real estate. Commercial and construction loans evaluated for impairment in accordance with Financial Accounting

Standards Board (“FASB”) guidance amounted to $9.4 million and $11.2 million at March 31, 2010 and December 31, 2009, respectively. Based on this evaluation, we established an allowance for loan losses of $2.3 million and $2.1 million for those same respective periods. The provision for loan losses related to these loans amounted to $219,000 and $122,000 for the first three months of 2010 and 2009. These impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral, less estimated selling costs. Since all of our impaired loans at March 31, 2010 are secured by real estate, fair value is estimated through current appraisals, where practical, or an inspection and a comparison of the property securing the loan with similar properties in the area by either a licensed appraiser or real estate broker and, as such, are classified as Level 3.

Foreclosed real estate represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at the lower of cost or fair value less estimated selling costs. Fair value is estimated through current appraisals, where practical, or an inspection and a comparison of the property securing the loan with similar properties in the area by either a licensed appraiser or real estate broker and, as such, foreclosed real estate properties are classified as Level 3. Foreclosed real estate at March 31, 2010 and December 31, 2009 amounted to $19.6 million and $16.7 million, respectively. During the first three months of 2010 and 2009, charge-offs to the allowance for loan losses related to loans that were transferred to foreclosed real estate amounted to $1.8 million and $1.2 million, respectively. Write downs and net loss on sale related to foreclosed real estate that were charged to non-interest expense amounted to $1.4 million and $1.2 million for those same respective periods.

The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at March 31, 2010 and December 31, 2009.

		Fair Value Measurements at March 31, 2010 using
		Quoted Prices in Active				Significant Other				Significant				Total
		Markets for Identical				Observable Inputs				Unobservable Inputs				Gains
Description		Assets (Level 1)				(Level 2)				(Level 3)				(Losses)
		(In thousands)
Impaired loans		$	—			$	—			$	9,447			$	—
Foreclosed real estate			—				—				19,563				(1,372	)

		Fair Value Measurments at December 31, 2009 using
		Quoted Prices in Active				Significant Other				Significant				Total
		Markets for Identical				Observable Inputs				Unobservable Inputs				Gains
Description		Assets (Level 1)				(Level 2)				(Level 3)				(Losses)
		(In thousands)
Impaired loans		$	—			$	—			$	11,178			$	—
Foreclosed real estate			—				—				16,736				(2,365	)

b) Fair Value Disclosures

The fair value of financial instruments represents the estimated amounts at which the asset or liability could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, certain tax implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into any of the estimates.

Carrying amounts of cash, due from banks and federal funds sold are considered to approximate fair value. The carrying value of Federal Home Loan Bank of New York (“FHLB”) stock equals cost. The fair value of FHLB stock is based on redemption at par value.

The fair value of one- to four-family mortgages and home equity loans are generally estimated using the present value of expected future cash flows, assuming future prepayments and using market rates for new loans with comparable credit risk.

For time deposits and fixed-maturity borrowed funds, the fair value is estimated by discounting estimated future cash flows using currently offered rates. Structured borrowed funds are valued using an option valuation model which uses assumptions for anticipated calls of borrowings based on market interest rates and weighted-average life. For deposit liabilities payable on demand, the fair value is the carrying value at the reporting date. There is no material difference between the fair value and the carrying amounts recognized with respect to our off-balance sheet commitments.

Other important elements that are not deemed to be financial assets or liabilities and, therefore, not considered in these estimates include the value of Hudson City Bancorp’s retail branch delivery system, its existing core deposit base and banking premises and equipment.

