Exhibit 13.1

Dear Fellow Shareholders:

As we look back at the past year, it is difficult to find the silver lining in the clouds that overshadowed our industry and economy in 2011. Unemployment remained high, economic growth was anemic, the housing markets were weak and economic conditions in Europe threatened the economic recovery in the United States. While these factors have continued into 2012, we know that at some point the clouds will clear and we believe the prospects for Hudson City will improve.

The “cure” for the ills of the past economic cycle included the Federal Reserve’s policy of keeping interest rates “low for long” to spur the economy and the U.S government-sponsored enterprises (the “GSEs”) pushing mortgage rates to an all-time low in an attempt to support the housing markets. These actions, while intended to stimulate the economy and the housing markets, had an adverse effect on Hudson City. As a portfolio lender, we take great pains to ensure the quality of the mortgage loans we originate. As a result, while the recent economic cycle took its toll on our industry, the credit losses that plagued many other institutions did not affect Hudson City to the same extent. However, as interest rates remained at historic lows, mortgage customers refinanced their loans to the low market rates. In addition, mortgage-related securities that we hold on our balance sheet also experienced elevated prepayment levels. This caused the yields we earn on our interest-earning assets to decrease which resulted in a decrease in our net interest margin and net income and the prospect of continued declines with the continuation of the prevailing low market rate environment.

We responded by restructuring our balance sheet in the first quarter of 2011 to reduce the amount of higher-cost borrowings. As part of that restructuring, we extinguished $12.5 billion of structured borrowings, $5.0 billion of which were replaced with short-term borrowings at current market rates. Interest rates remained historically low during 2011, and we continued to experience increased levels of prepayments on our loans and securities portfolios, resulting in elevated levels of liquidity. Low market interest rates limited our options to redeploy these funds profitably since the yields available on mortgage-related assets were at historical lows and we did not believe it would be prudent to put such long-term assets on our balance sheet. As we considered the alternative uses of the excess liquidity, we looked at the opportunities for Hudson City beyond the near term and avoided strategies that bolstered only short-term earnings, such as investing in riskier assets to earn a higher yield. Instead, we used the excess cash on our balance sheet to extinguish an additional $4.3 billion of our longer-term borrowings during the fourth quarter of 2011.

Our actions during the past year were designed to strengthen our balance sheet for the future and improve our net interest margins. We decreased the size of the balance sheet by 26% to $45.4 billion and reduced our borrowings 49.2% to $15.1 billion. Our Tier 1 leverage capital ratio increased from 7.95% at December 31, 2010 to 8.83% at December 31, 2011 and we anticipate that our net interest margin will improve in 2012 from what we otherwise would have experienced. These actions required that we incur the loss on the extinguishment of borrowings in the first and fourth quarters of 2011, which, after taxes, totaled $1.1 billion. As a result, we reported a net loss for 2011 of $736.0 million. However, our underlying core business operations are performing in accordance with our expectations.

We believe that our balance sheet, while smaller, is stronger as a result of the actions we took in 2011. Economic conditions appear to be improving although at a very slow pace and housing markets seem to be stabilizing. However, the economy has a long road to recovery as economic growth is weak and jobs creation is lackluster. Significant forces such as inventory levels and foreclosures in process continue to weigh on the housing markets.

Despite all of this, we believe that the future holds opportunities for Hudson City to grow and therefore we will continue to prepare our Company for the eventual economic recovery. While we remain a residential real estate lender, the “new normal” will require us to diversify our asset base and develop additional mortgage lending distribution channels.

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We continue to respond to the requirements of our new regulators, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency. The Dodd-Frank Wall Street Reform and Consumer Protection Act has spawned a myriad of regulations and regulatory oversight that far surpass anything in our memory. This new environment requires enhanced risk management functions, policies and procedures. We put many of these in place during 2011.

We made great strides in 2011 to meet the challenges of 2012 head-on. We decreased the size of our balance sheet, reduced our levels of interest rate risk, increased our Tier 1 leverage capital ratio, increased staffing levels and created an Enterprise Risk Management department. All of these steps should prepare us to grow our business when economic conditions make growth both prudent and profitable. While it is difficult to find the silver lining in a cloudy 2011, we are starting 2012 with a stronger balance sheet, enhanced risk management capabilities, strong regulatory capital and the focus to meet the challenges of the “new normal”. We believe that to see the silver lining requires a longer-term view in order to discern the possibilities for Hudson City. It is this long-term perspective that saw Hudson City through the many economic cycles and challenges over the past 144 years and which we believe will benefit Hudson City’s customers and shareholders when the clouds finally clear.

/s/ Ronald E. Hermance, Jr. /s/ Denis J. Salamone

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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.

			At December 31,
	2011		2010		2009		2008		2007
			(In thousands)
Selected Financial Condition Data:
Total assets	$	45,355,885	$	61,166,033	$	60,267,760	$	54,145,328	$	44,423,971
Total loans		29,327,345		30,923,897		31,779,921		29,418,888		24,192,281
Federal Home Loan Bank of New York stock		510,564		871,940		874,768		865,570		695,351
Investment securities held to maturity		539,011		3,939,006		4,187,704		50,086		1,408,501
Investment securities available for sale		7,368		89,795		1,095,240		3,413,633		2,765,491
Mortgage-backed securities held to maturity		4,115,523		5,914,372		9,963,554		9,572,257		9,565,526
Mortgage-backed securities available for sale		9,170,390		18,120,537		11,116,531		9,915,554		5,005,409
Total cash and cash equivalents		754,080		669,397		561,201		261,811		217,544
Foreclosed real estate, net		40,619		45,693		16,736		15,532		4,055
Total deposits		25,507,760		25,173,126		24,578,048		18,464,042		15,153,382
Total borrowed funds		15,075,000		29,675,000		29,975,000		30,225,000		24,141,000
Total shareholders’ equity		4,560,440		5,510,238		5,339,152		4,938,796		4,611,307

	For the Year Ended December 31 ,
	2011		2010		2009		2008		2007
	(In thousands)
Selected Operating Data:
Total interest and dividend income	$	2,167,637	$	2,784,496	$	2,941,786	$	2,653,225	$	2,127,505
Total interest expense		1,186,703		1,593,669		1,698,308		1,711,248		1,480,322
Net interest income		980,934		1,190,827		1,243,478		941,977		647,183
Provision for loan losses		120,000		195,000		137,500		19,500		4,800
Net interest income after provision for loan losses		860,934		995,827		1,105,978		922,477		642,383
Non-int erest income:
Service charges and other income		11,449		10,369		9,399		8,485		7,267
Gains on securities transactions, net		102,468		152,625		24,185		-		6
Total non-interest income		113,917		162,994		33,584		8,485		7,273
Non-interest expense:
Loss on extinguishment of debt		1,900,591		-		-		-		-
Other non-interest expense		329,569		266,388		265,596		198,076		167,913
Total non-interest expense		2,230,160		266,388		265,596		198,076		167,913
(Loss) income before income t ax (benefit ) expense		(1,255,309)		892,433		873,966		732,886		481,743
Income tax (benefit ) expense		(519,320)		355,227		346,722		287,328		185,885
Net (loss) income	$	(735,989)	$	537,206	$	527,244	$	445,558	$	295,858

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Selected Consolidated Financial Information (continued)

(Dollars in thousands, except per share data)

	At or for the Year Ended December 31,
	2011			2010			2009			2008			2007
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets		(1.38	)  %		0.88	%		0.92	%		0.91	%		0.74	%
Return on average stockholders’ equity		(14.72	)		9.66			10.18			9.36			6.23
Net interest rate spread (1)		1.67			1.77			1.93			1.58			1.11
Net interest margin (2)		1.89			2.01			2.22			1.96			1.65
Non-interest expense to average assets (5)		0.62			0.44			0.46			0.41			0.42
Efficiency ratio (3)		32.68			19.68			20.80			20.84			25.66
Average interest-earning assets to average interest-bearing liabilities		1.09	x		1.09	x		1.09	x		1.11	x		1.14	x
Share and Per Share Data:
Basic (loss) earnings per share		(1.49	)	$	1.09		$	1.08		$	0.92		$	0.59
Diluted (loss) earnings per share		(1.49	)		1.09			1.07			0.90			0.58
Cash dividends paid per common share		0.39			0.60			0.59			0.45			0.33
Dividend pay-out ratio		NM			55.05	%		54.63	%		48.91	%		55.93	%
Book value per share (4)	$	9.20		$	11.16		$	10.85		$	10.10		$	9.55
Tangible book value per share (4)		8.89			10.85			10.53			9.77			9.22
Weighted average number of common shares outstanding:
Basic		494,629,395			493,032,873			488,908,260			484,907,441			499,607,828
Diluted		494,629,395			494,314,390			491,295,511			495,856,156			509,927,433
Capital Ratios:
Average stockholders’ equity to average assets		9.41	%		9.14	%		9.03	%		9.74	%		11.93	%
Stockholders’ equity to assets		10.05			9.01			8.86			9.12			10.38
Regulatory Capital Ratios of Bank:
Leverage capital		8.83	%		7.95	%		7.59	%		7.99	%		9.16	%
Total risk-based capital		20.00			22.74			21.02			21.52			24.83
Asset Quality Ratios:
Non-performing loans to total loans		3.48	%		2.82	%		1.98	%		0.74	%		0.33	%
Non-performing assets to total assets		2.34			1.50			1.07			0.43			0.19
Allowance for loan losses to non-performing loans		26.77			27.15			22.32			22.89			43.75
Allowance for loan losses to total loans		0.93			0.77			0.44			0.17			0.14
Net charge-offs to average total loans		0.28			0.31			0.15			0.02			-
Branch and Deposit Data:
Number of deposit accounts		685,795			720,456			725,979			638,951			605,018
Branches		135			135			131			127			119
Average deposits per branch (thousands)		188,946		$	186,468		$	187,619		$	145,386		$	127,339

(1) Determined by subtracting the weighted average cost of average total interest-bearing liabilities from the weighted average yield on average total interest-earning assets.

(2) Determined by dividing net interest income by average total interest-earning assets.

(3) See calculation on page 3.

(4) See calculation on page 3.

(5) For 2011, non-interest expense excludes $1.90 billion of losses on the extinguishment of debt.

NM   - Not meaningful

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Calculation of Efficiency Ratio and Book Value Ratios

(Dollars in thousands, except per share data)

		At or for the Year Ended December 31,
		2011		2010		2009		2008		2007
		(Dollars in thousands, except per share data)
Efficiency Ratio:
	Net interest income	$	980,934	$	1,190,827	$	1,243,478	$	941,977	$	647,183
	Total non-interest income		113,917		162,994		33,584		8,485		7,273
	Less net gains on securities transactions related to debt extinguishments		(98,278)		–		–		–		–
	Total operating income	$	996,573	$	1,353,821	$	1,277,062	$	950,462	$	654,456
	Total non-interest expense	$	2,230,160	$	266,388	$	265,596	$	198,076	$	167,913
	Less:
	Loss on extinguishment of debt		(1,900,591)		–		–		–		–
	Valuation allowance related to Lehman Brothers, Inc.		(3,900)		–		–		–		–
	Total non-interest operating expense	$	325,669	$	266,388	$	265,596	$	198,076	$	167,913
	Efficiency ratio (1)		32.68%		19.68%		20.80%		20.84%		25.66%
Book Value Calculations:
	Shareholders’ equity	$	4,560,440	$	5,510,238	$	5,339,152	$	4,938,796	$	4,611,307
	Goodwill and other intangible assets		(155,217)		(156,714)		(158,336)		(160,207)		(162,333)
	Tangible shareholders’ equity	$	4,405,223	$	5,353,524	$	5,180,816	$	4,778,589	$	4,448,974
	Book Value Share Computation:
	Issued		741,466,555		741,466,555		741,466,555		741,466,555		741,466,555
	Treasury shares		(213,895,059)		(214,748,245)		(214,972,879)		(217,695,938)		(222,896,953)
	Shares outstanding		527,571,496		526,718,310		526,493,676		523,770,617		518,569,602
	Unallocated ESOP shares		(31,752,096)		(32,714,280)		(33,676,464)		(34,638,643)		(35,600,831)
	Unvested RRP shares		(6,000)		(282,583)		(593,283)		(196,376)		(255,984)
	Shares in trust		(269,325)		(164,845)		(108,945)		(65,031)		(41,397)
	Book value shares		495,544,075		493,556,602		492,114,984		488,870,567		482,671,390
	Book value per share	$	9.20	$	11.16	$	10.85	$	10.10	$	9.55
	Tangible book value per share income and expenses		8.89		10.85		10.53		9.77		9.22

(1) Calculated by dividing total non-interest operating expense by total operating income. These measures are non-GAAP financial measures. We believe these measures, by excluding the transactions involved in our balance sheet restructuring, provide a better measure of our non-interest income and expenses.

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Performance Graph

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, 2006 through December 31, 2011. 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 29, 2006.

Hudson City Bancorp, Inc. Total Return

Performance

* Source: SNL Financial LC and Bloomberg Financial Database

There can be no assurance that stock performance will continue in the future with the same or similar trends as those depicted in the graph above.

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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

This Annual Report to Shareholders contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which 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 comparable 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 statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. 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 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 including, without limitation, the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any actions regarding foreclosures, may adversely affect our business;

• enhanced regulatory scrutiny may adversely affect our business and increase our cost of operation;

• 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 funding sources and to access the capital markets;

• transition of our regulatory supervisor from the Office of Thrift Supervision to the Office of the Comptroller of the Currency (the “OCC”);

• our ability to comply with the terms of the Memorandum of Understanding with the OCC (as successor to the Office of Thrift Supervision);

• our ability to pay dividends, repurchase our outstanding common stock or execute capital management strategies each of which requires the approval of the OCC and Federal Reserve Board;

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• the effects of changes in existing U.S. government or U.S. government sponsored mortgage programs; 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 Annual Report to Shareholders. We do not intend to update any of the forward-looking statements after the date of this Annual report to Shareholders or to conform these statements to actual events.

As used in this Annual Report to Shareholders, unless we specify otherwise, “Hudson City Bancorp,” “Company,” “we,” “us,” and “our” refer to Hudson City Bancorp, Inc., a Delaware corporation. “Hudson City Savings” and “Bank” refer to Hudson City Savings Bank, a federal stock savings bank and the wholly-owned subsidiary of Hudson City Bancorp.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

We continue to focus on our consumer-oriented business model through the origination and purchase of one- to four-family mortgage loans. We have traditionally funded this loan production with customer deposits and borrowings. Market interest rates remained at historically low levels during 2011 and, as a result, we reduced the size of our balance sheet and will restrain any future growth until the yields available on mortgage-related assets increase and make growth more profitable.

During the first quarter of 2011, the Bank completed a restructuring of its balance sheet (referred to as the “Restructuring Transaction”) which involved the extinguishment of $12.5 billion of structured putable borrowings with an average cost of 3.56%. The extinguishment of the borrowings was funded by the sale of $8.66 billion of securities with an average yield of 3.20% and $5.00 billion of new short-term fixed-maturity borrowings with an average cost of 0.66%. Interest rates continued to decline during 2011 which resulted in increased prepayments on our mortgage-related assets and calls of our investment securities. During the fourth quarter of 2011, the Bank used the excess liquidity provided by the prepayments of mortgage-related assets and calls of investment securities to extinguish $4.3 billion of structured putable borrowings with a weighted average cost of 4.21%. The Restructuring Transaction and the extinguishment of debt during the fourth quarter of 2011, (collectively referred to as the “Transactions”), reduced after-tax earnings by $1.07 billion.

The Transactions are part of our ongoing strategy to reduce interest rate risk and realign our funding mix and should improve our net interest margin from the levels we would have otherwise experienced. We decided to complete the Transactions because of the effect that recent market events, including the unprecedented involvement of the U.S. government and the GSEs in the mortgage market and the protracted period of historically low market interest rates had on our balance sheet. The extended low interest rate environment caused accelerated prepayment speeds on our mortgage-related assets and calls of our investment securities resulting in the reinvestment of these funds at the current low market interest rates. These lower-yielding assets and higher-cost borrowings, which did not reprice during this extended low rate environment, caused margin compression and heightened interest rate risk concerns for us.

We chose to extinguish structured quarterly putable borrowings to address interest rate risk and liquidity concerns that this extended low interest rate environment exacerbated. We expect that the Transactions will position us to eventually return to our core strategy of measured balance sheet growth when market conditions change. Upon a substantial portion of the mortgage market returning to the private sector, we believe we will be able to capture a greater share of this market as growth strategy becomes more profitable.

As a result of the Transactions we reported a net loss of $736.0 million for 2011, as compared to net income of $537.2 million for 2010. For the year ended December 31, 2011, our return on average assets and average shareholders’ equity were (1.38)% and (14.72)%, respectively, as compared to 0.88% and 9.66%, respectively, for the year ended December 31, 2010.

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 puts 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.

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The Federal Open Market Committee of the Board of Governors of the Federal Reserve System (the “FOMC”) noted in its January 2012 statement that the economy expanded moderately in 2011. The FOMC noted that recent indicators point to some improvement in overall labor market conditions, although the unemployment rate remains at elevated levels. The national unemployment rate decreased to 8.5% in December 2011 from 9.1% in September 2011 and from 9.4% in December 2010. The most recent unemployment data, released in February 2012, indicated an unemployment rate of 8.3%. The FOMC noted that household spending has continued to advance, but business fixed investment appears to be increasing at a slower pace and the housing sector continues to be depressed. As a result, the FOMC decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The FOMC also indicated in the January 2012 statement that the overnight lending rate would remain at zero to 0.25% through at least late in 2014. The decision to leave the overnight lending rate unchanged has kept short-term market interest rates at low levels during 2011.

Net interest income decreased $209.9 million, or 17.6%, to $980.9 million for 2011 as compared to $1.19 billion for 2010. During 2011, our net interest rate spread decreased 10 basis points to 1.67% and our net interest margin decreased 12 basis points to 1.89% as compared to 1.77% and 2.01%, respectively for 2010. Mortgage-related assets represented 88.9% of our average interest-earning assets during 2011.

Market interest rates on mortgage-related assets remained at near-historic lows primarily due to the Federal Reserve Board’s (the “FRB”) program to purchase mortgage-backed securities to keep mortgage rates low and provide stimulus to the housing markets. In addition, over the past few years, we have faced increased competition for mortgage loans due to the unprecedented involvement of the GSEs in the mortgage market as a result of the economic crisis. The GSEs involvement is also an attempt to provide stimulus to the housing markets and has caused the interest rates for thirty year fixed rate mortgage loans that conform to the GSEs’ guidelines for purchase to remain low. We originate such conforming loans and retain them in our portfolio. Further, the FOMC has decided to maintain the overnight lending rate at the current level through late 2014 if recent economic conditions continue. We expect this adverse environment for portfolio lending to continue, with the likely result that we will continue to experience compression of our net interest margin. We expect that this compression in net interest margin, along with the reduction in the size of our balance sheet from the Transactions, will result in a reduction of net interest income.

The provision for loan losses amounted to $120.0 million for 2011 as compared to $195.0 million for 2010. The decrease in the provision for loan losses for the year ended December 31, 2011 was a result of a stabilization in early stage delinquencies, represented by loans that are 30 to 89 days delinquent, the decrease in net charge-offs, and a decrease in the size of the loan portfolio. Non-performing loans, defined as non-accruing loans and accruing loans delinquent 90 days or more, amounted to $1.02 billion at December 31, 2011 compared with $871.3 million at December 31, 2010. The ratio of non-performing loans to total loans was 3.48% at December 31, 2011 compared with 2.82% at December 31, 2010. The highly publicized foreclosure issues that have recently affected the nation’s largest mortgage loan servicers have resulted in greater bank regulatory, court and state attorney general scrutiny. As a result, our foreclosure process and the time to complete a foreclosure remains extended. We continue to experience a time frame to repayment or foreclosure ranging from 30 to 36 months from the initial non-performing period. This protracted foreclosure process delays our ability to resolve non-performing loans through the sale of the underlying collateral.