The estimated fair value of Hudson City Bancorp’s financial instruments are summarized as follows:

		March 31, 2010								December 31, 2009
		Carrying				Estimated				Carrying				Estimated
		Amount				Fair Value				Amount				Fair Value
		(In thousands)
Assets:
Cash and due from banks		$	124,780			$	124,780			$	198,752			$	198,752
Federal funds sold			350,318				350,318				362,449				362,449
Investment securities held to maturity			4,887,949				4,856,434				4,187,704				4,071,005
Investment securities available for sale			457,538				457,538				1,095,240				1,095,240
Federal Home Loan Bank of New York stock			874,768				874,768				874,768				874,768
Mortgage-backed securities held to maturity			9,110,956				9,432,191				9,963,554				10,324,831
Mortgage-backed securities available for sale			12,662,490				12,662,490				11,116,531				11,116,531
Loans			32,012,852				34,039,905				31,721,154				32,758,247
Liabilities:
Deposits			25,388,800				25,755,488				24,578,048				24,913,407
Borrowed funds			29,975,000				32,580,345				29,975,000				32,485,513

7. Postretirement Benefit Plans

We maintain non-contributory retirement and post-retirement plans to cover employees hired prior to August 1, 2005, including retired employees, who have met the eligibility requirements of the plans. Benefits under the qualified and non-qualified defined benefit retirement plans are based primarily on years of service and compensation. Funding of the qualified retirement plan is actuarially determined on an annual basis. It is our policy to fund the qualified retirement plan sufficiently to meet the minimum requirements set forth in the Employee Retirement Income Security Act of 1974. The non-qualified retirement plan, which is maintained for certain employees, is unfunded.

In 2005, we limited participation in the non-contributory retirement plan and the post-retirement benefit plan to those employees hired on or before July 31, 2005. We also placed a cap on paid medical expenses at the 2007 rate, beginning in 2008, for those eligible employees who retire after December 31, 2005. As part of our acquisition of Sound Federal Bancorp, Inc. (“Sound Federal”) in 2006, participation in the Sound Federal retirement plans and the accrual of benefits for such plans were frozen as of the acquisition date.

The components of the net periodic expense for the plans were as follows:

		For the Three Months Ended March 31,
		Retirement Plans								Other Benefits
		2010				2009				2010				2009
		(In thousands)
Service cost		$	1,018			$	1,003			$	152			$	234
Interest cost			2,076				1,863				476				529
Expected return on assets			(2,914	)			(1,939	)			—				—
Amortization of:
Net loss			680				824				66				128
Unrecognized prior service cost			85				85				(391	)			(391	)
Net periodic benefit cost		$	944			$	1,836			$	302			$	500

We made no contributions to the pension plans during the first quarter of 2010 or 2009.

8. Stock-Based Compensation

Stock Option Plans

A summary of the changes in outstanding stock options is as follows:

		Three Months Ended March 31,
		2010								2009
		Number of				Weighted				Number of				Weighted
		Stock				Average				Stock				Average
		Options				Exercise Price				Options				Exercise Price
Outstanding at beginning of period			24,262,692			$	12.51				26,728,119			$	10.35
Granted			3,895,000				13.10				3,025,000				12.03
Exercised			(126,387	)			6.53				(392,028	)			2.23
Forfeited			(47,500	)			14.79				(10,859	)			2.16
Outstanding at end of period			27,983,805				12.61				29,350,232				10.62

In June 2006, our shareholders approved the Hudson City Bancorp, Inc. 2006 Stock Incentive Plan (the “SIP Plan”) authorizing us to grant up to 30,000,000 shares of common stock. In July 2006, the Compensation Committee of the Board of Directors of Hudson City Bancorp (the “Committee”), authorized grants to each non-employee director, executive officers and other employees to purchase shares of the Company’s common stock, pursuant to the SIP Plan. Grants of stock options made through December 31, 2009 pursuant to the SIP Plan amounted to 18,887,500 options at an exercise

price equal to the fair value of our common stock on the grant date, based on quoted market prices. Of these options, 5,535,000 have vesting periods ranging from one to five years and an expiration period of ten years. The remaining 13,352,500 shares have vesting periods ranging from two to three years if certain financial performance measures are met. Subject to review and verification by the Committee, we believe we attained these performance measures and have therefore recorded compensation expense for these grants.

During 2010, the Committee authorized stock option grants (the “2010 grants”) pursuant to the SIP Plan for 3,895,000 options at an exercise price equal to the fair value of our common stock on the grant date, based on quoted market prices. Of these options, 3,700,000 will vest in January 2013 if certain financial performance measures are met and employment continues through the vesting date (the “2010 Performance Options”). The remaining 195,000 options will vest in January 2011 (the “2010 Retention Options”). The 2010 grants have an expiration period of ten years. We have determined that it is probable these performance measures will be met and have therefore recorded compensation expense for the 2010 grants.

The fair value of the 2010 grants was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions. The dividend yield assumption for the 2010 grants was based on our current declared dividend as a percentage of the stock price on the grant date. The expected volatility assumption was calculated based on the weighting of our historical and rolling volatility for the expected term of the option grants. The risk-free interest rate was determined by reference to the continuously compounded yield on Treasury obligations for the expected term. The expected option life was based on historic optionee behavior for prior option grant awards.

As a result of low employee turnover, the assumption regarding the forfeiture rate of option grants had no effect on the fair value estimate.

		2010		2010
		Retention Options		Performance Options
Expected dividend yield		4.57%		4.57%
Expected volatility		41.30%		34.58%
Risk-free interest rate		1.65%		2.55%
Expected option life		3.6 years		5.6 years
Fair value of options granted		$3.00		$2.87

Compensation expense related to our outstanding stock options amounted to $2.6 million and $3.7 million for the three months ended March 31, 2010 and 2009, respectively.

Stock Awards

During 2009, the Committee granted performance-based stock awards (the “2009 stock awards”) pursuant to the SIP Plan for 847,500 shares of our common stock. These shares were issued from treasury stock and will vest in annual installments over a three-year period if certain performance measures are met and employment continues through the vesting date. None of these shares may be sold or transferred before their January 2012 vesting date. We have determined that it is probable these performance measures will be met and have therefore recorded compensation expense for the 2009 stock awards. Expense for the 2009 stock awards is recognized over the vesting period and is based on the fair value of the shares on the grant date which was $12.03. In addition to the 2009 stock awards, grants were made in 2010 (the “2010 stock awards”) pursuant to the SIP Plan for 18,000 shares of our common stock. Expense for the 2010 stock awards is recognized over the vesting period of three years and is based on the fair value of the

shares on the grant date which was $13.12. Total compensation expense for stock awards amounted to $1.2 million for both the three months ended March 31, 2010 and 2009, respectively.

9. Recent Accounting Pronouncements

In January 2010, 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, and for interim periods within those fiscal years. 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 December 2009, the FASB issued an accounting standards update which amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in this accounting standards update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. This accounting standards update was effective for fiscal years beginning after November 15, 2009. This accounting standards update did not affect our financial condition, results of operations or financial statement disclosures.

In December 2009, the FASB issued an accounting standards update which amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140. The amendments in this accounting standards update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This accounting standards update was 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. This accounting standards update did not affect our financial condition, results of operations or financial statement disclosures.

Item 2. — 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 and the first three months of 2010 we were able to fund substantially all of our loan growth 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 national 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 for the first quarter of 2010, economic activity continued to strengthen and the labor market was beginning to improve. The national unemployment rate decreased to 9.7% in March 2010 as compared to 10.0% in December 2009 and 9.8% in September 2009. Although there has been recent signs of improvement in the economy, the FOMC decided to maintain the overnight lending rate at zero to 0.25% during the first quarter of 2010. As a result, short-term market interest rates have remained at low levels during the first quarter of 2010. This allowed us to continue to re-price our short-term deposits thereby reducing our cost of funds. The yields on mortgage-related assets have also remained at relatively low levels due to the Federal Reserve’s program to purchase mortgage-backed securities. While the intent of this program was to stimulate the housing market, it also resulted in additional price competition for mortgage loans which are our primary product. The Federal Reserve ended this program on March 31, 2010 and we anticipate that this will allow us to grow our loan portfolio at a faster rate than in recent quarters. As compared to the first quarter of 2009, our net interest rate spread and net interest margin increased for the first quarter of 2010 as we repriced deposits to lower rates during 2009 at a faster pace than our interest-earning assets repriced. However, our net interest margin decreased to 2.20% during the first quarter of 2010 from 2.30% for the fourth quarter of 2009 as yields on interest-earning assets continued to decrease as consumers refinanced mortgage loans to lower rates.