Total non-interest income was $113.9 million for 2011 as compared to $163.0 million for 2010. Included in non-interest income for the year ended December 31, 2011 were net gains on securities transactions of $102.5 million which resulted from the sale of $9.04 billion of securities available-for-sale. Substantially all of the proceeds from the sale of securities were used to repay borrowings as part of the Restructuring Transaction. Included in non-interest income for the year ended December 31, 2010 were net gains on securities transactions of $152.6 million which resulted from the sale of $3.92 billion of mortgage-backed securities available-for-sale.

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Total non-interest expense amounted to $2.23 billion for 2011 as compared to $266.4 million for 2010. Included in total non-interest expense for 2011 was a $1.90 billion loss on the extinguishment of debt related to the Transactions.

Our assets decreased by 25.8% to $45.36 billion at December 31, 2011 from $61.17 billion at December 31, 2010. The decrease was due primarily to the Transactions.

Loans decreased $1.63 billion to $29.14 billion at December 31, 2011 from $30.77 billion at December 31, 2010. Our loan production was $5.27 billion for 2011 offset by $6.71 billion in principal repayments. The decrease in loans primarily reflects reduced levels of loan originations and purchases as well as elevated levels of loan repayments during 2011 as a result of continued low market interest rates.

Mortgage-backed securities decreased $10.74 billion to $13.29 billion at December 31, 2011 from $24.03 billion at December 31, 2010. The decrease was due primarily to the sale of $8.96 billion of mortgage-backed securities, substantially all of which were sold as part of the Restructuring Transaction. The decrease in mortgage-backed securities also reflected repayments of $4.60 billion which were partially offset by purchases of $3.05 billion of mortgage-backed securities issued by GSEs.

Investment securities decreased $3.48 billion to $546.4 million at December 31, 2011 due to the calls of these securities during 2011. The proceeds from the calls were invested in Federal funds and other overnight deposits until they were used in December 2011 as part of our extinguishment transaction.

Borrowings amounted to $15.08 billion at December 31, 2011 as compared to $29.68 billion at December 31, 2010. The decrease in borrowed funds was primarily a result of the Transactions. As part of the Transactions, we paid off $16.80 billion of structured putable borrowings and re-borrowed $5.0 billion of new short-term fixed-maturity borrowings. In addition, approximately $4.20 billion of borrowings matured during 2011 and were repaid. The extinguishment of structured putable borrowings was a necessary step in our efforts to reduce our interest rate risk and eliminate some of the liquidity uncertainties of borrowings that are putable at the discretion of the lender.

The Bank is currently subject to a Memorandum of Understanding with the OCC (the “Bank MOU”). In accordance with the Bank MOU, the Bank has adopted and has implemented enhanced operating policies and procedures, that will enable us to continue to (a) reduce our level of interest rate risk, (b) reduce our funding concentration, (c) diversify our funding sources, (d) enhance our liquidity position, (e) monitor and manage loan modifications and (f) maintain our capital position in accordance with our existing capital plan. The Company is also subject to a separate Memorandum of Understanding with the FRB (the “Company MOU”). In accordance with the Company MOU, the Company must, among other things support the Bank’s compliance with the Bank MOU. The Company MOU also requires the Company to: (a) provide notice to the regulators in accordance with published regulatory guidance prior to declaring a dividend to shareholders and (b) provide notice to and obtain written non-objection from the regulators prior to the Company incurring any debt outside the ordinary course of business. These agreements will remain in effect until modified or terminated by the OCC (with respect to the Bank MOU) and the FRB (with respect to the Company MOU).

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Comparison of Financial Condition at December 31, 2011 and December 31, 2010

Total assets decreased $15.81 billion, or 25.8%, to $45.36 billion at December 31, 2011 from $61.17 billion at December 31, 2010. The decrease in total assets reflected a $10.74 billion decrease in total mortgage-backed securities, a $3.48 billion decrease in total investment securities, and a $1.63 billion decrease in net loans.

Our net loans decreased $1.63 billion to $29.14 billion at December 31, 2011 as compared to $30.77 billion at December 31, 2010. The decrease in loans primarily reflects reduced levels of loan originations and purchases as well as elevated levels of loan repayments during 2011 as a result of continued low market interest rates. Historically our focus has been on loan portfolio growth through the origination of one- to four-family first mortgage loans in New Jersey, New York, Pennsylvania and Connecticut and, to a lesser extent, the purchases of mortgage loans. During 2011, we originated $4.93 billion and purchased $344.8 million of loans, compared to originations of $5.83 billion and purchases of $764.3 million for 2010. The originations and purchases of loans were offset by principal repayments of $6.71 billion in 2011, as compared to $7.26 billion for 2010.

Loan originations declined significantly during 2011 as compared to 2010, reflecting in part reduced demand for mortgage loans as a result of the conditions in the housing market and the general economy. The decline in loan originations also reflects our low appetite for adding relatively lower yielding loans in the current environment. In addition, elevated levels of refinancing activity caused by low market interest rates have caused increased levels of repayments to continue during 2011. Our loan purchase activity has also declined as sellers from whom we have historically purchased loans are either retaining these loans in their own portfolios or selling them to the GSEs.

Our first mortgage loan originations and purchases during 2011 were substantially all in one- to four-family mortgage loans. Approximately 45% of mortgage loan originations for 2011 were variable-rate loans as compared to approximately 53% for 2010. Approximately 93.9% of mortgage loans purchased for the year ended December 31, 2011 were fixed-rate mortgage loans. Fixed-rate mortgage loans accounted for 66.8% of our first mortgage loan portfolio at both December 31, 2011 and 2010, respectively.

Our allowance for loan losses (the “ALL”) amounted to $273.8 million at December 31, 2011 and $236.6 million at December 31, 2010. Non-performing loans amounted to $1.02 billion or 3.48% of total loans at December 31, 2011 as compared to $871.3 million or 2.82% of total loans at December 31, 2010.

Total mortgage-backed securities decreased $10.74 billion to $13.29 billion at December 31, 2011 from $24.03 billion at December 31, 2010. The decrease was due primarily to the sale of $8.96 billion of mortgage-backed securities, substantially all of which were sold as part of the Restructuring Transaction. The decrease in mortgage-backed securities also reflected repayments of $4.60 billion which were offset by purchases of $3.05 billion of mortgage-backed securities issued by GSEs. At December 31, 2011, variable-rate mortgage-backed securities accounted for 84.1% of our portfolio compared with 85.9% at December 31, 2010. 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 decreased $3.48 billion to $546.4 million at December 31, 2011 from $4.03 billion at December 31, 2010. This decrease was primarily due to the calls of $3.40 billion of investment securities during 2011. The proceeds from the calls were invested in Federal funds and other overnight deposits until they were used in December 2011 as part of our extinguishment transaction. The decrease was also due to sales of investment securities of $80.0 million as part of the Restructuring Transaction.

Total cash and cash equivalents increased $84.7 million to $754.1 million at December 31, 2011 as compared to $669.4 million at December 31, 2010. This increase is primarily due to liquidity provided by increased repayments on mortgage-related assets. Other assets increased $455.0 million to $729.2 million at December 31,

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2011 as compared to $274.2 million at December 31, 2010. The increase in other assets is primarily due to an increase of $546.2 million in current and deferred tax assets, partially offset by a $108.2 million decrease in prepaid expenses. The increase in current and deferred tax assets is primarily related to the tax benefits from the loss on Transactions. The decrease in prepaid expenses is due to a $108.4 million decrease in the prepaid FDIC assessment during 2011.

Total liabilities decreased $14.86 billion, or 26.7%, to $40.80 billion at December 31, 2011 from $55.66 billion at December 31, 2010. The decrease in total liabilities primarily reflected a $14.60 billion decrease in borrowed funds.

Total deposits increased $334.6 million, or 1.3%, to $25.51 billion at December 31, 2011 as compared to $25.17 billion at December 31, 2010. The increase in total deposits reflected a $2.15 billion increase in our money market accounts, partially offset by a decrease of $1.69 billion in our time deposits as customers seemed to favor the flexibility offered by our money market accounts rather than the fixed maturities required by time deposits in a low interest rate environment. The increase in our money market accounts is primarily due to the competitive rate that we were offering. 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. We had 135 branches at both December 31, 2011 and 2010.

Borrowings amounted to $15.08 billion at December 31, 2011 as compared to $29.68 billion at December 31, 2010. The decrease in borrowed funds was primarily a result of the Transactions. As part of the Transactions, we paid off $16.80 billion of structured putable borrowings and re-borrowed $5.0 billion of new short-term fixed-maturity borrowings. In addition, approximately $4.20 billion of borrowings matured during 2011 and were repaid. The extinguishment of structured putable borrowings was a necessary step in our efforts to reduce our interest rate risk and eliminate some of the liquidity uncertainties of borrowings that are putable at the discretion of the lender. In addition to the Transactions, we modified an additional $4.0 billion of structured putable borrowings during 2011 to eliminate the put option thereby further reducing our interest rate and liquidity risk. The weighted average cost of the borrowings modified increased by approximately 48 basis points as a result of the modifications.

At December 31, borrowings consisted of the following:

	2011					2010
	Principal		Weighted       Average       Rate			Principal		Weighted       Average       Rate
	(Dollars in thousands)
Structured borrowings:
Quarterly put option	$	3,325,000		4.40	%	$	24,125,000		3.94	%
One-time put option		4,600,000		4.52			4,950,000		4.44
		7,925,000		4.47			29,075,000		4.03
Fixed-rate/fixed-maturity borrowings		7,150,000		3.21			600,000		3.47
Total borrowed funds	$	15,075,000		3.87	%	$	29,675,000		4.02	%

At December 31, 2011, we had $2.68 billion of borrowed funds with put dates within one year. If interest rates were to decrease, or remain consistent with current rates, we believe these borrowings would probably not be put back 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 put back at their next put date and our cost to replace these borrowings would

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increase. However, we believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be put back will not increase substantially unless interest rates were to increase by at least 300 basis points.

The Company had 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 (“SIPA”). Mortgage-backed securities with an amortized cost of approximately $114.1 million were pledged as collateral for these borrowings and we demanded the return of this collateral. The trustee for the SIPA liquidation of Lehman Brothers, Inc. (the “Trustee”) notified the Company in the fourth quarter of 2011 that it no longer holds these securities and considers our claim to be approximately $13.9 million representing the excess of the market value of the collateral over the $100 million repurchase price. While we dispute the Trustee’s calculation of the claim, as a result of the Trustee’s position, we removed the mortgage-backed securities and the borrowings from our balance sheet and recorded the net amount as a receivable included in other assets (the “Net Claim”). While we intend to pursue full recovery of our Net Claim, during the fourth quarter of 2011 we established a reserve of $3.9 million against the receivable balance at December 31, 2011. There can be no assurances as to the amount of the final settlement of this transaction.

Other liabilities decreased $56.8 million to $212.7 million at December 31, 2011 from $269.5 million at December 31, 2010. The decrease is primarily the result of a decrease in accrued interest payable on borrowings of $85.0 million, partially offset by an increase in accrued expenses of $26.2 million. The decrease in accrued interest payable on borrowed funds is due to the $14.60 billion decrease in borrowed funds to $15.08 billion at December 31, 2011. The increase in accrued expenses is primarily due to an increase in liabilities related to our postretirement plans.

Total shareholders’ equity decreased $949.8 million to $4.56 billion at December 31, 2011 from $5.51 billion at December 31, 2010. The decrease was primarily due to the net loss of $736.0 million for the year ended December 31, 2011. The decrease was also due to cash dividends paid to common shareholders of $192.7 million and a $45.7 million decrease in accumulated other comprehensive income to $39.7 million.

The accumulated other comprehensive income of $39.7 million at December 31, 2011 included an $89.3 million after-tax net unrealized gain on securities available for sale ($150.9 million pre-tax) and a $49.6 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans. The accumulated other comprehensive income of $85.4 million at December 31, 2010 included a $117.3 million after-tax net unrealized gain on securities available for sale ($198.3 million pre-tax), partially offset by a $31.9 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans.

As of December 31, 2011, 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 2011 pursuant to our repurchase programs. Pursuant to the Company MOU, any future share repurchases must be approved by the FRB. We did purchase 17,145 shares in 2011 that were surrendered by employees for withholding taxes related to vesting stock awards. At December 31, 2011, our capital ratios were in excess of the applicable regulatory requirements to be considered well-capitalized. See “Liquidity and Capital Resources.”

At December 31, 2011, our shareholders’ equity to asset ratio was 10.05% compared with 9.01% at December 31, 2010. The ratio of average shareholders’ equity to average assets was 9.41% for the year ended December 31, 2011 as compared to 9.14% for the year ended December 31, 2010. 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 $9.20 at December 31, 2011 and $11.16 at December 31, 2010. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from shareholders’ equity, was $8.89 as of December 31, 2011 and $10.85 at December 31, 2010. The decreases in our book value per share and tangible book value per share were primarily due to the

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net loss in 2011 as a result of the Transactions. Although our shareholders’ equity declined significantly due to the net loss in 2011, the decline in assets from the Transactions resulted in an increase in the ratio of shareholders’ equity to total assets and the ratio of average shareholders’ equity to average assets.

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.

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Average Balance Sheet.      The following table presents certain information regarding our financial condition and net interest income for 2011, 2010, and 2009. 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,
	2011							2010							2009
	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
Assets:									(Dollars in thousands)
Interest-earning assets:
First mortgage loans, net (1)	$	29,722,678		$1,492,989		5.02	%	$	31,395,378	$	1,667,027		5.31	%	$	30,126,469	$	1,678,789		5.57	%
Consumer and other loans		309,245		15,740		5.09			346,166		18,409		5.32			381,029		21,676		5.69
Federal funds sold		1,668,333		4,392		0.26			1,102,575		2,614		0.24			566,079		1,186		0.21
Mortgage-backed securities, at amortized cost		16,304,890		514,560		3.16			20,557,582		851,595		4.14			19,604,600		983,658		5.02
Federal Home Loan Bank stock		770,314		38,820		5.04			878,672		46,107		5.25			876,736		43,103		4.92
Investment securities, at amortized cost		3,021,573		101,136		3.35			4,992,249		198,744		3.98			4,577,148		213,374		4.66
Total interest-earning assets		51,797,033		2,167,637		4.18			59,272,622		2,784,496		4.70			56,132,061		2,941,786		5.24
Noninterest-earning assets (4)		1,361,057							1,560,439							1,209,257
Total assets		$53,158,090						$	60,833,061						$	57,341,318
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings accounts	$	866,029		5,071		0.59	%	$	839,029		5,952		0.71	%	$	749,439		5,640		0.75	%
Interest-bearing transaction accounts		2,015,019		15,698		0.78			2,323,618		23,996		1.03			1,789,361		31,903		1.78
Money market accounts		7,842,413		75,506		0.96			5,217,815		54,949		1.05			3,823,116		69,008		1.81
Time deposits		14,140,688		232,239		1.64			16,111,567		291,450		1.81			14,771,051		376,917		2.55
Total interest-bearing deposits		24,864,149		328,514		1.32			24,492,029		376,347		1.54			21,132,967		483,468		2.29
Repurchase agreements		9,127,800		398,929		4.37			15,034,110		616,488		4.10			15,100,221		611,776		4.05
FHLB advances		13,349,342		459,260		3.44			14,875,000		600,834		4.04			15,035,798		603,064		4.01
Total borrowed funds		22,477,142		858,189		3.82			29,909,110		1,217,322		4.07			30,136,019		1,214,840		4.03
Total interest-bearing liabilities		47,341,291		1,186,703		2.51			54,401,139		1,593,669		2.93			51,268,986		1,698,308		3.31
Noninterest-bearing liabilities:
Noninterest-bearing deposits		583,257							588,150							576,575
Other noninterest-bearing liabilities		232,617							284,335							317,972
Total noninterest-bearing liabilities		815,874							872,485							894,547
Total liabilities		48,157,165							55,273,624							52,163,533
shareholders’ equity		5,000,925							5,559,437							5,177,785
Total liabilities and shareholders’ equity		$53,158,090						$	60,833,061						$	57,341,318
Net interest income				$980,934						$	1,190,827						$	1,243,478
Net interest rate spread (2)						1.67							1.77							1.93
Net interest-earning assets		$4,455,742						$	4,871,483						$	4,863,075
Net interest margin (3)						1.89	%						2.01	%						2.22	%
Ratio of interest-earning assets to interest-bearing liabilities						1.09	x						1.09	x						1.09	x

(1) Amount is net of deferred loan costs and allowance for loan losses and includes non-performing loans.

(2) Determined by subtracting the weighted average cost of average total interest-bearing liabilities from the weighted average yield on average total interest-earning assets.

(3) Determined by dividing net interest income by average total interest-earning assets.

(4) Includes the average balance of principal receivable related to FHLMC mortgage-backed securities of $156.4 million, $297.1 million and $164.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.

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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.

	2011 Compared to 2010						2010 Compared to 2009
	Increase (Decrease) Due To						Increase (Decrease) Due To
	Volume		Rate		Net		Volume		Rate		Net
	(In thousands)
Interest-earning assets:
First mortgage loans, net	$	(85,942)	$	(88,096)	$	(174,038)	$	68,728	$	(80,490)	$    (11,762)
Consumer and other loans		(1,899)		(770)		(2,669)		(1,910)		(1,357)	(3,267)
Federal funds sold		1,529		249		1,778		1,241		187	1,428
Mortgage-backed securities		(157,178)		(179,857)		(337,035)		46,237		(178,300)	(132,063)
Federal Home Loan Bank stock		(5,502)		(1,785)		(7,287)		96		2,908	3,004
Investment securities		(69,671)		(27,937)		(97,608)		18,252		(32,882)	(14,630)
Total		(318,663)		(298,196)		(616,859)		132,644		(289,934)	(157,290)
Interest-bearing liabilities:
Savings accounts		181		(1,062)		(881)		631		(319)	312
Interest-bearing transaction accounts		(2,935)		(5,363)		(8,298)		7,852		(15,759)	(7,907)
Money market accounts		25,589		(5,032)		20,557		20,480		(34,539)	(14,059)
Time deposits		(33,494)		(25,717)		(59,211)		31,719		(117,186)	(85,467)
Repurchase agreements		(255,855)		38,296		(217,559)		(2,719)		7,431	4,712
FHLB advances		(57,833)		(83,741)		(141,574)		(6,620)		4,390	(2,230)
Total		(324,347)		(82,619)		(406,966)		51,343		(155,982)	(104,639)
Net change in net interest income	$	5,684	$	(215,577)	$	(209,893)	$	81,301	$	(133,952)	$    (52,651)

Comparison of Operating Results for the Years Ended December 31, 2011 and 2010

General.      Net loss was $736.0 million for 2011, a decrease of $1.27 billion, or 237.0%, compared with net income of $537.2 million for 2010. Basic and diluted loss per common share were both $(1.49) for 2011 as compared to basic and diluted earnings per share of $1.09 for 2010. For 2011, our return on average shareholders’ equity was (14.72)%, compared with 9.66% for 2010. Our return on average assets for 2011 was (1.38)% as compared to 0.88% for 2010. The decrease in our return on average equity and assets is a result of the net loss for 2011 due primarily to the Transactions.