Net income amounted to $148.9 million for the first quarter of 2010, as compared to $127.7 million for the first quarter of 2009. For the quarter ended March 31, 2010, our annualized return on average assets and average shareholders’ equity were 0.98% and 10.96%, respectively, as compared to 0.93% and 10.21%, respectively, for the same period in 2009. The increases in our return on average equity and average assets are due primarily to the increase in our net income during the first three months of 2010 as compared to the first three months of 2009. The increase in net income reflects both a decrease in interest expense and significant realized gains from securities transactions offset in part by significantly higher deposit insurance fees as well as a significantly higher provision for loan losses.

Net interest income increased $47.3 million, or 16.7%, to $331.1 million for the first quarter of 2010 as compared to $283.8 million for the first quarter of 2009. During the first quarter of 2010, our net interest rate

spread increased 22 basis points to 1.97% as compared to 1.75% for the first quarter of 2009 and our net interest margin increased 14 basis points to 2.20% for the first quarter of 2010 as compared to 2.06% for the first quarter of 2009. The increases in our net interest rate spread and net interest margin were due to a steeper yield curve which allowed us to reduce our deposit costs at a faster pace than the decrease in the yields on our interest-earning assets.

The provision for loan losses amounted to $50.0 million for the first quarter of 2010 as compared to $20.0 million for the first quarter of 2009. 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, as well as the continuing elevated levels of unemployment during the first three months of 2010. Non-performing loans were $744.9 million or 2.32% of total loans at March 31, 2010 as compared to $627.7 million or 1.98% of total loans at December 31, 2009. While national economic activity appears to be showing signs of improvement, unemployment levels remained near 10% during the first three months of 2010, which has negatively impacted the financial condition of residential borrowers and their ability to remain current on their mortgage loans. As a result, we experienced increases in loan delinquencies and loan loss experience, which resulted in increased levels of charge-offs. These factors contributed to an increase in our provision for loan losses for the first three months of 2010 and resulted in an increase in our allowance for loan losses.

Total non-interest income was $33.0 million for the first quarter of 2010 as compared to $2.3 million for the same quarter in 2009. Included in non-interest income were net gains on securities transactions of $30.8 million, which resulted from the sale of $573.7 million of mortgage-backed securities available-for-sale. In addition, total non-interest income includes service charges and other income which increased slightly for the first three months of 2010 as compared to the same period in 2009.

Total non-interest expense increased $11.7 million, or 21.4%, to $66.5 million for the first quarter of 2010 from $54.8 million for the first quarter of 2009. The increase is primarily due to increases of $10.0 million in Federal deposit insurance expense and a $1.5 million increase in compensation and employee benefits expense.

We grew our assets by 1.6% to $61.23 billion at March 31, 2010 from $60.27 billion at December 31, 2009. Our growth rate slowed during 2009 and during the first quarter of 2010 as mortgage refinancing activity caused an increase in loan repayments and prepayments on mortgage-backed securities remained at elevated levels. During this same time period, available reinvestment yields on the types of assets in which we invest also decreased. As a result, 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 $291.7 million to $32.01 billion at March 31, 2010 from $31.72 billion at December 31, 2009. While the residential real estate markets have weakened during the past 15 months, 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 $755.9 million to $27.12 billion at March 31, 2010 from $26.36 billion at December 31, 2009. The increase in securities was primarily due to purchases (including purchases recorded in the first quarter of 2010 with settlement dates after March 31, 2010) of mortgage-backed and investment securities of $2.77 billion and $1.10 billion, respectively, partially offset by principal collections on mortgage-backed securities of $1.55 billion and sales of mortgage-backed securities of $573.7 million and calls of investment securities of $950.0 million.