Interest and Dividend Income.      Total interest and dividend income for 2011 decreased $616.9 million, or 22.2%, to $2.17 billion from $2.78 billion for 2010. The decrease in total interest and dividend income was primarily due to a decrease in the average balance of total interest-earning assets of $7.47 billion, or 12.6%, to $51.80 billion for 2011 from $59.27 billion for 2010. The decrease in total interest and dividend income was

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also due to a decrease of 52 basis points in the weighted-average yield on total interest-earning assets to 4.18% for 2011 from 4.70% for 2010. The decrease in the average balance of total interest-earning assets was due primarily to the effects of the Transactions. The decrease in the average yield earned on our interest-earning assets reflects the elevated levels of repayments on mortgage-related assets and the calls on investment securities, and the reinvestment of those cash flows at current market interest rates.

For the year ended December 31, 2011, interest on first mortgage loans decreased $174.0 million, or 10.4%, to $1.49 billion from $1.67 billion for the year ended December 31, 2010. This was primarily due to a 29 basis point decrease in the weighted-average yield to 5.02% for 2011 from 5.31% for 2010. The decrease in interest income on mortgage loans was also due to a $1.68 billion decrease in the average balance of first mortgage loans to $29.72 billion for 2011 from $31.40 billion for 2010. Refinancing activity, which resulted in continued elevated levels of loan repayments, also had an impact on the average balance of our first mortgage loans during the year ended December 31, 2011. During the year ended December 31, 2011, existing mortgage customers, with accounts in good standing, refinanced or recast approximately $3.52 billion in mortgage loans with a weighted average rate of 5.33% to a new weighted average rate of 4.25%.

Interest on consumer and other loans decreased $2.7 million to $15.7 million for 2011 from $18.4 million for 2010. The average balance of consumer and other loans decreased $37.0 million to $309.2 million for 2011 as compared to $346.2 million for 2010 and the average yield earned decreased 23 basis points to 5.09% as compared to 5.32% for the same respective periods.

Interest on mortgage-backed securities decreased $337.0 million to $514.6 million for the year ended December 31, 2011 from $851.6 million for the year ended December 31, 2010. This decrease was due primarily to a 98 basis point decrease in the weighted-average yield to 3.16% during 2011 from 4.14% for 2010. The decrease in interest income on mortgage-backed securities was also due to a $4.26 billion decrease in the average balance of mortgage-backed securities to $16.30 billion during 2011 from $20.56 billion for 2010 due primarily to the effects of the Restructuring Transaction as well as elevated levels of principal prepayments as market interest rates remained low.

The decrease in the weighted average yield on mortgage-backed securities is a result of lower yields on securities purchased during 2010 when market interest rates were lower than the yield earned on the existing portfolio. In addition, mortgage-backed securities purchased before 2010 which have higher yields, continue to repay, thus reducing the average yield on our mortgage-backed portfolio.

Interest on investment securities decreased $97.6 million to $101.1 million during 2011 as compared to $198.7 million for 2010. This decrease was due primarily to a $1.97 billion decrease in the average balance to $3.02 billion and a decrease of 63 basis points in the average yield to 3.35% for 2011 as compared to 3.98% for 2010. The decrease in the average balance was due to the calls of $3.4 billion of investment securities during 2011. The decrease in the average yield earned reflects current market interest rates.

Dividends on FHLB stock decreased $7.3 million, or 15.8%, to $38.8 million for the year ended December 31, 2011 as compared to $46.1 million for the comparable period in 2010. This decrease was due primarily to a $108.4 million decrease in the average balance of FHLB stock to $770.3 million for 2011 from $878.7 million for the same period in 2010. In addition, the average dividend yield earned decreased to 5.04% for 2011 from 5.25% for 2010. 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. The decrease in the average balance of FHLB stock was due primarily to mandatory redemptions of stock due to a decrease in the amount of borrowings outstanding with the FHLB.

Interest on Federal funds sold amounted to $4.4 million for 2011 as compared to $2.6 million for 2010. The average balance of Federal funds sold amounted to $1.67 billion for 2011 as compared to $1.10 billion for the same period in 2010. The yield earned on Federal funds sold was 0.26% for 2011 and 0.24% for 2010.

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The increase in the average balance of Federal funds sold for 2011 is primarily due to the timing of the extinguishment of borrowings in the Transactions relative to the timing of the receipt of the proceeds from securities sales, calls of investment securities and payments received on mortgage-related assets that were used to fund the extinguishments.

Interest Expense.     Total interest expense for 2011 decreased $407.0 million, or 25.5%, to $1.19 billion from $1.59 billion for 2010. This decrease was primarily due to a $7.06 billion, or 13.0%, decrease in the average balance of total interest-bearing liabilities to $47.34 billion for 2011 from $54.40 billion for 2010. The decrease in the average balance of total interest-bearing liabilities was primarily due to the reduction of total borrowings as part of the Transactions. The decrease in total interest expense was also due to a 42 basis point decrease in the weighted-average cost of total interest-bearing liabilities to 2.51% for 2011 compared with 2.93% for 2010.

Interest expense on our time deposit accounts decreased $59.3 million to $232.2 million for 2011 as compared to $291.5 million for 2010. This decrease was due to a $1.97 billion decrease in the average balance of time deposit accounts to $14.14 billion for 2011 from $16.11 billion for 2010 as a portion of our maturing time deposits transferred to our money market accounts. The shift to our money market accounts is due to the highly competitive rate offered on these accounts. The decrease in interest on time deposits was also due to a 17 basis point decrease in the weighted-average cost to 1.64% for 2011 compared with 1.81% for 2010 as maturing time deposits were renewed or replaced by new time deposits at lower rates.

Interest expense on money market accounts increased $20.6 million to $75.5 million for 2011 as compared to $54.9 million 2010. This increase was due to an increase in the average balance of money market accounts of $2.62 billion to $7.84 billion for 2011 as compared to $5.22 billion for 2010. This increase was partially offset by a decrease in the weighted-average cost of 9 basis points to 0.96% for 2011 compared with 1.05% for 2010. Interest expense on our interest-bearing transaction accounts decreased $8.3 million to $15.7 million for 2011 from $24.0 million for 2010. The decrease is due to a 25 basis point decrease in the weighted-average cost to 0.78%, and a $308.6 million decrease in the average balance to $2.02 billion for 2011 as compared to $2.32 billion for 2010.

The decrease in the average cost of deposits during 2011 reflected lower market interest rates and our decision in 2010 to lower deposit rates to slow deposit growth. At December 31, 2011, time deposits scheduled to mature within one year totaled $8.85 billion with an average cost of 1.24%. These time deposits are scheduled to mature as follows: $3.69 billion with an average cost of 1.15% in the first quarter of 2012, $2.10 billion with an average cost of 1.03% in the second quarter of 2012, $1.46 billion with an average cost of 1.39% in the third quarter of 2012 and $1.60 billion with an average cost of 1.55% in the fourth quarter of 2012. 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 rate.

Interest expense on borrowed funds decreased $359.1 million to $858.2 million for 2011 as compared to $1.22 billion for 2010. This decrease was primarily due to a $7.43 billion decrease in the average balance of borrowed funds to $22.48 billion for 2011 from $29.91 billion for 2010. This decrease was also due to a 25 basis point decrease in the weighted-average cost of borrowed funds to 3.82% for 2011 as compared to 4.07% for 2010. The decrease in the average balance and cost of our borrowings is due to the effects of the Transactions.

Borrowings amounted to $15.08 billion at December 31, 2011 with an average cost of 3.87%. Borrowings scheduled to mature over the next 12 months are as follows: $900.0 million with an average cost of 0.98% in the first quarter of 2012, $750.0 million with an average cost of 0.74% in the second quarter of 2012 and $750.0 million with an average cost of 0.85% in the third quarter of 2012 and $500.0 million with an average cost of 0.98% in the fourth quarter of 2012.

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At December 31, 2011, we had $2.68 billion of borrowings with put dates within one year as compared to $22.83 billion at December 31, 2010. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be put back will not increase substantially unless interest rates were to increase by at least 300 basis points. See “Liquidity and Capital Resources.”

Net Interest Income.      Net interest income decreased $209.9 million, or 17.6%, to $980.9 million for 2011 compared to $1.19 billion for 2010. During 2011, our net interest rate spread decreased 10 basis points to 1.67% for 2011 from 1.77% for 2010. Our net interest margin decreased 12 basis points to 1.89% during 2011 from 2.01% for 2010.

The decrease in our net interest margin and net interest rate spread was primarily due to the decrease in the weighted-average yield of our interest-earning assets and the decrease in the average balance of interest-earning assets. The yields on mortgage-related assets, which account for 88.9% of the average balance of interest-earning assets for the year ended December 31, 2011, remained at near-historic lows. The low market interest rates resulted in increased refinancing activity which caused a decrease in the yield we earned on mortgage-related assets as customers refinanced to lower mortgage rates and our new loan production and asset purchases were at the current low market interest rates.

Provision for Loan Losses.      The provision for loan losses amounted to $120.0 million for 2011 as compared to $195.0 million for 2010. The ALL amounted to $273.8 million and $236.6 million at December 31, 2011 and 2010, respectively. The decrease in the provision for loan losses for the year ended December 31, 2011 was due primarily to the stabilization in early-stage delinquencies, represented by loans that are 30 to 89 days delinquent, the decrease in net charge-offs and a decrease in the size of the loan portfolio in each case relative to the year ended December 31, 2010. These factors were tempered by the continued decline in home prices, although at a slower rate than during the recent recessionary cycle, continued elevated levels of unemployment and an increase in the growth rate of non-performing loans during the second half of 2011 as compared to the first six months of 2011. We recorded our provision for loan losses during 2011 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, recent collateral valuations, conditions in the real estate and housing markets, current economic conditions, particularly continued elevated levels of unemployment, and growth or shrinkage 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 2011 first mortgage loan originations and our total first mortgage loan portfolio were 61% and 60%, 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 2011, we concluded that home values in our lending markets continued to decline from 2010 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.

The national economy was in a recessionary cycle during 2009 and 2010 with the housing and real estate markets suffering significant losses in value. Economic conditions have improved but at a slower pace than anticipated during 2011. Home sale activity and real estate valuations remained at reduced levels during 2011 and unemployment, while improving, remained at elevated levels. We continue to closely monitor the local and national real estate markets and other factors related to risks inherent in our loan portfolio.

Non-performing loans amounted to $1.02 billion at December 31, 2011 as compared to $871.3 million at December 31, 2010. Non-performing loans at December 31, 2011 included $1.01 billion of one- to four-family

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first mortgage loans as compared to $858.3 million at December 31, 2010. The ratio of non-performing loans to total loans was 3.48% at December 31, 2011 compared to 2.82% at December 31, 2010. Loans delinquent 30 to 59 days amounted to $427.2 million at December 31, 2011 as compared to $418.9 million at December 31, 2010. Loans delinquent 60 to 89 days amounted to $187.4 million at December 31, 2011 as compared to $193.2 million at December 31, 2010. Foreclosed real estate amounted to $40.6 million at December 31, 2011 as compared to $45.7 million at December 31, 2010. Accordingly, total early stage delinquencies (loans 30 to 89 days past due) increased $2.5 million to $614.6 million at December 31, 2011 from $612.1 million at December 31, 2010. 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. Due to the steady deterioration of real estate values in recent 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 at origination have helped to moderate our charge-offs.

At December 31, 2011, the ratio of the ALL to non-performing loans was 26.77% as compared to 27.15% at December 31, 2010. The ratio of the ALL to total loans was 0.93% at December 31, 2011 as compared to 0.77% at December 31, 2010. Changes 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, non-performing loans and losses we may incur on our loan portfolio. 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.

We generally obtain new collateral values by the time a loan becomes 180 days past due. 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. Charge-offs amounted to $97.1 million for 2011 as compared to $110.8 million for 2010. Recoveries of amounts previously charged-off amounted to $14.3 million for 2011 as compared to $12.3 million for 2010. Write-downs and net losses on the sale of foreclosed real estate amounted to $7.5 million for 2011 as compared to $2.7 million for 2010. The results of our reappraisal process and our recent charge-off history are considered in the determination of the ALL.

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 FHFA 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, 2011, 81.7% of our loan portfolio and 77.6% of our non-performing loans were located in the New York metropolitan area. We generally obtain updated collateral values by the time a loan becomes 180 days past due and annually thereafter, 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 house price indices to identify geographic trends 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 (fixed and variable 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).

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Loans with known potential losses are categorized separately. We assign estimated 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 our loss experience, delinquency trends, portfolio growth and environmental factors such as 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 certain loss factors used in our quantitative analysis of the ALL for our one- to four- family first mortgage loans during 2011. We define our loss experience on non-performing loans as the ratio of the excess of the loan balance (including selling costs) over the updated collateral value to the principal balance of loans for which we have updated valuations. We generally obtain updated collateral values by the time a loan becomes 180 days past due and on an annual basis thereafter for as long as the loan remains non-performing. Based on our analysis, our estimated loss experience on our non-performing one- to four-family first mortgage loans was approximately 13.5% during 2011 as compared to 13.3% in 2010 and 11.0% in 2009. The recent adjustment in our loss factors did not have a material effect on the ultimate level of our ALL or on our provision for loan losses. 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 loss experience, we also use environmental factors and qualitative analyses to determine the adequacy of our ALL. This analysis includes further evaluation of economic factors, such as trends in the unemployment rate, as well as ratio analysis to evaluate the overall measurement of the ALL, a review of delinquency ratios, net charge-off ratios and the ratio of the ALL to both non-performing loans and total loans. The 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 ratio 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 ratio is particularly important to us when a loan becomes non-performing. The weighted average LTV ratio in our one- to four-family mortgage loan portfolio at December 31, 2011 was approximately 60%, using appraised values at the time of origination. The average LTV ratio of our non-performing loans was approximately 74% at December 31, 2011. Based on the valuation indices, house prices have declined in the New York metropolitan area, where 77.6% of our non-performing loans were located at December 31, 2011, by approximately 24% from the peak of the market in 2006 through November 2011 and by 33% 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 ALL. There can be no assurance whether significant further declines in house values may occur and result in higher loss experience and increased levels of charge-offs and loan loss provisions.

Net charge-offs amounted to $82.8 million for 2011 as compared to net charge-offs of $98.5 million for 2010. Net charge-offs as a percentage of average loans was 0.28% for 2011 as compared to 0.31% for 2010. 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. Until the recent 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. Due to the unprecedented level of foreclosures and the desire by most states to slow the foreclosure process, we continue to experience a time frame to repayment or foreclosure ranging from 30 to 36 months from the initial non-performing period. These delays have impacted our level of non-performing loans as these loans take longer to migrate to real estate owned and ultimate disposition. In addition, the highly publicized foreclosure issues that have recently affected the nation’s largest mortgage loan servicers has resulted in greater court and state attorney general scrutiny, and our foreclosure process and timing to completion of foreclosures may be further delayed. If real estate prices do not improve or 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

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borrowers to sell homes to satisfy the mortgage and second lien holders and are less likely to repay our loan if the value of the property is not enough to satisfy their loan. We continue to closely monitor 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, 2011 and December 31, 2010, commercial and construction loans evaluated for impairment in accordance with Financial Accounting Standards Board (“FASB”) guidance amounted to $14.6 million and $16.7 million, respectively. Based on this evaluation, we established an ALL of $4.4 million for loans classified as impaired at December 31, 2011 compared to $5.1 million at December 31, 2010.

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. Changes 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. 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 $113.9 million for the year ended December 31, 2011 as compared to $163.0 million for the same period in 2010. Included in non-interest income for the year ended December 31, 2011 were net gains on securities transactions of $102.5 million which resulted from the sale of $9.04 billion of securities available-for-sale. Substantially all of the proceeds from the sale of securities were used to repay borrowings as part of the Restructuring Transaction. Included in non-interest income for the year ended December 31, 2010 were net gains on securities transactions of $152.6 million which resulted from the sale of $3.92 billion of mortgage-backed securities available-for-sale.

Non-Interest Expense.    Total non-interest expense amounted to $2.23 billion for the year ended December 31, 2011 from $266.4 million for the year ended December 31, 2010. Included in total non-interest expense for 2011 was a $1.90 billion loss on the extinguishment of debt related to the Transactions.

Compensation and employee benefit costs decreased $20.7 million, or 15.5%, to $113.1 million for 2011 as compared to $133.8 million for 2010. This decrease is primarily due to a $21.5 million decrease in expense related to our stock benefit plans primarily as a result of the decrease in the market price of our common stock and a $929,000 decrease in compensation costs. These decreases were partially offset by a $984,000 increase in medical plan expense and an $872,000 increase in pension costs. The decrease in compensation costs is due primarily to a decrease in incentive compensation expense for 2011 partially offset by normal salary increases as well as an increase in the number of full-time equivalent employees. At December 31, 2011, we had 1,586 full-time equivalent employees as compared to 1,562 at December 31, 2010.

For the year ended December 31, 2011 Federal deposit insurance increased $65.0 million, or 116.2%, to $121.0 million from $56.0 million for the year ended December 31, 2010. This increase was due primarily to the new deposit assessment methodology adopted by the Federal Deposit Insurance Corporation that became effective on April 1, 2011 and which redefined the assessment base as average consolidated total assets minus average tangible equity. Previously, deposit insurance assessments were based on the amount of deposits.

Included in other non-interest expense for the year ended December 31, 2011 were write-downs and net losses on the sale of foreclosed real estate of $7.5 million as compared to $2.7 million for the comparable period in 2010. We sold 156 properties during the year of 2011 as compared to 71 properties for the same period in 2010.

For the year ended December 31, 2011, our efficiency ratio was 32.68% compared with 19.68% for the year ended December 31, 2010. The calculation of the efficiency ratio is on page 3 of this Annual Report. Our ratio of non-interest expense to average total assets for the year ended December 31, 2011 was 4.20% compared with 0.44% for the corresponding period in 2010.

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Income Taxes.      Income tax benefit amounted to $519.3 million for 2011 compared with income tax expense $355.2 million for 2010. Our effective tax rate for 2011 was 41.37% compared with 39.80% for 2010. The income tax benefit for 2011 was due to the loss before income taxes of $1.26 billion.

Comparison of Operating Results for the Years Ended December 31, 2010 and 2009

General.      Net income was $537.2 million for 2010, an increase of $10.0 million, or 1.9%, compared with net income of $527.2 million for 2009. Basic and diluted earnings per common share were both $1.09 for 2010 as compared to basic and diluted earnings per share of $1.08 and $1.07, respectively for 2009. For 2010, our return on average shareholders’ equity was 9.66%, compared with 10.18% for 2009. Our return on average assets for 2010 was 0.88% as compared to 0.92% for 2009. The decrease in our return on average equity and assets is primarily due to the increase in average equity and assets during 2010.

Interest and Dividend Income.      Total interest and dividend income for 2010 decreased $157.3 million, or 5.4%, to $2.78 billion as compared to $2.94 billion for 2009. The decrease in total interest and dividend income was primarily due to a decrease of 54 basis points in the weighted-average yield on total interest-earning assets to 4.70% for 2010 from 5.24% for 2009. The decrease in the weighted-average yield was partially offset by an increase in the average balance of total interest-earning assets of $3.14 billion, or 5.6%, to $59.27 billion for 2010 as compared to $56.13 billion for 2009.

Interest on first mortgage loans decreased slightly to $1.67 billion for 2010 as compared to $1.68 billion for 2009. This was primarily due to a 26 basis point decrease in the weighted-average yield to 5.31% for the year ended December 31, 2010 as compared to 5.57% for 2009. The effect of the decrease in the weighted-average yield was partially offset by a $1.27 billion increase in the average balance of first mortgage loans to $31.40 billion, which reflected our historical emphasis on the growth of our mortgage loan portfolio. 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 2010, existing mortgage customers refinanced or modified approximately $3.47 billion in mortgage loans with a weighted average rate of 5.77% to a new weighted average rate of 4.84%.

Interest on consumer and other loans decreased $3.3 million to $18.4 million for 2010 from $21.7 million for 2009. The average balance of consumer and other loans decreased $34.8 million to $346.2 million for 2010 as compared to $381.0 million for 2009 and the average yield earned decreased 37 basis points to 5.32% as compared to 5.69% for the same respective periods.

Interest on mortgage-backed securities decreased $132.1 million to $851.6 million for 2010 as compared to $983.7 million for 2009. This decrease was due primarily to an 88 basis point decrease in the weighted-average yield to 4.14% for 2010 from 5.02% for 2009. The effect of the decrease in the weighted-average yield was partially offset by a $953.0 million increase in the average balance of mortgage-backed securities to $20.56 billion during 2010 as compared to $19.60 billion for 2009.

The increases in the average balances of mortgage-backed securities were due to purchases of primarily variable-rate hybrid securities. We purchased these securities to reinvest cash flows resulting from prepayments on our mortgage loans and the calls of investment securities. The elevated levels of prepayments, weak home purchase activity and the GSEs involvement in the mortgage market have made it difficult for us to reinvest cash flows into the mortgage portfolio. The decrease in the weighted average yield on mortgage-backed securities is a result of lower yields on securities that have been purchased since the second half of 2009 when market interest rates were lower than the yield earned on the existing portfolio.

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Interest on investment securities decreased $14.7 million to $198.7 million during 2010 as compared to $213.4 million for 2009. This decrease was due primarily to a decrease in the average yield of investment securities of 68 basis points to 3.98% for 2010 as compared to 4.66% for 2009. This decrease in the average yield earned reflects current market interest rates. The effect of the decrease in the weighted-average yield on investment securities was partially offset by a $415.1 million increase in the average balance of investment securities to $4.99 billion during 2010 from $4.58 billion for 2009. The increase in the average balance was due primarily to the reinvestment of proceeds from the continued elevated levels of repayments of mortgage-related assets.

Dividends on FHLB stock increased $3.0 million, or 7.0%, to $46.1 million for 2010 as compared to $43.1 million for 2009. This increase was due primarily to a 33 basis point increase in the average dividend yield earned to 5.25% for 2010 as compared to 4.92% for 2009. The increase in dividend income was also due to a $2.0 million increase in the average balance to $878.7 million for 2010 as compared to $876.7 million for 2009. The increase in the average balance was due to purchases of FHLB stock to meet membership requirements.

Interest on Federal funds sold amounted to $2.6 million for 2010 as compared to $1.2 million for 2009. The average balance of Federal funds sold amounted to $1.10 billion for 2010 as compared to $566.1 million for 2009. The yield earned on Federal funds sold was 0.24% for the year ended December 31, 2010 and 0.21% for the year ended December 31, 2009. The increase in the average balance of Federal funds sold is a result of liquidity provided by increased levels of repayments on mortgage-related assets and calls of investment securities.

Interest Expense.      Total interest expense for the year ended December 31, 2010 decreased $104.6 million, or 6.2%, to $1.59 billion from $1.70 billion for the year ended December 31, 2009. This decrease was primarily due to a 38 basis point decrease in the weighted-average cost of total interest-bearing liabilities to 2.93% for the year ended December 31, 2010 compared with 3.31% for the year ended December 31, 2009. The effect of the decrease in the weighted-average cost was partially offset by a $3.13 billion, or 6.1%, increase in the average balance of total interest-bearing liabilities to $54.40 billion for the year ended December 31, 2010 compared with $51.27 billion for 2009.

Interest expense on our time deposit accounts decreased $85.4 million to $291.5 million for 2010 from $376.9 million for 2009. This decrease was due to a decrease in the weighted-average cost of 74 basis points to 1.81% for 2010 from 2.55% for 2009 as maturing time deposits were renewed or replaced by new time deposits at lower rates. This effect of the decrease in the weighted average cost was partially offset by a $1.34 billion increase in the average balance of time deposit accounts to $16.11 billion for 2010 from $14.77 billion for 2009. Interest expense on money market accounts decreased $14.1 million to $54.9 million for 2010 from $69.0 million for 2009. This decrease was due to a decrease in the weighted-average cost of 76 basis points to 1.05% for 2010 from 1.81% for 2009. This decrease was partially offset by an increase in the average balance of money market accounts of $1.40 billion to $5.22 billion 2010 as compared to $3.82 billion for 2009. Interest expense on our interest-bearing transaction accounts decreased $7.9 million to $24.0 million for 2010 compared with $31.9 million for 2009. This decrease is due to a 75 basis point decrease in the weighted-average cost to 1.03%, partially offset by a $534.3 million increase in the average balance to $2.32 billion for 2010 as compared to $1.79 billion for 2009.

The increases in the average balances of interest-bearing deposits reflect our efforts to grow deposits in 2009. Also, in response to the economic conditions in 2009, we believe that households increased their personal savings and customers 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 in 2009. We lowered our deposit rates during 2010 to slow our deposit growth from 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.

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The decrease in the average cost of deposits for 2010 reflected lower market interest rates and our decision to lower deposit rates to slow deposit growth. At December 31, 2010, time deposits scheduled to mature within one year totaled $10.60 billion with an average cost of 1.32%. These time deposits are scheduled to mature as follows: $4.58 billion with an average cost of 1.18% in the first quarter of 2011, $2.96 billion with an average cost of 1.19% in the second quarter of 2011, $1.40 billion with an average cost of 1.44% in the third quarter of 2011 and $1.66 billion with an average cost of 1.82% in the fourth quarter of 2011. 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 rate.

Interest expense on borrowed funds increased $2.5 million to $1.22 billion for the year ended December 31, 2010 as compared to $1.21 billion for the year ended December 31, 2009. This increase was primarily due to a 4 basis point increase in the weighted-average cost of borrowed funds to 4.07% for 2010 as compared to 4.03% for 2009. The slight increase reflects the cost of modifying a portion of our borrowings as well as the low percentage of borrowings that matured in 2010 and that no borrowings were put back to us during the year. During 2010, we modified $4.03 billion of borrowings to extend the put dates of the borrowings by between three and five years. During 2009, we modified approximately $1.73 billion of borrowings. The increase in the weighted-average cost was partially offset by a $226.9 million decrease in the average balance of borrowed funds to $29.91 billion for 2010 as compared to $30.14 billion for 2009.

We have, in the past, used borrowings to fund a substantial portion of the growth in interest-earning assets. However, we were able to fund substantially all of our growth in 2009 and 2010 with deposits. Substantially all of our borrowings are putable quarterly at the discretion of the lender after an initial non-put period of one to five years with a final maturity of ten years. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be put back will not increase substantially unless interest rates were to increase by at least 200 basis points. See “Liquidity and Capital Resources.”

Net Interest Income.        Net interest income decreased $52.7 million, or 4.3%, to $1.19 billion for 2010 compared to $1.24 billion for 2009. Our net interest rate spread decreased 16 basis points to 1.77% for 2010 from 1.93% for 2009. Our net interest margin decreased 21 basis points to 2.01% for 2010 from 2.22% for 2009.

The decrease in our net interest margin and net interest rate spread was primarily due to the decrease in the weighted-average yield of our interest-earning assets. The yields on mortgage-related assets, which account for 87.7% of the average balance of interest-earning assets for the year ended December 31, 2010, remained at near-historic lows. The low market interest rates resulted in increased refinancing activity which caused a decrease in the yield we earned on mortgage-related assets. We were able to reduce our funding costs but to a lesser extent than the decrease in mortgage yields, due in part to the longer duration of our borrowings which caused our liabilities to reprice less quickly than our assets. These factors resulted in a decrease in our net interest rate spread and net interest margin for the year ended December 31, 2010.

Provision for Loan Losses.      The provision for loan losses amounted to $195.0 million for 2010 as compared to $137.5 million for 2009. The ALL amounted to $236.6 million and $140.1 million at December 31, 2010 and 2009, respectively. The increase in the provision for loan losses for the year ended December 31, 2010 and the resulting increase in the ALL is due primarily to the increase in non-performing loans during 2010, continuing elevated levels of unemployment and an increase in charge-offs. In addition, although home prices appear to have started to stabilize, conditions in the housing markets in many of our lending markets remain weak. We recorded our provision for loan losses during 2010 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 – ALL.”

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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 LTV ratios of less than 80%. The average LTV ratio of our 2010 first mortgage loan originations and our total first mortgage loan portfolio were 61.4% and 60.7%, 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 2010, we concluded that, while at a slower rate, home prices in our primary lending area continued to decline from 2009 levels, as evidenced by reduced levels of sales, increasing inventories of houses on the market and an increase in the length of time houses remain on the market.

The national economy was in a recessionary cycle for approximately 2 years with the housing and real estate markets suffering significant losses in value. The faltering economy was marked by contractions in the availability of business and consumer credit, falling home prices, increasing home foreclosures and rising levels of unemployment. Economic conditions have improved but at a relatively slow pace. Despite recent signs of improvement in national unemployment rates, the rates remain very high as economic growth has not been strong enough to result in any significant improvement in the labor markets. 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 2010 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 trends in the unemployment rate.

Non-performing loans amounted to $871.3 million at December 31, 2010 as compared to $627.7 million at December 31, 2009. Non-performing loans at December 31, 2010 included $858.3 million of one- to four-family first mortgage loans as compared to $613.6 million at December 31, 2009. The ratio of non-performing loans to total loans was 2.82% at December 31, 2010 compared to 1.98% at December 31, 2009. Loans delinquent 30 to 59 days amounted to $418.9 million at December 31, 2010 as compared to $430.9 million at December 31, 2009. Loans delinquent 60 to 89 days amounted to $193.2 million at December 31, 2010 as compared to $182.5 million at December 31, 2009. Foreclosed real estate amounted to $45.7 million at December 31, 2010 as compared to $16.7 million at December 31, 2009. 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. Due to the steady deterioration of real estate values in recent 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 at origination have helped to moderate our charge-offs.

At December 31, 2010, the ratio of the ALL to non-performing loans was 27.15% as compared to 22.32% at December 31, 2009. The ratio of the ALL to total loans was 0.77% at December 31, 2010 as compared to 0.44% at December 31, 2009. Changes 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, non-performing loans and losses we may incur on our loan portfolio. 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.

Charge-offs on our non-performing loans increased in 2010. We generally obtain new collateral values by the time a loan becomes 180 days past due. 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. Charge-offs

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amounted to $98.5 million for 2010 as compared to $47.2 million in 2009. These charge-offs were primarily due to the results of our reappraisal process for our non-performing residential first mortgage loans. During 2010, we disposed of 71 loans through the foreclosure process with a final aggregate realized gain on sale (after previous charge-offs and write-downs of $8.9 million) of approximately $508,000. Write-downs on foreclosed real estate amounted to $3.2 million for 2010. The results of our reappraisal process and our recent charge-off history are also considered in the determination of the ALL.

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 Federal Housing Finance Agency (“FHFA”). Our AQC uses these indices and a stratification of our loan portfolio by state as part of its quarterly determination of the ALL. We generally obtain updated collateral values by the time 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 estimated 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 certain loss factors used in our quantitative analysis of the ALL for one- to four-family first mortgage loans during 2010. We define our loss experience on non-performing loans as the ratio of the excess of the loan balance (including selling costs) over the updated collateral value to the principal balance of loans for which we have updated valuations. We generally obtain updated collateral values by the time a loan becomes 180 days past due. Based on our analysis, our loss experience on our non-performing one- to four-family first mortgage loans was approximately 13.3% during 2010 and was approximately 11.0% in 2009. Our one- to four- family mortgage loans represent 98.8% of our total loans. The recent adjustment in our loss factors did not have a material effect on the ultimate level of our ALL or on our provision for loan losses. 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 of 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, 2010 was 60.7%, using appraised values at the time of origination. The average LTV ratio of our non-performing loans, using appraised values at the time of origination, was 74.8% at December 31, 2010.

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Based on the valuation indices, house prices have declined in the New York metropolitan area, where 70.9% of our non-performing loans were located at December 31, 2010, by approximately 22% from the peak of the market in 2006 through November 2010 and by 31% nationwide during that period. During the first eleven months of 2010, the house price indices decreased by 1.5% in the New York metropolitan area and 2.1% nationwide. 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 ALL. 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. Further, no assurance can be given in any particular case that our LTV ratios will provide full protection in the event of borrower default.

Net charge-offs amounted to $98.5 million for 2010 as compared to net charge-offs of $47.2 million for 2009. 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. Until the recent 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. 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 30 to 36 months from the initial non-performing period. In addition, in light of the highly publicized foreclosure issues that have recently affected the nation’s largest mortgage loan servicers which has resulted in greater bank regulatory, court and state attorney general scrutiny, our foreclosure process and timing to completion of foreclosures may be further delayed. If real estate prices do not improve or 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 repay our loan if the value of the property is not enough to satisfy their loan. We continue to closely monitor 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, 2010 and December 31, 2009, commercial and construction loans evaluated for impairment in accordance with Financial Accounting Standards Board (“FASB”) guidance amounted to $16.7 million and $11.2 million, respectively. Based on this evaluation, we established an ALL of $5.1 million for loans classified as impaired at December 31, 2010 compared to $2.1 million at December 31, 2009.

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. 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 for the year ended December 31, 2010 was $163.0 million compared with $33.6 million for 2009. Included in non-interest income for the year ended December 31, 2010 were net gains on securities transactions of $152.6 million which resulted from the sale of $3.92 billion of mortgage-backed securities available-for-sale. Included in non-interest income for the year ended December 31, 2009 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. We believe that the continued elevated levels of prepayments and the eventual increase in interest rates will reduce the amount of unrealized gains in the available-for-sale portfolio. Accordingly, we sold these securities to take advantage of the favorable pricing that currently exists in the market.

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Non-Interest Expense.       Total non-interest expense increased $791,000 to $266.4 million for the year ended December 31, 2010 from $265.6 million for the year ended December 31, 2009. The increase is primarily due to a $20.9 million increase in federal deposit insurance expense and a $3.9 million increase in other expense partially offset by the absence of the FDIC special assessment of $21.1 million and a decrease of $3.3 million in compensation and employee benefits expense. The decrease in compensation and employee benefits expense included a $6.0 million decrease in expense related to our stock benefit plans and a $3.6 million decrease in pension expense. These decreases were partially offset by a $5.8 million increase in compensation costs due primarily to normal increases in salary as well as additional full time employees. The decrease in stock benefit plans expense was due primarily to decreases in the market price of our common stock. The decrease in pension expense is due to improved returns on plan assets as well as investment returns on the 2009 contribution to the pension plan which amounted to $35.0 million. The increase in Federal deposit insurance expense is due primarily to an increase in total deposits and the increases in our deposit insurance assessment rate as a result of a restoration plan implemented by the FDIC to recapitalize the Deposit Insurance Fund. The increase in other expense is due primarily to a $2.9 million increase in regulatory fees and professional services. Included in other non-interest expense for the year ended December 31, 2010 were write-downs on foreclosed real estate and net losses on the sale of foreclosed real estate, of $2.7 million as compared to $2.4 million for 2009.

Our efficiency ratio was 19.68% for 2010 as compared to 20.80% for 2009. 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 2010 was 0.44% as compared to 0.46% for 2009.

Income Taxes.      Income tax expense amounted to $355.2 million for 2010 compared with $346.7 million for 2009. Our effective tax rate for 2010 was 39.80% compared with 39.67% for 2009.

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Asset Quality

Credit Quality

Our primary lending emphasis is the origination and purchase of one- to four-family first mortgage loans on residential properties. Our lending market areas generally consists of those states that are east of the Mississippi River and as far south as South Carolina.

The following table presents the composition of our loan portfolio in dollar amounts and in percentages of the total portfolio at December 31:

	2011					2010
	Amount		Percent     of Total			Amount		Percent     of Total
	(Dollars in thousands)
First mortgage loans:
One- to four-family:
Amortizing	$	23,480,909		80.05	%	$	24,912,935		80.56	%
Interest-only		4,779,863		16.30			5,136,463		16.61
FHA/VA		734,781		2.51			499,724		1.62
Multi-family and commercial		39,634		0.14			48,067		0.16
Construction		4,929		0.02			9,081		0.03
Total first mortgage loans		29,040,116		99.02			30,606,270		98.98
Consumer and other loans
Fixed-rate second mortgages		131,597		0.45			160,896		0.52
Home equity credit lines		134,502		0.46			137,467		0.44
Other		21,130		0.07			19,264		0.06
Total consumer and other loans		287,229		0.98			317,627		1.02
Total loans		29,327,345		100.00	%		30,923,897		100.00	%
Deferred loan costs		83,805					86,633
Allowance for loan losses		(273,791)					(236,574)
Net loans	$	29,137,359				$	30,773,956

At December 31, 2011, first mortgage loans secured by one-to four-family properties accounted for 98.9% of total loans. Fixed-rate mortgage loans represent 66.8% 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. We believe our loans, when made, were amply collateralized and otherwise conformed to our prime lending standards.

Included in our loan portfolio at December 31, 2011 are interest-only one-to four-family residential loans of approximately $4.78 billion, or 16.3%, of total loans as compared to $5.14 billion, or 16.6%, of total loans at December 31, 2010. 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 loan. 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. Non-performing interest-only loans amounted to $213.9 million, or 20.9%, of non-performing loans at December 31, 2011 as compared to non-performing interest-only loans of $179.3 million, or 20.6%, of non-performing loans at December 31, 2010.

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In addition to our full documentation loan program, we originate and purchase loans to certain eligible borrowers as limited documentation loans. Generally the maximum loan amount for limited documentation loans is $750,000 and these loans are subject to higher interest rates than our full documentation loan products. We require applicants for limited documentation loans to complete a Freddie Mac/Fannie Mae loan application and request income, asset and credit history information from the borrower. Additionally, we verify asset holdings and obtain credit reports from outside vendors on all borrowers to ascertain the credit history of the borrower. Applicants with delinquent credit histories usually do not qualify for the limited documentation processing, although delinquencies that are adequately explained will not prohibit processing as a limited documentation loan. We reserve the right to verify income and do require asset verification but we may elect not to verify or corroborate certain income information where we believe circumstances warrant. We are able to provide data relating to limited documentation loans that we originate. Originated loans overall represent 70.1% of our one- to four- family first mortgage loans. As part of our wholesale loan program, we allow sellers to include limited documentation loans in each pool of purchased mortgage loans but limit the amount of these loans to be no more than 10% of the principal balance of the purchased pool. In addition, these loans must have a maximum LTV ratio of 60% and meet other characteristics such as maximum loan size. However, we have not tracked wholesale limited documentation loans on our mortgage loan system. Included in our loan portfolio at December 31, 2011 are $3.85 billion of originated amortizing limited documentation loans and $956.2 million of originated limited documentation interest-only loans. Non-performing loans at December 31, 2011 include $126.9 million of originated amortizing limited documentation loans and $71.0 million of originated interest-only limited documentation loans. Included in our loan portfolio at December 31, 2010 are $3.38 billion of originated amortizing limited documentation loans and $938.8 million of originated limited documentation interest-only loans. Non-performing loans at December 31, 2010 include $91.5 million of originated amortizing limited documentation loans and $58.3 million of originated interest-only limited documentation loans.