The increase in our total assets during the first three months of 2010 was funded primarily by an increase in customer deposits. Deposits increased $810.8 million to $25.39 billion at March 31, 2010 from $24.58 billion at December 31, 2009. The increase in deposits was attributable to growth in our time deposits and money market accounts. Borrowed funds remained unchanged at $29.98 billion at March 31, 2010. 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.

On March 4, 2010, Hudson City Savings filed an application with the Office of the Comptroller of the Currency (“OCC”) to convert from a federally chartered stock savings bank to a national bank (the “Application”). If the Application is approved, Hudson City Savings will no longer be a federal savings bank subject to the regulation and examination of the Office of Thrift Supervision (“OTS”) and will become a national bank subject to the regulation and examination of the OCC. In addition, the Company will cease being a savings and loan holding company subject to the regulation and supervision of the OTS and will become a bank holding company subject to the regulation and supervision of the Board of Governors of the Federal Reserve System.

While the Company and Hudson City Savings will be subject to different regulatory frameworks upon completion of the Conversion, the Company does not expect its business or operations to be materially affected by this change in regulation.

Comparison of Financial Condition at March 31, 2010 and December 31, 2009

During the first quarter of 2010, our total assets increased $963.9 million, or 1.6%, to $61.23 billion at March 31, 2010 from $60.27 billion at December 31, 2009.

The increase in loans reflected our focus on loan portfolio growth through the origination of one- to four-family first mortgage loans in New Jersey, New York and Connecticut and, to a lesser extent, the continued purchase of mortgage loans. We are a portfolio lender and do not sell loans in the secondary market or to the GSEs. During the first quarter of 2010, we originated $1.40 billion and purchased $404.2 million of loans, compared to originations of $1.32 billion and purchases of $723.3 million for the first quarter of 2009. The origination and purchases of loans were partially offset by principal repayments of $1.45 billion for the first quarter of 2010 as compared to $1.35 billion for the first quarter of 2009. Loan originations have increased primarily due to an increase in mortgage refinancing caused by market interest rates that are at near-historic lows as well as a modest increase in home sales activity. The refinancing activity has also caused an increase in principal repayments.

Loan purchase activity declined as 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.

Our first mortgage loan originations and purchases during the first three months of 2010 were substantially all in one-to four-family mortgage loans. Approximately 57.0% of mortgage loan originations for the first quarter of 2010 were variable-rate loans as compared to approximately 47.0% for the first quarter of 2009. Approximately 67.0% of mortgage loans purchased during the first quarter of 2010 were fixed-rate mortgage loans. Fixed-rate mortgage loans accounted for 68.9% of our first mortgage loan portfolio at March 31, 2010 and 69.1% at December 31, 2009.

Non-performing loans amounted to $744.9 million, or 2.32%, of total loans at March 31, 2010 as compared to $627.7 million, or 1.98%, of total loans at December 31, 2009.

The following table presents the geographic distribution of our total loan portfolio, as well as the geographic distribution of our non-performing loans:

		At March 31, 2010								At December 31, 2009
		Total loans				Non-performing loans				Total loans				Non-performing loans
New Jersey			41.5	%			40.7	%			43.0	%			41.6	%
New York			18.5				18.3				18.2				18.0
Connecticut			13.1				5.6				12.6				4.2
Total New York metropolitan area			73.1				64.6				73.8				63.8
Virginia			4.7				5.5				4.6				6.2
Illinois			3.8				5.4				3.9				5.6
Maryland			3.6				5.1				3.5				5.1
Massachusetts			2.7				2.4				2.7				2.3
Pennsylvania			2.2				1.7				2.0				1.9
Minnesota			1.6				1.9				1.4				1.8
Michigan			1.3				3.7				1.3				4.2
All others			7.0				9.7				6.8				9.1
Total Outside New York metropolitan area			26.9				35.4				26.2				36.2
			100.0	%			100.0	%			100.0	%			100.0	%

Total mortgage-backed securities increased $693.4 million to $21.77 billion at March 31, 2010 from $21.08 billion at December 31, 2009. This increase in total mortgage-backed securities resulted from the purchase of $2.77 billion of variable-rate mortgage-backed securities issued by GSEs. The increase was partially offset by repayments of $1.55 billion (excluding principal receivable on Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities) and sales of $573.7 million. At March 31, 2010, variable-rate mortgage-backed securities accounted for 75.5% of our portfolio compared with 70.7% at December 31, 2009. 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.