The following table presents the geographic distribution of our total loan portfolio, as well as the geographic distribution of our non-performing loans at December 31:

	2011						2010
	Total loans			Non-performing     Loans			Total loans			Non-performing     Loans
New Jersey		44.7	%		51.3	%		44.0	%		45.7	%
New York		22.4			19.5			19.9			18.7
Connecticut		14.6			6.8			14.5			6.5
Total New York metropolitan area		81.7			77.6			78.4			70.9
Pennsylvania		4.7			1.4			3.1			1.2
Virginia		2.6			2.9			3.5			4.6
Illinois		2.3			4.7			3.0			4.9
Maryland		2.0			3.2			2.7			4.4
All others		6.7			10.2			9.3			14.0
Total Outside New York metropolitan area		18.3			22.4			21.6			29.1
		100.0	%		100.0	%		100.0	%		100.0	%

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Non-Performing Assets

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

	At December 31,
	2011			2010			2009			2008			2007
	(Dollars in thousands)
Non-accrual loans:
Residential first mortgage loans	$	914,291		$	794,106		$	581,786		$	200,642		$	69,904
Multi-family and commercial mortgages		2,223			1,117			1,414			1,854			2,028
Construction loans		4,344			7,560			6,624			7,610			647
Consumer and other loans		4,353			4,320			1,916			626			956
Total non-accrual loans		925,211			807,103			591,740			210,732			73,535
Accruing loans delinquent 90 days or more		97,476			64,156			35,955			6,842			5,867
Total non-performing loans		1,022,687			871,259			627,695			217,574			79,402
Foreclosed real estate, net		40,619			45,693			16,736			15,532			4,055
Total non-performing assets	$	1,063,306		$	916,952		$	644,431		$	233,106		$	83,457
Non-performing loans to total loans		3.48	%		2.82	%		1.98	%		0.74	%		0.33	%
Non-performing assets to total assets		2.34			1.50			1.07			0.43			0.19

Loans that are past due 90 days or more and still accruing interest are loans that are insured by the Federal Housing Administration (the “FHA”).

Non-performing loans exclude loans which have been restructured and are accruing and performing in accordance with the terms of their restructure agreement. Restructured accruing loans totaled $55.1 million at December 31, 2011 and $11.1 million at December 31, 2010. Restructured loans included in non-performing loans totaled $11.4 million at December 30, 2011. There were no non-performing restructured loans at December 31, 2010. In addition, there were no troubled debt restructurings at December 31, 2009, 2008 and 2007.

During 2011, we adopted a Loan Modification Policy that, among other things, expands the modified loan programs currently offered by the Bank. We anticipate that we will begin to modify loans pursuant to this policy in the first quarter of 2012 which may result in an increase in loans classified as troubled debt restructurings.

The following table presents information regarding our non-performing residential first mortgage loans at December 31:

	2011		2010		2009
	(Dollars in thousands)
Non-accrual residential first mortgage loans:
Amortizing residential first mortgage loans	$	700,429	$	614,758	$      499,550
Interest-only residential first mortgage loans		213,862		179,348	82,236

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The following table is a comparison of our delinquent loans at December 31, 2011 and 2010:

	30-59 Days				60-89 Days				90 Days or More
At December 31, 2011	Number     of Loans		Principal     Balance of Loans		Number     of Loans		Principal     Balance of Loans		Number     of Loans		Principal     Balance of Loans
One- to four- family first mortgages:		(Dollars in thousands)
Amortizing		941	$	326,284		430	$	149,772		2,344	$	700,429
Interest-only		76		63,360		27		27,833		209		213,862
FHA/VA first mortgages		147		30,815		40		8,774		377		97,476
Multi-family and commercial mortgages		3		1,521		1		393		4		2,223
Construction loans		-		-		-		-		4		4,344
Consumer and other loans		46		5,209		11		632		49		4,353
Total		1,213	$	427,189		509	$	187,404		2,987	$	1,022,687
Delinquent loans to total loans				1.46%				0.64%				3.48%
At December 31, 2010
One- to four- family first mortgages:
Amortizing		940	$	342,990		415	$	151,800		1,839	$	614,758
Interest-only		72		47,479		45		29,570		305		179,348
FHA/VA first mortgages		96		20,594		40		9,730		234		64,156
Multi-family and commercial mortgages		4		3,199		2		1,199		4		1,117
Construction loans		-		-		-		-		6		7,560
Consumer and other loans		45		4,644		14		946		42		4,320
Total		1,157	$	418,906		516	$	193,245		2,430	$	871,259
Delinquent loans to total loans				1.35%				0.62%				2.82%

We adopted Accounting Standards Update (“ASU”) No. 2011-02 on April 1, 2011 which provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties. As a result of our adoption of ASU No. 2011-02, in the second quarter of 2011 we determined that approximately $26.2 million of residential mortgage loans were troubled debt restructurings that were not previously considered as such.

Loans modified in a troubled debt restructuring totaled $66.5 million at December 31, 2011 of which $7.4 million are 30 to 59 days past due, $4.8 million are 60 to 89 days past due and $11.4 million are 90 days or more past due and are included in non-accrual loans. The remaining troubled debt restructurings were current at December 31, 2011 and have complied with the terms of their restructure agreement. We discontinue accruing interest on troubled debt restructurings that are past due 90 days or more or if we believe we will not collect all amounts contractually due. Approximately $3.3 million of troubled debt restructurings that were previously accruing interest became 90 days or more past due during 2011 for which we ceased accruing interest. At December 31, 2010, loans modified in a troubled debt restructuring totaled $11.1 million all of which were current at the time of their restructuring and were in compliance with the terms of their restructure agreement at December 31, 2010.

Loans that were modified in a troubled debt restructuring primarily represent loans that have been in a deferred payment plan for an extended period of time, generally in excess of six months, loans that have had past due amounts capitalized as part of the loan balance, loans that have a confirmed Chapter 13 bankruptcy status and other repayment plans. These loans are individually evaluated for impairment to determine if the carrying value of the loan is in excess of the fair value of the collateral or the present value of the loan’s expected future cash flows.

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The following table is a comparison of our troubled debt restructuring by class as of the date indicated.

	December 31, 2011						December 31, 2010
	Number of   Contracts		Pre-restructuring   Outstanding Recorded Investment		Post-restructuring   Outstanding Recorded Investment		Number of   Contracts		Pre-restructuring   Outstanding Recorded Investment		Post-restructuring   Outstanding Recorded Investment
	(In thousands)
Troubled debt restructurings:
One-to-four family first mortgages:
Amortizing		146	$	57,336	$	53,831		6	$	2,014	$	2,031
Interest-only		9		4,970		4,799		1		1,093		1,103
Multi-family and commercial mortgages		2		7,911		7,911		2		7,911		7,911
Total		157	$	70,217	$	66,541		9	$	11,018	$	11,045

Upon request, we will generally agree to a short-term payment plan for certain residential mortgage loan borrowers. Many of these customers are current as to their mortgage payments, but may be anticipating a short-term cash flow need and want to protect their credit history. The extent of these plans is generally limited to a six-month deferral of principal payments. Pursuant to these short-term payment plans, we do not modify mortgage notes, recast legal documents, extend maturities or reduce interest rates. We also do not forgive any interest or principal. These loans have not been classified as troubled debt restructurings since we collect all principal and interest, the deferral period is short and any reduction in the present value of cash flows is due to the insignificant delay in the timing of principal payments. As a result, these restructurings did not meet the requirements in ASU No. 2011-02 to be considered a troubled debt restructuring. The principal balance of loans with payment plans at December 31, 2011 amounted to $28.1 million, including $19.7 million of loans that are current, $2.0 million that are 30 to 59 days past due, $3.1 million that are 60 to 89 days past due and $3.3 million that are non-accrual loans and 90 days or more past due. The principal balance of loans with payment plans at December 31, 2010 amounted to $81.3 million, including loans that were determined to be troubled debt restructurings as a result of our adoption of ASU No. 2011-02 in 2011. Of the $81.3 million of loans in payment plans at December 31, 2010, $54.4 million were current, $13.9 million were 30 to 59 days past due, $4.7 million were 60 to 89 days past due and $8.3 million were 90 days or more past due.

Foreclosed real estate amounted to $40.6 million at December 31, 2011 as compared to $45.7 million at December 31, 2010. During 2011, we sold 156 properties as compared to 71 properties during 2010. Writedowns and net losses on the sale of foreclosed real estate amounted to $7.5 million in 2011 as compared to $2.7 million in 2010. We expect the number of properties and the amount of foreclosed real estate to increase in 2012 as the back-log of properties in foreclosure are processed by the various courts in our market areas. Unless real estate market conditions significantly further deteriorate, we do not expect a material increase in our charge-offs or writedowns on foreclosed real estate since we obtain updated collateral valuations on loans by the time they become 180 days or more past due and annually thereafter and record a charge-off if the updated collateral value (less estimated selling costs) is less than the loan balance.

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Allowance for Loan Losses

The following table presents the activity in our ALL at or for the dates indicated.

	For the Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Balance at beginning of period		$        236,574			$        140,074			$          49,797
Provision for loan losses		120,000			195,000			137,500
Charge-offs:
First mortgage loans		(96,714)			(110,669)			(48,097)
Consumer and other loans		(382)			(102)			(36)
Total charge-offs		(97,096)			(110,771)			(48,133)
Recoveries		14,313			12,271			910
Net charge-offs		(82,783)			(98,500)			(47,223)
Balance at end of period		$        273,791			$        236,574			$        140,074
Allowance for loan losses to total loans		0.93	%		0.77	%		0.44
Allowance for loan losses to non-performing loans		26.77			27.15			22.32
Net charge-offs as a percentage of average loans		0.28			0.31			0.15

The following table presents our allocation of the ALL by loan category and the percentage of loans in each category to total loans at the dates indicated.

	At December 31, 2011					At December 31, 2010
	Amount		Percentage              of Loans in             Category to             Total Loans			Amount		Percentage             of Loans in             Category to              Total Loans
	(Dollars in thousands)
First mortgage loans:
One- to four-family		$        264,922		98.86	%		$        227,224		98.79	%
Other first mortgages		5,116		0.16			6,147		0.19
Total first mortgage loans		270,038		99.02			233,371		98.98
Consumer and other loans		3,753		0.98			3,203		1.02
Total allowance for loan losses		$        273,791		100.00	%		$        236,574		100.00	%

Investments

We invest primarily in mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, as well as other securities issued by GSEs. These securities account for substantially all of our securities. We do not purchase unrated or private label mortgage-backed securities. 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.

The Company had 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 (“SIPA”). Mortgage-backed securities with an amortized cost of approximately $114.1 million were pledged as collateral for these borrowings and we demanded the return of this collateral. The trustee for the SIPA liquidation of Lehman Brothers, Inc. (the “Trustee”) notified the Company in the fourth quarter of

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2011 that it no longer holds these securities and considers our claim to be approximately $13.9 million representing the excess of the market value of the collateral over the $100 million repurchase price. While we dispute the Trustee’s calculation of the claim, as a result of the Trustee’s position, we removed the mortgage-backed securities and the borrowings from our balance sheet and recorded the net amount as a receivable included in other assets (the “Net Claim”). While we intend to pursue full recovery of our Net Claim, during the fourth quarter of 2011 we established a reserve of $3.9 million against the receivable balance at December 31, 2011. There can be no assurances as to the amount of the final settlement of this transaction.

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, national 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. We also have the ability to access the capital markets, 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 borrowings, deposit growth and the proceeds from principal and interest payments on loans, mortgage-backed securities and investment securities. We originated $4.93 billion and purchased $344.8 million of loans during 2011 as compared to $5.83 billion and $764.3 million during 2010. Our loan purchase activity has significantly declined as the GSEs have been actively purchasing loans as part of their efforts to keep mortgage rates low to support the housing market during the recent economic recession. As a result, the sellers from whom we have historically purchased loans are originating loans at lower rates than we would accept, selling many of their loans to the GSEs or retaining these loans in their own portfolios. We expect that the amount of loan purchases will continue to be at reduced levels for the near-term. Principal repayments on loans amounted to $6.71 billion for 2011 as compared to $7.26 billion for the same period in 2010. Elevated levels of refinancing activity caused by low market interest rates have caused increased levels of repayments to continue during 2011. At December 31, 2011, commitments to originate mortgage loans amounted to $437.9 million as compared to $519.0 million at December 31, 2010. At December 31, 2011, commitments to purchase mortgage loans amounted to $140,000 as compared to $500,000 at December 31, 2010.

Purchases of mortgage-backed securities during 2011 were $3.05 billion as compared to $15.49 billion during 2010, including securities purchased with settlement dates in 2011. Principal repayments on mortgage-backed securities amounted to $4.60 billion for 2011 as compared to $8.37 billion for 2010. The decrease in principal repayments was due primarily to a reduction in the size of our mortgage-backed securities portfolio as a result of the Restructuring Transaction. We sold $8.96 billion of mortgage-backed securities during 2011, resulting in a gain of $100.0 million. Substantially all of the proceeds from the sales of mortgage-backed securities were used to repay borrowings as part of the Restructuring Transaction. We sold $3.92 billion of mortgage-backed securities during the year ended December 31, 2010, resulting in a gain of $152.6 million.

We did not purchase investment securities during 2011. We purchased $5.90 billion of investment securities during 2010. There were $3.40 billion of calls of investment securities during 2011 as compared to $7.07 billion for 2010. We sold $80.0 million of investment securities during 2011 resulting in a gain of $2.5 million.

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At December 31, 2011, we had mortgage-backed securities and investment securities with an amortized cost of $8.97 billion that were used as collateral for securities sold under agreements to repurchase and at that date we had $4.71 billion of unencumbered securities.

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 2011, we had net redemptions of $361.4 million of FHLB common stock. During 2010, we had net redemptions of $2.8 million of FHLB common stock. The redemptions in 2011 were due to a decrease in the amount of borrowings we had with the FHLB.

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 $334.6 million during 2011 as compared to $595.1 million for 2010. 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. We lowered our deposit rates during 2010 to slow our deposit growth since the low yields that are available to us for mortgage-related assets and investment securities have made a growth strategy less prudent until market conditions improve. At December 31, 2011, time deposits scheduled to mature within one year totaled $8.85 billion with an average cost of 1.24%. These time deposits are scheduled to mature as follows: $3.69 billion with an average cost of 1.15% in the first quarter of 2012, $2.10 billion with an average cost of 1.03% in the second quarter of 2012, $1.46 billion with an average cost of 1.39% in the third quarter of 2012 and $1.60 billion with an average cost of 1.55% in the fourth quarter of 2012. 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, in the past, primarily used wholesale borrowings to fund our investing activities. During 2011 we completed the Transactions which reduced our reliance on structured putable borrowings for funding purposes and as part of our overall interest rate risk strategy. As part of the Transactions, we paid off $16.8 billion of structured putable borrowings and re-borrowed $5.0 billion of new short-term fixed-maturity borrowings. In addition, approximately $4.20 billion of borrowings matured during 2011 and were repaid. The Transactions have improved our overall liquidity position by significantly reducing our reliance on structured putable borrowings. At December 31, 2011, we had $7.93 billion of structured putable borrowings with a weighted-average rate of 4.47% as compared to $29.08 billion of structured putable borrowings with a weighted average cost of 4.03% at December 31, 2010. Structured putable borrowings with put dates within one year amounted to $2.68 billion at December 31, 2011 as compared to $22.83 billion at December 31, 2010. We anticipate that none of these borrowings will be put back 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 put back will not increase substantially unless interest rates were to increase by at least 300 basis points. At December 31, 2011 we had a concentration of borrowings with a single counterparty with $8.93 billion of borrowings with the FHLB. We do not believe this concentration creates a material liquidity risk to us.

Our remaining borrowings are fixed-rate, fixed maturity borrowings of $7.15 billion with a weighted-average rate of 3.21%. Borrowings scheduled to mature over the next 12 months are as follows: $900.0 million with an average cost of 0.98% in the first quarter of 2012, $750.0 million with an average cost of 0.74% in the second quarter of 2012 and $750.0 million with an average cost of 0.85% in the third quarter of 2012 and $500.0 million with an average cost of 0.98% in the fourth quarter of 2012.

Our liquidity management process is structured to meet our daily funding needs and cover both expected and unexpected deviations from normal daily operations. The primary tools we use for measuring and managing liquidity risk include cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets, and a formal, well developed contingency funding plan.

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Cash dividends paid during 2011 were $192.7 million. We have not purchased any of our common shares during the year ended December 31, 2011 pursuant to our repurchase programs. At December 31, 2011, there remained 50,123,550 shares available for purchase 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. At December 31, 2011, Hudson City Bancorp had total cash and due from banks of $137.8 million. 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, regulations and regulatory actions may limit the amount of capital distributions Hudson City Savings may make. Currently, Hudson City Savings must seek approval from the OCC and the FRB for future capital distributions.

In accordance with the Bank MOU, the Bank has adopted and has implemented enhanced operating policies and procedures that will enable us to continue to (a) reduce our level of interest rate risk, (b) reduce our funding concentration, (c) diversify our funding sources, (d) enhance our liquidity position, (e) monitor and manage loan modifications and (f) maintain our capital position in accordance with our existing capital plan.

In accordance with the Company MOU, the Company must, among other things support the Bank’s compliance with the Bank MOU. The Company MOU also requires the Company to: (a) provide notice to the regulators in accordance with published regulatory guidance prior to declaring a dividend to shareholders and (b) provide notice to and obtain written non-objection from the regulators prior to the Company incurring any debt outside the ordinary course of business. The Company MOU does not affect our dividend policy and our current dividend to shareholders is consistent with our capital plan.

These agreements will remain in effect until modified or terminated by the OCC (with respect to the Bank MOU) and the FRB (with respect to the Company MOU).

At December 31, 2011, Hudson City Savings exceeded all regulatory capital requirements and is in compliance with our capital plan. Hudson City Savings’ tangible capital ratio, leverage (core) capital ratio and total risk-based capital ratio were 8.83%, 8.83% and 20.00%, respectively. We have agreed in the Bank MOU not to materially deviate from our capital plan without regulatory approval.

On December 16, 2009, we filed an automatic shelf registration statement on Form S-3 with the SEC, which was declared effective immediately upon filing. This shelf registration statement allows us to periodically offer and sell, from time to time, in one or more offerings, individually or in any combination, common stock, preferred stock, debt securities, capital securities, guarantees, warrants to purchase common stock or preferred stock and units consisting of one or more of the foregoing. The shelf registration statement provides us with greater capital management flexibility and enables us to readily access the capital markets in order to pursue growth opportunities that may become available to us in the future or should there be any changes in the regulatory environment that call for increased capital requirements. Although the shelf registration statement does not limit the amount of the foregoing items that we may offer and sell pursuant to the shelf registration statement, our ability and any decision to do so is subject to market conditions and our capital needs. In addition, our ability to issue debt through the capital markets may also be dependent on our ability to obtain an acceptable credit rating from one or more nationally recognized credit rating agencies.

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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, 2011.