During the first quarter of 2010, the Federal National Mortgage Association (“FNMA”) and FHLMC announced that they would be repurchasing certain non-performing loans that are in mortgage-backed securities that they issued (the “GSE repurchase”). Since FHLMC remits principal payments to us generally with a 45 day delay, we did not receive the proceeds until April 2010. Included in mortgage-backed securities at March 31, 2010 is principal receivable of $1.13 billion related to the GSE repurchase. We plan on reinvesting these proceeds in mortgage-backed securities. Commitments to purchase mortgage-backed securities totaled $1.89 billion at March 31, 2010.

Total investment securities increased $62.5 million to $5.35 billion at March 31, 2010 as compared to $5.28 billion at December 31, 2009. The increase in investment securities is primarily due to purchases of $1.10 billion, substantially offset by calls of investment securities of $950.0 million.

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 decreased $86.1 million to $475.1 million at March 31, 2010 as compared to $561.2 million at December 31, 2009. Other assets increased $1.9 million to $206.5 million at March 31, 2010 as compared to $204.6 million at December 31, 2009.

Total liabilities increased $907.0 million, or 1.7%, to $55.84 billion at March 31, 2010 from $54.93 billion at December 31, 2009 due primarily to an increase in deposits.

Total deposits increased $810.8 million, or 3.3%, to $25.39 billion at March 31, 2010 as compared to $24.58 billion at December 31, 2009. The increase in total deposits reflected a $329.7 million increase in our time deposits, a $202.7 million increase in our money market checking accounts and a $289.2 million increase in our interest-bearing transaction accounts and savings accounts. 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. Our deposit growth slowed in the first quarter of 2010. Deposits grew by $1.5 billion during the fourth quarter of 2009 and by $6.11 billion for the year ended December 31, 2009. The growth in deposits during 2009 was due to the economic conditions existing at the time that we believe caused customers to use insured bank deposit products as an alternative to investments such as equity securities and bonds. We believe that the slower deposit growth is due to improving economic conditions as well as improving conditions in the securities markets that have changed customer preferences for these alternative investments. In addition, we have lowered our deposit rates to slow our deposit growth from the 2009 levels since the low yields that are available to us for mortgage loans and investment securities have made a growth strategy less prudent until market conditions improve. We had 131 branches at March 31, 2010 unchanged from December 31, 2009.

Borrowings amounted to $29.98 billion at March 31, 2010, unchanged from December 31, 2009. During the first three months of 2010, we modified $1.33 billion of borrowings to extend the call dates of the borrowings by between three and four years, thereby reducing our interest rate risk and the amount of borrowings that may be called in any one quarter. Borrowed funds at March 31, 2010 were comprised of $14.88 billion of 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. At March 31, 2010, we had $22.18 billion of borrowed funds with call dates within one year. If interest rates were to decrease, or remain consistent with current rates, we believe 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, we believe 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 and the first three months of 2010, we have been able to fund our asset growth primarily 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.

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 $125.6 million at March 31, 2010 as compared to $100.0 million at December 31, 2009. Due to brokers at March 31, 2010 represents securities purchased in the first quarter of 2010 with settlement dates in the second quarter of 2010. Other liabilities increased to $346.2 million at March 31, 2010 as compared to $275.6 million at December 31, 2009. The increase is primarily the result of an increase in accrued taxes of $82.7 million, partially offset by a decrease in accrued expenses of $11.1 million.

Total shareholders’ equity increased $56.9 million to $5.40 billion at March 31, 2010 from $5.34 billion at December 31, 2009. The increase was primarily due to net income of $148.9 million for the quarter ended March 31, 2010, partially offset by cash dividends paid to common shareholders of $74.0 million and a $26.0 million decrease in accumulated other comprehensive income primarily due to a decrease in the net unrealized gain on securities available-for-sale. This decrease was due primarily to the sale of mortgage-backed securities during the first quarter of 2010 which resulted in a net realized gain of $30.8 million.