	Payments Due By Period
Contractual Obligation	Total		Less Than One Year		One Year to Three Years		Three Years to Five Years		More Than Five Years
	(In thousands)
Mortgage loan originations	$	437,900	$	437,900	$	-	$	-	$                      -
Mortgage loan purchases		140		140		-		-	-
Repayment of borrowed funds		15,075,000		2,900,000		-		4,000,000	8,175,000
Operating leases		139,598		9,516		19,135		18,224	92,723
Total	$	15,652,638	$	3,347,556	$	19,135	$	4,018,224	$       8,267,723

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 $172.9 million, $2.6 million, and $3.3 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 September 2011, FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit, as described in the accounting guidance. The guidance in ASU 2011-08 also provides entities with the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test and an entity may resume performing the qualitative assessment in any subsequent period. ASU 2011-08 does not change current accounting guidance for testing other indefinite-lived intangible assets for impairment. This guidance is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted, including annual and interim goodwill impairment tests performed prior to September 15, 2011. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This update allows an entity the option to present the total of comprehensive income,

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the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either option, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the presentation of components other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”). The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs which include (1) application of the highest and best use and valuation premise concepts. The amendments specify that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets; (2) include requirements specific to measuring the fair value of those instruments, such as equity interests issued as consideration in a business combination; (3) clarify that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy; (4) permit an exception to the requirements in Topic 820 for measuring fair value when a reporting entity manages its financial instruments on the basis of its net exposure, rather than its gross exposure, to those risks. The exception permits a reporting entity to measure the fair value of such financial assets and financial liabilities at the price that would be received to sell a net asset position for a particular risk or to transfer a net liability position for a particular risk in an orderly transaction between market participants at the measurement date; and (5) expanded disclosures about fair value measurements for recurring Level 3 fair value measurements to include the valuation processes used by the reporting entity and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, reporting entities must categorize by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. This guidance is effective for interim periods beginning after December 15, 2011. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In April 2011, FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. This ASU addresses the criteria used to determine whether a repurchase agreement should be accounted for as a sale or as a secured borrowing. The amendments in this ASU remove from the assessment of effective control the criterion requiring the transferor’s ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Other criteria applicable to the assessment of effective control are not changed by the amendments in this ASU. The new guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance is to be applied prospectively to transactions or modification of existing transactions that occur on or after the effective date. Early adoption is not permitted. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In April 2011, FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This ASU amends Topic 310 and provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. The amendments in this update became effective for the first interim or annual period beginning on or after June 15, 2011. The guidance requires creditors to evaluate modifications and

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restructurings of receivables using a more principles-based approach, which may result in more modifications and restructurings being considered troubled debt restructurings. We adopted this accounting standards update on April 1, 2011. The adoption of ASU No. 2011-02 did not have a material impact on our financial condition or results of operations. The financial statement disclosures are included in footnote 6 to the consolidated financial statements.

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 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, the impairment of securities, the impairment of goodwill 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 U.S. generally accepted accounting principles, under which we are required to maintain an adequate ALL at December 31, 2011. 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, 2011. 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, 2011, approximately 81.7% of our total loans are in the New York metropolitan area. Additionally, the states of Pennsylvania, Virginia, Illinois and Maryland, accounted for 4.7%, 2.6%, 2.3%, and 2.0%, respectively of total loans. The remaining 6.7% of the loan portfolio is secured by real estate primarily in the remainder of our lending markets. 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.

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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 (fixed and variable 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 changed certain loss factors used in our quantitative analysis of the ALL for one- to four- family first mortgage loans during 2011. This adjustment in our loss factors did not have a material effect on the ultimate level of our ALL or on our provision for loan losses. 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 higher 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 as well as loans classified as troubled debt restructurings. 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 of such awards in accordance with Accounting Standard Codification (the “ASC”) 718-10. We have made annual grants of performance-based stock options 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

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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. In accordance with ASC 715, Retirement Benefits, we: (a) recognize in the statement of financial condition an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure plan assets and obligations that determine the plan’s funded status as of the end of our fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of our 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. For our pension plan, a discount rate of 4.75% was selected for the December 31, 2011 measurement date and 5.75% was selected for the 2011 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 0.21% for 2011 and 8.5% for 2010. 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, a discount rate of 4.55% was used for the December 31, 2011 measurement date and 5.50% was used for the 2011 expense calculation. The assumed health care cost trend rate used to measure the expected cost of other benefits for 2011 was 8.0%. The rate was assumed to decrease gradually to 4.75% for 2019 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

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carried at amortized cost. The fair values for our securities are obtained from an independent nationally recognized pricing service. On a monthly basis, we assess the reasonableness of the fair values obtained by reference to a second independent nationally recognized pricing service.

Substantially all of our securities portfolio is comprised of mortgage-backed securities and debt securities issued by GSEs. The fair value of these securities is primarily impacted by changes in interest rates and prepayment speeds. 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. The accounting guidance 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, whether it is more likely than not that we will be required to sell the security before recovery of the amortized cost 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 2011.

Impairment of Goodwill

Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually using a fair-value based two-step approach. Goodwill and other intangible assets amounted to $155.2 million and were recorded as a result of Hudson City Bancorp’s acquisition of Sound Federal Bancorp, Inc. in 2006.

The first step (“Step 1”) used to identify potential impairment involves comparing each reporting unit’s estimated fair value to its carrying amount, including goodwill. As a community-oriented bank, substantially all of the Company’s operations involve the delivery of loan and deposit products to customers and these operations constitute the Company’s only segment for financial reporting purposes. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount exceeds the estimated fair value, there is an indication of potential impairment and the second step (“Step 2”) is performed to measure the amount. Step 2 involves calculating an implied fair value of goodwill for each reporting unit for which impairment was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination by measuring the excess of the estimated fair value of the reporting unit, as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles, as if the reporting unit was being acquired at the impairment test date. Subsequent reversal of goodwill impairment losses is not permitted.

Due to declines in our common stock price during the third quarter of 2011, we assessed goodwill for impairment. Based on Step 1 of our analysis, the estimated fair value of the Company was less than the Company’s book value which indicated potential goodwill impairment. Based on our Step 2 analysis, the implied goodwill of the Company exceeded the carrying value of goodwill. Therefore, we did not recognize any impairment of goodwill or other intangible assets during the nine months ended September 30, 2011.

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We reported a net loss of $360.5 million during the fourth quarter of 2011 due primarily to the debt extinguishment transaction. As a result, our shareholders equity decreased by $419.0 million or 8.4%, to $4.56 billion. Due to the decline in the Company’s book value during the fourth quarter of 2011, management, with the assistance of a third-party valuation firm, re-assessed goodwill for impairment at December 31, 2011. We utilized multiple approaches in estimating the fair value of the Company including (i) a comparable transactions approach based on acquisition pricing multiples or ratios recently paid in the sale or merger of relatively comparable banking franchises; (ii) a control premium approach based on the Company’s trading price adjusted by a premium for acquiring control based on control premium data for recent banking sales or mergers; (iii) a public market peers control premium approach based on the trading prices of similar publicly-traded companies as measured by standard valuation multiples or ratios adjusted by a premium for acquiring control based on control premium data for recent banking sales or mergers; and, (iv) the discounted cash flow approach whereby value is determined based on the present value of the sum of the projected dividends and a terminal value in the future.

Based on our goodwill impairment analysis, we concluded that goodwill was not impaired at December 31, 2011. Therefore, we did not recognize any impairment of goodwill or other intangible assets during 2011. The estimation of the fair value of the Company requires the use of estimates and assumptions that are subject to a greater degree of uncertainty. In addition, the estimated fair value of the Company is based on, among other things, the market price of our common stock and the change-in-control premiums for recent acquisitions. As a result of the current volatility in market and economic conditions, including the uncertain mortgage market, these estimates and assumptions are subject to change in the near-term and may result in the impairment in future periods of some or all of the goodwill on our balance sheet.

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 2011 and did not have any such hedging transactions in place at December 31, 2011. Our loan and mortgage-backed securities portfolios, which comprise 93.5% 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.

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;

• 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.

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We seek to manage our asset/liability mix to help minimize the impact that interest rate fluctuations may have on our earnings and capital. To achieve the objectives of managing interest rate risk, our Asset/Liability Committee meets regularly 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 President and Chief Operating Officer, the Chief Financial Officer, the Chief Risk Officer and other senior officers of the Company. The Asset/Liability Committee presents 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 mortgage loans, while purchasing variable-rate or hybrid mortgage-backed securities to diversify 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. These 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 our remaining putable borrowed funds. 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. Growth in variable-rate mortgage-related assets would help 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/hybrid products constituted 42.1% of loan originations and purchases and 95.2% of mortgage-backed security purchases made during 2011. In the aggregate, 63.1% of our mortgage-related asset originations and purchases were variable-rate or hybrid instruments. Our percentage of fixed-rate mortgage-related assets to total mortgage-related assets was 50.7% as of December 31, 2011 compared with 44.9% as of December 31, 2010. The increase in this ratio was due to the sale of primarily variable-rate mortgage-backed securities during the Restructuring Transaction. However, included in the variable-rate/hybrid total are mortgage-related assets whose contractual next rate change date is over five years. If these instruments were classified as fixed-rate, the percentage of fixed-rate mortgage-related assets to total mortgage-related assets would be 69.2% as of December 31, 2011. Overall, our percentage of fixed-rate interest-earning assets to total interest-earning assets was 48.5% at December 31, 2011 compared with 40.5% as of December 31, 2010.

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 Bank currently has $11.92 billion of non-maturity deposits and $8.85 billion of time deposits scheduled to mature within the next 12 months. Of the $11.92 billion in non-maturity deposits, $8.46 billion are in money market demand accounts, which is an increase of $2.15 billion from December 31, 2010.

The borrowings have generally had longer-terms to maturity, in an effort to offset our short-term deposit liabilities and assist in managing our interest rate risk. During 2011, the Company reduced its borrowing position by $14.60 billion and modified $4.00 billion of structured putable borrowings to mitigate its interest rate risk position.

During the first quarter of 2011, we completed the Restructuring Transaction. In addition, the Company extinguished $4.3 billion of structured putable borrowings during the fourth quarter of 2011. The

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extinguishments were funded by excess liquidity provided by cash flows received in the ordinary course of business. The cash flows were primarily from $3.4 billion in calls of investment securities and, to a lesser extent, proceeds received from the repayment of mortgage-related assets. These excess cash flows were a result of the “low for long” interest rate environment. The extinguishment of debt resulted in a pre-tax charge of $1.90 billion which was recorded in non-interest expense during 2011. The Transactions improved our interest rate risk position and should have a positive effect on our net interest margin.

During the year ended December 31, 2011, we also modified $4.00 billion of putable borrowings to fixed-maturity borrowings thereby eliminating the put option and further reducing our interest rate risk. No gain or loss was recorded on these modifications. As a result of these transactions, the amount and blend of borrowings on our balance sheet as of December 31 changed as reported in the table below.

	2011		2010
	(In thousands)
Structured borrowings:
Quarterly put option	$	3,325,000	$	24,125,000
One-time put option		4,600,000		4,950,000
		7,925,000		29,075,000
Fixed-rate/fixed-maturity borrowings		7,150,000		600,000
Total borrowed funds	$	15,075,000	$	29,675,000

As the above table indicates, a portion our borrowed funds are putable at the discretion of the issuer after an initial no-put period. As a result, if interest rates were to decrease, or stay at current levels, these borrowings would probably not be put back to us 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 put back to us at their next put date and our cost to replace these borrowings would increase.

Since market interest rates have remained very low for an extended period of time, we have not had any lenders put borrowings back to us. As a result, many of our quarterly putable borrowings have become putable within three months. Of the $3.33 billion reported, $2.68 billion, with a weighted average rate of 4.40%, could be put back to the Company during any three-month period. We believe, given current market conditions, that the likelihood that a significant portion of these borrowings would be put back to us will not increase substantially unless interest rates were to increase by at least 300 basis points.

The $4.60 billion of one-time putable borrowings were placed on the balance sheet as a result of modifying previously existing quarterly putable borrowings into one-time putable borrowings. By repurchasing substantially all of the put options, the Company reduced its exposure to rising interest rates. These modifications were performed between September 2009 and September 2010. The next put option for any of this type of borrowing will be September 2013. Of the $7.15 billion of fixed-rate/fixed-maturity borrowings reported, $2.75 billion is the remaining short-term borrowings placed on the balance sheet as a result of the Restructuring Transaction executed in March 2011. $2.90 billion of the fixed-rate/fixed-maturity borrowings, with a weighted-average rate of 0.88%, are scheduled to mature during 2012.

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 the economy expanded moderately in 2011. The FOMC noted that recent indicators point to some improvement in overall labor market conditions, although the unemployment rate remains at elevated levels. The national unemployment rate decreased to 8.5% in December 2011 from 9.1% in September 2011 and from

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9.4% in December 2010. The FOMC noted that household spending has continued to advance, but business fixed investment appears to be increasing at a slower pace and the housing sector continues to be depressed. As a result, the FOMC decided to continue its program to extend the average maturity of its holdings of securities as announced in September (“Operation Twist”). The FOMC also indicated in September 2011, that the overnight lending rate would remain at zero to 0.25% through at least late 2014. The decision to leave the overnight lending rate unchanged has kept short-term market interest rates at low levels during 2011. The further actions by the FOMC regarding their asset purchasing decisions have placed downward pressure on longer-term interest rates. The yields on mortgage-related assets have decreased during 2011. These actions commenced by the FOMC have placed additional downward pressure on our net interest margin as our interest-earning assets continue to re-price.

As a result, both short-term and long-term market interest rates have remained at low levels or decreased during 2011, with the long-term rates decreasing more than short-term rates thus flattening the market yield curve. The current interest rate environment has allowed us to continue to re-price lower our short-term time and non-maturity deposits, thereby reducing our cost of funds, and has also allowed us to price medium-term time deposits (2-5 year maturities) at lower rates and extend the weighted-average remaining maturity on this portfolio. However, the overall lower longer-term market interest rates resulted in lower rates on our primary investments of mortgage loans and mortgage-backed securities. In addition, the low market interest rates resulted in accelerated prepayment speeds on these assets as customers sought to refinance their current debt to the lower market rates.

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. During 2011 a more stable short-term rate environment as compared to a declining long-term rate environment, resulted in a flatter market yield curve.

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 remained at elevated levels during 2011. Accordingly, we have used relatively high levels of prepayment activity in our interest rate risk modeling presented below. However, though the rate of prepayment speeds has generally remained elevated, the actual dollars received on our mortgage-backed securities has decreased due to the sale of $8.66 billion of securities as a result of the Restructuring Transaction and the limited re-investment into mortgage-backed securities.

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 rates, 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. Market interest rates decreased enough during 2011 to cause approximately $3.40 billion of our portfolio to be called. Of the remaining balance of

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agency securities of $539.0 million as of December 31, 2011, we anticipate approximately $500.0 million will be called during the first quarter of 2012. The large calls of securities were used to execute the debt extinguishment transaction in the fourth quarter of 2011.

Our borrowings have traditionally consisted of structured putable borrowings with ten year final maturities and initial non-put periods of one to five years. The likelihood of a borrowing being put back is directly related to the current market interest rates, meaning the higher that interest rates move, the more likely the borrowing would be put back. The level of put activity generally affects the cost of our borrowed funds, as the put of a borrowing would generally necessitate the re-borrowing of the funds or deposit growth at the higher current market interest rates. During 2011 we experienced no put activity on our borrowed funds due to the continued low levels of short-term market interest rates. Currently we have approximately $2.68 billion of putable borrowings that could be put back to the Bank within the next three months. This amount has significantly decreased from December 31, 2010 due to the $12.50 billion of quarterly putable borrowings extinguished as part of the Restructuring Transaction, the $4.00 billion of quarterly putable borrowings that were modified into fixed-rate/fixed-maturity borrowings during the second quarter of 2011, and the additional $4.30 billion of structured putable borrowings extinguished during December 2011. The $2.68 billion of quarterly putable borrowings have a weighted-average rate of 4.40%. We do not believe a significant amount of these borrowings will be put back to us unless rates increase in excess of 300 basis points.

We may pay-off the short-term borrowings placed on the balance sheet as a result of the March 2011 Restructuring Transaction as they mature. The Company may use cash flows from mortgage-related assets or calls of investment securities to pay-off these borrowings, which may further reduce the size of the balance sheet. The Company may also use deposit growth to pay-off these borrowings. We continually monitor our interest rate risk position and are continuing to develop strategies which may include the hedging of certain borrowings to improve our sensitivity measures and further improve our interest rate risk position.

We intend to continue focusing on funding any future asset growth primarily with customer deposits. This growth was primarily in non-maturity money market accounts. For our interest rate risk modeling, time deposits are presented at their maturity date, while non-maturity deposits are presented based on a decay rate calculated from our experience. We may use borrowed funds as a supplemental funding source for short-term liquidity if deposit growth decreases. These borrowings would be 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.

Interest Rate Risk Modeling

Simulation Model.      We use our internal 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 net present value of equity in different interest rate environments, assuming either an incremental or instantaneous and permanent and parallel interest rate shock, as applicable, 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 or minus 300 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 interest rate changes on our net interest income. The following table reports the changes to our net interest income over the next 12 months ending December 31, 2012 assuming either incremental or instantaneous changes in interest rates for the given rate shock scenarios. The incremental interest rate changes occur over a 12 month period.

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Change in	Percent Change in Net Interest Income
Interest Rates	Incremental Change		Instantaneous Change
(Basis points)
300	(2.47)	%	(11.54)	%
200	(1.54)		(5.19)
100	(0.81)		(1.25)
50	(0.43)		(0.22)
(50)	0.76		(0.27)
(100)	0.98		(3.77)

Of note in the positive shock scenarios:

•    the longer-term putable borrowings do not affect net interest income due to the lack of puts on the putable borrowings in this low current market interest rates and the fixed-rate/fixed-maturity borrowings do not significantly affect net interest income since a majority of these borrowings do not mature over the next 12 months, and

•    the increase in income from total interest-earning assets is in effect offset by the increase in deposit and short-term borrowing expense.

Of note in the negative shock scenarios:

•    the decrease in net interest income in the instantaneous shock analysis is due to the accelerated prepayment speeds on our mortgage-related assets and the re-investment of the proceeds into lower yielding instruments, and

•    the decrease is also due to the lack of change in the cost of the $7.93 billion of putable borrowed funds, as they will not be put back in the lower interest rate environment and will extend to maturity.

Net Present Value of Equity.    We also monitor our interest rate risk by monitoring changes in the net present value of equity in the different rate environments. The net present value of equity is the difference between the estimated fair value of interest rate-sensitive assets and liabilities. The changes in the market value of assets and liabilities due to changes in interest rates reflect the interest sensitivity of those assets and liabilities. Their values are derived from the characteristics of the asset or liability (i.e., fixed-rate, adjustable-rate, caps, and 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.

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The following table presents the estimated net present value of equity over a range of parallel interest rate change scenarios, as applicable, at December 31, 2011. The present value ratio shown in the table is the net 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 net present value of equity to the fair value of assets in the current interest rate environment (no rate shock) of 7.00% and a minimum present value ratio of 5.00% in the plus 200 basis point interest rate shock scenario.

Change in   Interest Rates	Present                          Value Ratio		Basis Point Change
(Basis points)
300	6.51	%	(163)
200	8.18		4
100	8.81		67
50	8.65		51
0	8.14		-
(50)	7.26		(88)
(100)	6.27		(187)

Of note in the positive shock scenarios:

•    the relative stability of our net present value ratios reflects the current low interest rate environment and the fact that (1) our putable borrowings will not be put back to us until a rate change in excess of 300 basis points and (2) we have a larger percent of the borrowings in fixed-rate/fixed-maturity instruments, which allows the price of the borrowings to move in a similar manner as the price moves of our interest-earning assets, and

•    our deposits, as they are relatively short-term in nature, do not have significant price changes in the shock scenarios.

Of note in the negative shock scenarios:

•    the decrease in the present value ratio in the negative basis point changes was primarily due to higher pricing of our putable borrowed funds as the structures will increase in duration, and

•    the value of our mortgage-related assets will remain closer to par than the borrowings as the prepayment speeds increase thus shortening the duration of these portfolios.

The methods we use 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 analyses assume 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.

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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, 2011, 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 based on the Bank’s experience with the particular deposit type. Prepayment speeds on our mortgage-related assets are based on recent experience. Callable investment securities and borrowed funds are reported at the anticipated call or put date, for those that are callable or putable within one year, or at their contractual maturity date or next interest rate step-up date, as applicable. We reported $500.0 million of investment securities at their anticipated call date. We have reported no borrowings at their anticipated put date due to the low interest rate environment. We have excluded non-accrual mortgage loans of $920.9 million and non-accrual other loans of $4.4 million from the table.

	At December 31, 2011
	Six months or less			More than six months to one year			More than one year to two years			More than two years to three years			More than three years to five years			More than five years			Total
	(Dollars in thousands)
Interest-earning assets:
First mortgage loans	$	3,258,277		$	2,818,769		$	4,493,299		$	3,763,606		$	2,195,709		$	11,589,635		$	28,119,295
Consumer and other loans		101,000			2,867			18,844			33,081			10,299			116,748			282,839
Federal funds sold		560,051			-			-			-			-			-			560,051
Mortgage-backed securities		3,725,253			1,463,833			2,467,845			1,490,509			1,670,607			2,467,866			13,285,913
FHLB stock		510,564			-			-			-			-			-			510,564
Investment securities		507,368			-			-			-			-			39,011			546,379
Total interest-earning assets		8,662,513			4,285,469			6,979,988			5,287,196			3,876,615			14,213,260			43,305,041
Interest-bearing liabilities:
Savings accounts		65,315			65,317			87,089			87,089			217,722			348,355			870,887
Interest-bearing demand accounts		192,850			192,850			286,452			286,452			496,240			530,118			1,984,962
Money market accounts		845,604			845,602			1,691,203			1,691,203			2,959,606			422,802			8,456,020
Time deposits		5,789,863			3,062,283			2,222,453			641,638			1,875,205			-			13,591,442
Borrowed funds		1,650,000			1,250,000			-			-			4,000,000			8,175,000			15,075,000
Total interest-bearing liabilities		8,543,632			5,416,052			4,287,197			2,706,382			9,548,773			9,476,275			39,978,311
Interest rate sensitivity gap	$	118,881		$	(1,130,583)		$	2,692,791		$	2,580,814		$	(5,672,158)		$	4,736,985		$	3,326,730
Cumulative interest rate sensitivity gap	$	118,881		$	(1,011,702)		$	1,681,089		$	4,261,903		$	(1,410,255)		$	3,326,730
Cumulative interest rate sensitivity gap as a percent of total assets		0.26	%		(2.23)	%		3.71	%		9.40	%		(3.11)	%		7.33	%
Cumulative interest-earning assets as a percent of interest-bearing liabilities		101.39	%		92.75	%		109.21	%		120.34	%		95.38	%		108.32	%

Page 51

Of note regarding the GAP analysis:

• the $2.90 billion of borrowings in less than one year are maturities, primarily the short-term borrowings placed on the balance sheet as a result of the Restructuring Transaction, and

• we have experienced elevated levels of prepayment activity on our mortgage-related assets as interest rates have continued to decrease over the year.

Of note in comparison to December 31, 2010:

• the cumulative one-year gap as a percent of total assets was positive 7.21% at December 31, 2010,

• during 2011, we placed $5.00 billion of short-term borrowings on our balance sheet as a result of the Restructuring Transactions, and

• we experienced a shift in our deposits into the money market accounts, which have a longer decay date than our time deposits.

The methods used in the gap table are also inherently imprecise. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets, such as adjustable-rate loans and mortgage-backed securities, have features that limit changes in interest rates on a short-term basis and over the life of the loan. If interest rates change, prepayment and early withdrawal levels would likely deviate from those assumed in calculating the table. Finally, the ability of borrowers to make payments on their adjustable-rate loans may decrease if interest rates increase.

Page 52

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Hudson City Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial condition of Hudson City Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hudson City Bancorp, Inc. and subsidiary as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

New York, New York

February 28, 2012

Page 53

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Hudson City Bancorp, Inc.:

We have audited the internal control over financial reporting of Hudson City Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Hudson City Bancorp, Inc. and subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of the Company as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011, and our report dated February 28, 2012 expressed an unqualified opinion on those consolidated financial statements.

New York, New York

February 28, 2012

Page 54

Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

	December 31, 2011		December 31, 2010
	(In thousands, except share and per share amounts)
Assets:
Cash and due from banks	$	194,029	$	175,769
Federal funds sold		560,051		493,628
Total cash and cash equivalents		754,080		669,397
Securities available for sale:
Mortgage-backed securities		9,170,390		18,120,537
Investment securities		7,368		89,795
Securities held to maturity:
Mortgage-backed securities (fair value of $4,368,423 and $6,199,507 at December 31, 2011 and 2010, respectively)		4,115,523		5,914,372
Investment securities (fair value of $545,761 and $3,867,488 at December 31, 2011 and 2010, respectively)		539,011		3,939,006
Total securities		13,832,292		28,063,710
Loans		29,327,345		30,923,897
Deferred loan costs		83,805		86,633
Allowance for loan losses		(273,791)		(236,574)
Net loans		29,137,359		30,773,956
Federal Home Loan Bank of New York stock		510,564		871,940
Foreclosed real estate, net		40,619		45,693
Accrued interest receivable		129,088		245,546
Banking premises and equipment, net		70,610		69,444
Goodwill		152,109		152,109
Other assets		729,164		274,238
Total Assets	$	45,355,885	$	61,166,033
Liabilities and Shareholders’ Equity:
Deposits:
Interest-bearing	$	24,903,311	$	24,605,896
Noninterest-bearing		604,449		567,230
Total deposits		25,507,760		25,173,126
Repurchase agreements		6,950,000		14,800,000
Federal Home Loan Bank of New York advances		8,125,000		14,875,000
Total borrowed funds		15,075,000		29,675,000
Due to brokers for securities purchases		-		538,200
Accrued expenses and other liabilities		212,685		269,469
Total liabilities		40,795,445		55,655,795
Commitments and Contingencies (Notes 1, 7, 10 and 15)
Common stock, $0.01 par value, 3,200,000,000 shares authorized; 741,466,555 shares issued; 527,571,496 and 526,718,310 shares outstanding at December 31, 2011 and 2010, respectively		7,415		7,415
Additional paid-in capital		4,720,890		4,705,255
Retained earnings		1,709,821		2,642,338
Treasury stock, at cost; 213,895,059 and 214,748,245 shares at December 31, 2011 and 2010, respectively		(1,719,114)		(1,725,946)
Unallocated common stock held by the employee stock ownership plan		(198,223)		(204,230)
Accumulated other comprehensive income, net of tax		39,651		85,406
Total shareholders’ equity		4,560,440		5,510,238
Total Liabilities and Shareholders’ Equity	$	45,355,885	$	61,166,033

See accompanying notes to consolidated financial statements.

Page 55

Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

	Year Ended December 31,
	2011		2010		2009
	(In thousands, except per share data)
Interest and Dividend Income:
First mortgage loans	$	1,492,989	$	1,667,027	$	1,678,789
Consumer and other loans		15,740		18,409		21,676
Mortgage-backed securities held to maturity		213,211		356,023		493,549
Mortgage-backed securities available for sale		301,349		495,572		490,109
Investment securities held to maturity		100,196		179,632		86,581
Investment securities available for sale		940		19,112		126,793
Dividends on Federal Home Loan Bank of New York stock		38,820		46,107		43,103
Federal funds sold		4,392		2,614		1,186
Total interest and dividend income		2,167,637		2,784,496		2,941,786
Interest Expense:
Deposits		328,514		376,347		483,468
Borrowed funds		858,189		1,217,322		1,214,840
Total interest expense		1,186,703		1,593,669		1,698,308
Net interest income		980,934		1,190,827		1,243,478
Provision for Loan Losses		120,000		195,000		137,500
Net interest income after provision for loan losses		860,934		995,827		1,105,978
Non-Interest Income:
Service charges and other income		11,449		10,369		9,399
Gains on securities transactions		102,468		152,625		24,185
Total non-interest income		113,917		162,994		33,584
Non-Interest Expense:
Compensation and employee benefits		113,129		133,803		137,071
Net occupancy expense		33,830		32,689		32,270
Federal deposit insurance assessment		120,981		55,957		35,094
FDIC special assessment		-		-		21,098
Loss on extinguishment of debt		1,900,591		-		-
Other expense		61,629		43,939		40,063
Total non-interest expense		2,230,160		266,388		265,596
(Loss) Income before income tax (benefit) expense		(1,255,309)		892,433		873,966
Income Tax (Benefit) Expense		(519,320)		355,227		346,722
Net (loss) income	$	(735,989)	$	537,206	$	527,244
Basic (Loss) Earnings Per Share	$	(1.49)	$	1.09	$	1.08
Diluted (Loss) Earnings Per Share	$	(1.49)	$	1.09	$	1.07

See accompanying notes to consolidated financial statements.

Page 56

Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

	Year Ended December 31,
	2011		2010		2009
	(In thousands, except share amounts)
Common Stock	$	7,415	$	7,415	$	7,415
Additional paid-in capital:
Balance at beginning of year		4,705,255		4,683,414		4,641,571
Stock option plan expense		8,251		11,138		12,869
Tax benefit from stock plans		2,029		810		24,834
Allocation of ESOP stock		1,877		6,239		6,319
RRP stock granted		-		(145)		(6,771)
Vesting of RRP stock		3,478		3,799		4,592
Balance at end of year		4,720,890		4,705,255		4,683,414
Retained Earnings:
Balance at beginning of year		2,642,338		2,401,606		2,196,235
Net (loss) income		(735,989)		537,206		527,244
Dividends paid on common stock ($0.39, $0.60, and $0.59 per share, respectively)		(192,698)		(295,757)		(288,408)
Exercise of stock options		(3,830)		(717)		(33,465)
Balance at end of year		1,709,821		2,642,338		2,401,606
Treasury Stock:
Balance at beginning of year		(1,725,946)		(1,727,579)		(1,737,838)
Purchase of common stock		(163)		(464)		(43,477)
Exercise of stock options		6,995		1,952		46,965
RRP stock granted		-		145		6,771
Balance at end of year		(1,719,114)		(1,725,946)		(1,727,579)
Unallocated common stock held by the ESOP:
Balance at beginning of year		(204,230)		(210,237)		(216,244)
Allocation of ESOP stock		6,007		6,007		6,007
Balance at end of year		(198,223)		(204,230)		(210,237)
Accumulated other comprehensive income (loss):
Balance at beginning of year		85,406		184,533		47,657
Net change in unrealized gains on securities available for sale arising during the year, net of tax expense of $23,628 for 2011, $1,236 for 2010 and $100,466 for 2009		33,913		1,790		145,473
Reclassification adjustment for gains included in net (loss) income, net of tax expense of $41,858 for 2011, $62,347 for 2010 and $9,880 for 2009		(61,942)		(90,278)		(14,305)
Pension and other postretirement benefits adjustment, net of tax benefit (expense) of $12,305 for 2011, $7,348 for 2010 and ($3,792) for 2009		(17,726)		(10,639)		5,708
Other comprehensive (loss) income, net of tax		(45,755)		(99,127)		136,876
Balance at end of year		39,651		85,406		184,533
Total Shareholders’ Equity		$4,560,440	$	5,510,238	$	5,339,152
Summary of comprehensive (loss) income
Net (loss) income	$	(735,989)	$	537,206	$	527,244
Other comprehensive (loss) income, net of tax		(45,755)		(99,127)		136,876
Total comprehensive (loss) income	$	(781,744)	$	438,079	$	664,120

See accompanying notes to consolidated financial statements.

Page 57

Hudson City Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

	Year Ended December 31,
	2011		2010		2009
	(In thousands)
Cash Flows from Operating Activities:
Net (loss) income	$	(735,989)	$	537,206	$	527,244
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, accretion and amortization expense		116,148		116,696		65,984
Provision for loan losses		120,000		195,000		137,500
Gains on securities transactions, net		(102,468)		(152,625)		(24,185)
Loss on extinguishment of debt		1,900,591		-		-
Share-based compensation, including committed ESOP shares		19,613		27,183		29,787
Deferred tax benefit		(172,002)		(55,803)		(46,700)
Decrease (increase) in accrued interest receivable		116,458		58,545		(5,046)
(Increase) decrease in other assets		(268,781)		34,507		(164,846)
(Decrease) increase in accrued expenses and other liabilities		(56,785)		(5,627)		2,878
Net Cash Provided by Operating Activities		936,785		755,082		522,616
Cash Flows from Investing Activities:
Originations of loans		(4,926,325)		(5,826,008)		(6,063,870)
Purchases of loans		(344,766)		(764,335)		(3,161,401)
Payments received on loans		6,708,554		7,261,911		6,768,470
Principal collection of mortgage-backed securities held to maturity		1,808,661		4,198,619		2,609,338
Purchases of mortgage-backed securities held to maturity		-		(172,434)		(3,017,730)
Principal collection of mortgage-backed securities available for sale		2,791,747		4,167,652		2,123,330
Proceeds from sales of mortgage-backed securities available for sale		9,064,378		4,070,045		785,594
Purchases of mortgage-backed securities available for sale		(3,591,346)		(14,776,371)		(4,088,367)
Proceeds from maturities and calls of investment securities held to maturity		3,400,000		6,049,235		400,000
Purchases of investment securities held to maturity		-		(5,902,176)		(4,440,329)
Proceeds from maturities and calls of investment securities available for sale		-		1,025,000		3,622,225
Proceeds from sales of investment securities available for sale		82,475		-		316
Purchases of investment securities available for sale		-		-		(1,331,300)
Purchases of Federal Home Loan Bank of New York stock		(16,624)		(8,422)		(78,273)
Redemption of Federal Home Loan Bank of New York stock		378,000		11,250		69,075
Purchases of premises and equipment, net		(9,608)		(8,031)		(6,316)
Net proceeds from sale of foreclosed real estate		56,376		26,277		15,557
Net Cash Provided by (Used in) Investing Activities		15,401,522		(647,788)		(5,793,681)
Cash Flows from Financing Activities:
Net increase in deposits		334,634		595,078		6,114,006
Proceeds from borrowed funds		6,500,000		-		750,000
Principal payments on borrowed funds		(22,900,591)		(300,000)		(1,000,000)
Dividends paid		(192,698)		(295,757)		(288,408)
Purchases of treasury stock		(163)		(464)		(43,477)
Exercise of stock options		3,165		1,235		13,500
Tax benefit from stock plans		2,029		810		24,834
Net Cash (Used in) Provided by Financing Activities		(16,253,624)		902		5,570,455
Net Increase in Cash and Cash Equivalents		84,683		108,196		299,390
Cash and Cash Equivalents at Beginning of Year		669,397		561,201		261,811
Cash and Cash Equivalents at End of Year	$	754,080	$	669,397	$	561,201
Supplemental Disclosures of cash flow information:
Interest paid	$	1,272,778	$	1,586,485	$	1,696,279
Loans transferred to foreclosed real estate	$	75,422	$	73,132	$	26,581
Income taxes paid	$	20,762	$	448,983	$	350,712
Supplemental Disclosures of non-cash investing and financing activities:
Adjustment for Net Claim related to Lehman Brothers, Inc.
Reduction of mortgage-backed securities	$	114,005	$	-	$	-
Reduction of borrowed funds	$	100,000	$	-	$	-

See accompanying notes to consolidated financial statements.

Page 58

Notes to Consolidated Financial Statements

1. Organization

Hudson City Bancorp, Inc. (“Hudson City Bancorp” or the “Company”) is a Delaware corporation and is the savings and loan holding company for Hudson City Savings Bank and its subsidiaries (“Hudson City Savings” or the “Bank”). As a savings and loan holding company, Hudson City Bancorp is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the “FRB”). Hudson City Savings is a federally chartered stock savings bank subject to supervision and examination by the Office of the Comptroller of the Currency (the “OCC”).

2. Summary of Significant Accounting Policies

Basis of Presentation

The following are the significant accounting and reporting policies applied by Hudson City Bancorp and its wholly-owned subsidiary, Hudson City Savings, in the preparation of the accompanying consolidated financial statements. The consolidated financial statements have been prepared in conformity with GAAP. All significant intercompany transactions and balances have been eliminated in consolidation. As used in these consolidated financial statements, “Hudson City” refers to Hudson City Bancorp, Inc. or Hudson City Bancorp, Inc. and its consolidated subsidiary, depending on the context. 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 revenues and expenses for the period. Actual results could differ from these estimates. The ALL 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. In addition, bank regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies have the ability to require us, as they can require all banks, to increase our provision for loan losses or to recognize further charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance required by these regulatory agencies could adversely affect our financial condition and results of operations.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks and federal funds sold. Generally, federal funds are sold for one-day periods. Cash reserves are required to be maintained on deposit with the Federal Reserve Bank of New York based on deposits. The amount of the required reserves for the years ended December 31, 2011 and 2010 was $17.8 million and $19.3 million, respectively.

Mortgage-Backed Securities

Mortgage-backed securities include GSEs and U.S. Government agency pass-through certificates, which represent participating interests in pools of long-term first mortgage loans originated and serviced by third-party issuers of the securities, and real estate mortgage investment conduits (“REMICs”), which are securities derived by reallocating cash flows from mortgage pass-through securities or from pools of mortgage loans held by a trust. REMICs are a form of, and are often referred to as, collateralized mortgage obligations.

Mortgage-backed securities are classified as either held to maturity or available for sale. For the years ended December 31, 2011, 2010 and 2009, we did not maintain a trading portfolio. Mortgage-backed securities classified as held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Amortization and accretion is reflected as an adjustment to interest income over the life of the security, adjusted for estimated prepayments, using the effective interest method. Hudson City has both the ability and the positive intent to hold these investment securities to maturity. Mortgage-backed securities

Page 59

Notes to Consolidated Financial Statements

available for sale are carried at fair value, with unrealized gains and losses, net of tax, reported as a component of other comprehensive income or loss, which is included in shareholders’ equity. Amortization and accretion of premiums and discounts are reflected as an adjustment to interest income over the life of the security, adjusted for estimated prepayments, using the effective interest method. Realized gains and losses are recognized when securities are sold using the specific identification method. The estimated fair value of substantially all of these securities is determined by the use of market prices obtained from independent third-party pricing services. We assess the reasonableness of the fair values obtained by reference to a second independent nationally recognized pricing service. 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 to sell the security and whether it is more likely than not that we will be required to sell before full recovery of our investment or maturity. For mortgage-backed securities deemed to be other-than-temporarily impaired, the security is written down to a new cost basis with the estimated credit loss charged to income as a component of non-interest expense and the non-credit related impairment loss charged to other comprehensive income. See “Critical Accounting Policies – Securities Impairment”.

Investment Securities

Investment securities are classified as either held to maturity or available for sale. For the years ended December 31, 2011, 2010 and 2009, we did not maintain a trading portfolio. Investment securities classified as held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Amortization and accretion is reflected as an adjustment to interest income over the life of the security using the effective interest method. Hudson City has both the ability and the positive intent to hold these investment securities to maturity. Securities available for sale are carried at fair value, with unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income or loss, which is included in shareholders’ equity. Amortization and accretion of premiums and discounts are reflected as an adjustment to interest income over the life of the security using the effective interest method. Realized gains and losses are recognized when securities are sold or called using the specific identification method. The estimated fair value of substantially all of these securities is determined by the use of quoted market prices obtained from independent third-party pricing services. We assess the reasonableness of the fair values obtained by reference to a second independent nationally recognized pricing service. 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 to sell the security and whether it is more likely than not that we will be required to sell before full recovery of our investment or maturity. For debt securities deemed to be other-than-temporarily impaired, the security is written down to a new cost basis with the estimated credit loss charged to income as a component of non-interest expense and the non-credit related impairment loss charged to other comprehensive income. For equity securities that are deemed to be other-than-temporarily impaired, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense. See “Critical Accounting Policies – Securities Impairment”.