As of March 31, 2010, there remained 50,123,550 shares that may be purchased under our existing stock repurchase programs. We did not repurchase any shares of our common stock during the first quarter of 2010. 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 $158.5 million at March 31, 2010 included a $179.5 million after-tax net unrealized gain on securities available-for-sale ($303.4 million pre-tax) partially offset by a $21.0 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans.

At March 31, 2010, our shareholders’ equity to asset ratio was 8.81% compared with 8.86% at December 31, 2009. For the first quarter of 2010, the ratio of average shareholders’ equity to average assets was 8.94% compared with 9.07% for the first quarter of 2009. The slightly lower equity-to-assets ratios reflect our asset growth and the payment of 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 $10.96 at March 31, 2010 and $10.85 at December 31, 2009. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from shareholders’ equity, was $10.63 as of March 31, 2010 and $10.53 at December 31, 2009.

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2010 and 2009

Average Balance Sheet. The following table presents the average balance sheets, average yields and costs and certain other information for the three months ended March 31, 2010 and 2009. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Nonaccrual 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 discounts and premiums that are amortized or accreted to interest income.

		For the Three Months Ended March 31,
		2010												2009
										Average												Average
		Average								Yield/				Average								Yield/
		Balance				Interest				Cost				Balance				Interest				Cost
		(Dollars in thousands)
Assets:
Interest-earnings assets:
First mortgage loans, net (1)		$	31,496,413			$	428,161				5.44	%		$	29,346,715			$	414,208				5.65	%
Consumer and other loans			358,637				4,759				5.31				402,059				5,990				5.96
Federal funds sold			789,310				449				0.23				146,751				176				0.49
Mortgage-backed securities at amortized cost			20,261,865				231,718				4.57				19,313,880				250,914				5.20
Federal Home Loan Bank stock			874,768				12,373				5.66				872,095				6,373				2.92
Investment securities, at amortized cost			5,303,422				57,410				4.33				3,692,237				45,661				4.95
Total interest-earning assets			59,084,415				734,870				4.98				53,773,737				723,322				5.38
Noninterest-earnings assets (4)			1,635,807												1,331,205
Total Assets		$	60,720,222											$	55,104,942
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Savings accounts		$	796,816				1,466				0.75			$	718,720				1,348				0.76
Interest-bearing transaction accounts			2,204,513				7,510				1.38				1,624,474				9,068				2.26
Money market accounts			5,171,810				16,730				1.31				2,918,741				16,705				2.32
Time deposits			16,238,606				78,213				1.95				13,602,195				111,703				3.33
Total interest-bearing deposits			24,411,745				103,919				1.73				18,864,130				138,824				2.98
Repurchase agreements			15,100,000				151,429				4.07				15,099,951				151,052				4.06
Federal Home Loan Bank of New York advances			14,875,000				148,377				4.05				15,266,667				149,615				3.97
Total borrowed funds			29,975,000				299,806				4.06				30,366,618				300,667				4.02
Total interest-bearing liabilities			54,386,745				403,725				3.01				49,230,748				439,491				3.62
Noninterest-bearing liabilities:
Noninterest-bearing deposits			572,030												563,360
Other noninterest-bearing liabilities			330,127												310,286
Total noninterest-bearing liabilities			902,157												873,646
Total liabilities			55,288,902												50,104,394
Shareholders’ equity			5,431,320												5,000,548
Total Liabilities and Shareholders’ Equity		$	60,720,222											$	55,104,942
Net interest income/net interest rate spread (2)						$	331,145				1.97							$	283,831				1.76
Net interest-earning assets/net interest margin (3)		$	4,697,670								2.20	%		$	4,542,989								2.06	%
Ratio of interest-earning assets to interest-bearing liabilities											1.09	x											1.09	x