Loans

Loans are stated at their principal amounts outstanding. Interest income on loans is accrued and credited to income as earned. Net loan origination fees and broker costs are deferred and amortized to interest income over the life of the loan using the effective interest method. Amortization and accretion of premiums and discounts is reflected as an adjustment to interest income over the life of the purchased loan using the effective interest method.

Existing customers in good credit standing were permitted to modify the terms of their mortgage loan, for a fee, to the terms of the currently offered fixed-rate product with a similar or reduced period to maturity than the

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Notes to Consolidated Financial Statements

current remaining period of their existing loan. The modified terms of these loans are at least as favorable to us as the terms of mortgage loans we offer to new customers. The fee assessed for modifying the mortgage loan is deferred and accreted over the life of the modified loan using the effective interest method. Such accretion is reflected as an adjustment to interest income. We have determined that the modification of the terms of the loan (i.e. the change in rate and period to maturity), represents a more than minor change to the loan. Accordingly, pre-modification deferred fees or costs associated with the mortgage loan are recognized in interest income at the time of the modification. Effective December 31, 2011, we discontinued this product offering.

A loan is considered delinquent when we have not received a payment within 30 days of its contractual due date. The accrual of income on loans that are not guaranteed by a U.S. Government agency is generally discontinued when interest or principal payments are 90 days in arrears or when the timely collection of such income is doubtful. Loans on which the accrual of income has been discontinued are designated as non-accrual loans and outstanding interest previously credited to income is reversed. Interest income on non-accrual loans and impaired loans is recognized in the period collected unless the ultimate collection of principal is considered doubtful. A non-accrual loan is returned to accrual status when factors indicating doubtful collection no longer exist.

We adopted Accounting Standards Update (“ASU”) No. 2011-02 on April 1, 2011 which provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties. As a result of our adoption of ASU No. 2011-02, in the second quarter of 2011 we determined that approximately $26.2 million of residential mortgage loans were troubled debt restructurings that were not previously considered as such.

Loans that were modified in a troubled debt restructuring primarily represent loans that have been in a deferred payment plan for an extended period of time, generally in excess of six months, loans that have had past due amounts capitalized as part of the loan balance, loans that have a confirmed Chapter 13 bankruptcy status and other repayment plans. These loans are individually evaluated for impairment to determine if the carrying value of the loan is in excess of the fair value of the collateral or the present value of the loan’s expected future cash flows.

Hudson City Savings defines the population of potential impaired loans to be all non-accrual construction, commercial real estate and multi-family loans as well as loans classified as troubled debt restructurings. 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 unless they have been modified as a troubled debt restructuring.

Allowance for Loan Losses

The allowance for loan losses has been determined in accordance with GAAP, under which we are required to maintain adequate allowances for loan losses. 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, 2011. As a result of our

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Notes to Consolidated Financial Statements

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, approximately 81.7% of our total loans are in the New York metropolitan area. Additionally, the states of Pennsylvania, Virginia, Illinois and Maryland, accounted for 4.7%, 2.6%, 2.3%, and 2.0%, respectively of total loans. The remaining 6.7% of the loan portfolio is secured by real estate primarily in the remainder of our lending markets which includes states as far south as South Carolina and as far east as the Mississippi River. Based on the composition of 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, charge-offs 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 (fixed-rate and adjustable-rate one- to four-family mortgages, home equity, 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 updated certain loss factors used in our quantitative analysis of the ALL for one- to four- family first mortgage loans during 2011. This update in our loss factors did not have a material effect on the ultimate level of our ALL or on our provision for loan losses. 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 higher 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. This is generally by the time a loan is 180 days delinquent and an updated appraisal reflects a shortfall in the collateral value as compared to the outstanding principal balance of a mortgage loan. 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 Asset Quality Committee (the “AQC”) each quarter.

Federal Home Loan Bank of New York Stock

As a member of the Federal Home Loan Bank of New York (the “FHLB”), we are required to acquire and hold shares of FHLB Class B stock. Our holding requirement varies based on our activities, primarily our outstanding borrowings, with the FHLB. Our investment in FHLB stock is carried at cost. We conduct a periodic review and evaluation of our FHLB stock to determine if any impairment exists.

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Notes to Consolidated Financial Statements

Foreclosed Real Estate

Foreclosed real estate is property acquired through foreclosure or deed in lieu of foreclosure. Write-downs to fair value (net of estimated cost to sell) at the time of acquisition are charged to the ALL. After acquisition, foreclosed properties are held for sale and carried at the lower of 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. Subsequent provisions for losses, which may result from the ongoing periodic valuations of these properties, are charged to income in the period in which they are identified. Carrying costs, such as maintenance and taxes, are charged to operating expenses as incurred.

Banking Premises and Equipment

Land is carried at cost. Buildings, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and leasehold amortization. Buildings are depreciated over their estimated useful lives using the straight-line method. Furniture, fixtures and equipment are depreciated over their estimated useful lives using the double-declining balance method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective leases. The costs for major improvements and renovations are capitalized, while maintenance, repairs and minor improvements are charged to operating expenses as incurred. Gains and losses on dispositions are reflected currently as other non-interest income or expense.

Goodwill and Other Intangible Assets

Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually using a fair-value based two-step approach.

The first step (“Step 1”) used to identify potential impairment involves comparing each reporting unit’s estimated fair value to its carrying amount, including goodwill. As a community-oriented bank, substantially all of the Company’s operations involve the delivery of loan and deposit products to customers and these operations constitute the Company’s only segment for financial reporting purposes. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount exceeds the estimated fair value, there is an indication of potential impairment and the second step (“Step 2”) is performed to measure the amount. Step 2 involves calculating an implied fair value of goodwill for each reporting unit for which impairment was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination by measuring the excess of the estimated fair value of the reporting unit, as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles, as if the reporting unit was being acquired at the impairment test date. Subsequent reversal of goodwill impairment losses is not permitted.

Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Certain tax benefits attributable to stock options and restricted stock are credited to additional paid-in capital. A valuation allowance is established when management is unable to conclude that it is more

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Notes to Consolidated Financial Statements

likely than not that it will realize deferred tax assets based on the nature and timing of these items. Tax positions taken, or expected to be taken, in a tax return and which meet recognition thresholds, are recognized in our financial statements based on measurement attributes prescribed in accounting guidance. Accruals of interest and penalties related to unrecognized tax benefits are recognized in income tax expense.

Employee Benefit Plans

Hudson City maintains certain noncontributory retirement and postretirement benefit plans, which cover employees hired prior to August 1, 2005 who have met the eligibility requirements of the plans. Certain health care and life insurance benefits are provided for retired employees. The expected cost of benefits provided for retired employees is actuarially determined and accrued ratably from the date of hire to the date the employee is fully eligible to receive the benefits.

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position 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 postretirement plan in the year in which the changes occur.

The Employee Stock Ownership Plan (the “ESOP”) is accounted for in accordance with FASB guidance related to employee stock ownership plans. The funds borrowed by the ESOP from Hudson City Bancorp to purchase Hudson City Bancorp common stock are being repaid from Hudson City Savings’ contributions and dividends paid on unallocated ESOP shares over a period of up to 40 years. Hudson City common stock not allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the average market price of our stock during each quarter.

Stock-Based Compensation

Stock-based compensation expense is recognized over the period of requisite service based upon the grant-date fair value of those awards.

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance related to Split-Dollar Life Insurance Agreements. The cash surrender value of BOLI is recorded on our consolidated statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on our consolidated statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

Borrowed Funds

Hudson City enters into sales of securities under agreements to repurchase with selected brokers and the FHLB. These agreements are recorded as financing transactions as Hudson City maintains effective control over the transferred securities. The dollar amount of the securities underlying the agreements continues to be carried in Hudson City’s securities portfolio. The obligations to repurchase the securities are reported as a liability in the consolidated statements of financial condition. The securities underlying the agreements are delivered to the party with whom each transaction is executed. They agree to resell to Hudson City the same securities at the maturity or call of the agreement. Hudson City retains the right of substitution of the underlying securities throughout the terms of the agreements.

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Notes to Consolidated Financial Statements

Hudson City has also obtained advances from the FHLB, which are generally secured by a blanket lien against our mortgage portfolio. Total borrowings with the FHLB are generally limited by a multiple of the amount of FHLB stock owned or a percentage of the fair value of our mortgage portfolio, whichever is greater.

The loss on the early extinguishment of debt is based on the fair value of the borrowing and is included in non-interest expense.

The Bank has modified certain structured borrowings to eliminate or reduce the put option held by the lender. Management evaluates each modification to determine if the modification results in a substantially different borrowing and therefore should be recognized as an extinguishment. The evaluation of the modifications includes a comparison of the borrowing’s cash flows before and after the modification, the terms of any collateral agreements and option agreements, and the amount of any fees exchanged. None of the debt modifications entered into during 2011, 2010 and 2009 resulted in a debt extinguishment.

Comprehensive Income

Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes items such as changes in unrealized gains and losses on securities available for sale, net of tax and changes in the unrecognized prior service costs or credits of defined benefit pension and other postretirement plans, net of tax. Comprehensive income is presented in the consolidated statements of changes in shareholders’ equity.

Segment Information

FASB guidance requires public companies to report certain financial information about significant revenue-producing segments of the business for which such information is available and utilized by the chief operating decision maker. As a community-oriented financial institution, substantially all of our operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of these community banking operations, which constitute our only operating segment for financial reporting purposes.

Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or resulted in the issuance of common stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. The Company reported a net loss for 2011 and therefore potentially dilutive shares are not included in the weighted average number of shares outstanding for 2011. Shares issued and shares reacquired during any period are weighted for the portion of the period that they were outstanding.

In computing both basic and diluted earnings per share, the weighted average number of common shares outstanding includes the ESOP shares previously allocated to participants and shares committed to be released for allocation to participants and the recognition and retention plans (“RRP”) shares which have vested or have been allocated to participants. ESOP and RRP shares that have been purchased but have not been committed to be released or have not vested are excluded from the computation of basic and diluted earnings per share.

Page 65

Notes to Consolidated Financial Statements

3. Stock Repurchase Programs

We have previously announced several stock repurchase programs. Under our stock repurchase programs, shares of Hudson City Bancorp common stock may be purchased in the open market or through other privately negotiated transactions, depending on market conditions. The repurchased shares are held as treasury stock for general corporate use. In accordance with the terms of the memorandum of understanding described in Note 14, future share repurchases must be approved by the FRB. We did not purchase any of our common shares pursuant to the repurchase programs during the year ended December 31, 2011. Included in treasury stock are vested shares related to stock awards that were surrendered for withholding taxes. These shares are included in treasury stock purchases in the consolidated statements of cash flows and amounted to 17,145, 34,923, and 19,355 shares for 2011, 2010 and 2009, respectively. During the year ended December 31, 2009 we purchased 3,970,605 shares of our common stock at an aggregate cost of $43.5 million. There were no stock repurchases during the year ended December 31, 2010. As of December 31, 2011, there remained 50,123,550 shares that may be purchased under the existing stock repurchase programs.

4. Mortgage-Backed Securities

The amortized cost and estimated fair market value of mortgage-backed securities at December 31 are as follows:

	Amortized Cost		Gross     Unrealized     Gains		Gross     Unrealized     Losses		Estimated     Fair Market     Value
	(In thousands)
2011
Held to Maturity:
GNMA pass-through certificates	$	83,587	$	2,602	$	-	$	86,189
FNMA pass-through certificates		1,154,638		78,603		(4)		1,233,237
FHLMC pass-through certificates		2,132,408		125,364		-		2,257,772
FHLMC and FNMA - REMICs		744,890		46,335		-		791,225
Total held to maturity	$	4,115,523	$	252,904	$	(4)	$	4,368,423
Available for Sale:
GNMA pass-through certificates	$	1,139,894	$	26,353	$	(19)	$	1,166,228
FNMA pass-through certificates		4,407,970		60,059		-		4,468,029
FHLMC pass-through certificates		3,390,467		61,689		-		3,452,156
FHLMC and FNMA - REMICs		81,768		2,209		-		83,977
Total available for sale	$	9,020,099	$	150,310	$	(19)	$	9,170,390
2010
Held to Maturity:
GNMA pass-through certificates	$	98,887	$	2,802	$	-	$	101,689
FNMA pass-through certificates		1,622,994		87,271		-		1,710,265
FHLMC pass-through certificates		2,943,565		148,248		-		3,091,813
FHLMC and FNMA - REMICs		1,248,926		46,846		(32)		1,295,740
Total held to maturity	$	5,914,372	$	285,167	$	(32)	$	6,199,507
Available for Sale:
GNMA pass-through certificates	$	1,560,755	$	27,214	$	(7,487)	$	1,580,482
FNMA pass-through certificates		10,333,033		122,305		(57,550)		10,397,788
FHLMC pass-through certificates		5,521,741		129,547		(32,116)		5,619,172
FHLMC and FNMA - REMICs		509,755		13,340		-		523,095
Total available for sale	$	17,925,284	$	292,406	$	(97,153)	$	18,120,537

Page 66

Notes to Consolidated Financial Statements

The following tables summarize the fair values and unrealized losses of mortgage-backed securities with an unrealized loss at December 31, 2011 and 2010, segregated between securities that had been in a continuous unrealized loss position for less than twelve months or longer than twelve months at the respective dates.

	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized   Losses		Fair Value		Unrealized Losses
					(In thousands)
2011
Held to Maturity:
FNMA pass-through certificates	$	210	$	(4)	$	-	$	-	$	210	$	(4)
Total held to maturity		210		(4)		-		-		210		(4)
Available for Sale:
GNMA pass-through certificates		12,891		(19)		-		-		12,891		(19)
Total available for sale		12,891		(19)		-		-		12,891		(19)
Total	$	13,101	$	(23)	$	-	$	-	$	13,101	$	(23)
2010
Held to Maturity:
FHLMC and FNMA - REMIC’s	$	7,373	$	(24)	$	3,163	$	(8)	$	10,536	$	(32)
Total held to maturity		7,373		(24)		3,163		(8)		10,536		(32)
Available for Sale:
GNMA pass-through certificates		424,575		(7,487)		-		-		424,575		(7,487)
FNMA pass-through certificates		4,375,620		(57,550)		-		-		4,375,620		(57,550)
FHLMC pass-through certificates		2,425,458		(32,116)		-		-		2,425,458		(32,116)
Total available for sale		7,225,653		(97,153)		-		-		7,225,653		(97,153)
Total	$	7,233,026	$	(97,177)	$	3,163	$	(8)	$	7,236,189	$	(97,185)

The unrealized losses were primarily due to the changes in market interest rates subsequent to purchase. At December 31, 2011, a total of 4 securities were in an unrealized loss position (99 at December 31, 2010). We did not consider these investments to be other-than-temporarily impaired at December 31, 2011 and December 31, 2010 since the decline in market value was attributable to changes in interest rates and not credit quality and the Company does not intend to sell and does not believe that it is more likely than not that we will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result no impairment loss was recognized during the years ended December 31, 2011, 2010 and 2009, respectively.

Page 67

Notes to Consolidated Financial Statements

The amortized cost and estimated fair market value of mortgage-backed securities held to maturity and available for sale at December 31, 2011, by contractual maturity, are shown below. The table does not include the effect of prepayments and scheduled principal amortization which totaled $4.60 billion in 2011.

	Amortized         Cost		Estimated         Fair Market         Value
	(In thousands)
Held to Maturity:
Due after one year through five years	$	1,700	$	1,819
Due after five years through ten years		8,650		9,203
Due after ten years		4,105,173		4,357,401
Total held to maturity	$	4,115,523	$	4,368,423
Available for Sale:
Due after ten years	$	9,020,099	$	9,170,390
Total available for sale	$	9,020,099	$	9,170,390

Sales of mortgage-backed securities available-for-sale amounted to $8.96 billion, $3.92 billion and $761.6 million during 2011, 2010 and 2009, respectively. Realized gains on the sales of mortgage-backed securities amounted to $100.0 million, $152.6 million and $24.0 million during 2011, 2010 and 2009, respectively. The sales in 2011 were engaged in as part of the Transactions described in Note 10.

As of December 31, 2011, mortgage-backed securities with an amortized cost of $8.47 billion were pledged as collateral for securities sold under agreements to repurchase.

5. Investment Securities

The amortized cost and estimated fair market value of investment securities at December 31 are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross     Unrealized     Losses		Estimated     Fair Market     Value
	(In thousands)
2011
Held to Maturity:
United States government-sponsored enterprises debt	$	539,011	$	6,750	$	-	$	545,761
Total held to maturity	$	539,011	$	6,750	$	-	$	545,761
Available for Sale:
Equity securities	$	6,767	$	601	$	-	$	7,368
Total available for sale	$	6,767	$	601	$	-	$	7,368
2010
Held to Maturity:
United States government-sponsored enterprises debt	$	3,939,006	$	3,698	$	(75,216)	$	3,867,488
Total held to maturity	$	3,939,006	$	3,698	$	(75,216)	$	3,867,488
Available for Sale:
United States government-sponsored enterprises debt	$	80,000	$	2,647	$	-	$	82,647
Equity securities		6,767		381		-		7,148
Total available for sale	$	86,767	$	3,028	$	-	$	89,795

Page 68

Notes to Consolidated Financial Statements

At December 31, 2011, there were no unrealized losses on our available for sale and held-to-maturity investment securities. Therefore, there were no other-than-temporary impairment (the “OTTI”) concerns related to these securities at December 31, 2011. Additionally, there were no OTTI charges in 2011, 2010, or 2009.

The following table summarizes the fair values and unrealized losses of investment securities with an unrealized loss at December 31, 2010, and if the unrealized loss position was for a continuous period of less than twelve months or longer than twelve months at the respective dates.

	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized     Losses		Fair Value		Unrealized     Losses		Fair Value		Unrealized     Losses
					(In thousands)
2010
Held to Maturity:
United States government-sponsored enterprises debt	$	3,524,781	$	(75,216)	$	-	$	-	$	3,524,781	$	(75,216)
Total held to maturity		3,524,781		(75,216)		-		-		3,524,781		(75,216)
Total	$	3,524,781	$	(75,216)	$	-	$	-	$	3,524,781	$	(75,216)

The unrealized losses at December 31, 2010 were primarily due to changes in market interest rates subsequent to purchase. At December 31, 2011, there were no securities in an unrealized loss position (16 at December 31, 2010). We did not consider these investments to be other-than-temporarily impaired at December 31, 2010 since the decline in market value was attributable to changes in interest rates and not credit quality and the Company does not intend to sell and does not believe that it is more likely than not that we will be required to sell these investments until there is a full recovery of the unrealized loss, which may be at maturity. As a result no impairment loss has been recognized during the years ended December 31, 2011, 2010 and 2009, respectively.

The amortized cost and estimated fair market value of investment securities held to maturity and available for sale at December 31, 2011, by contractual maturity, are shown below. The expected maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations. Equity securities have been excluded from this table.

	Amortized Cost		Estimated Fair Market Value
	(In thousands)
Held to Maturity:
Due after ten years	$	539,011	$	545,761
Total held to maturity	$	539,011	$	545,761

There were sales of $80.0 million and $168,000 of investment securities available-for-sale during 2011 and 2009, respectively and none during 2010. Gross realized gains on sales and calls of investment securities available for sale were $2.5 million and $148,000 during 2011 and 2009, respectively, and none during 2010. The carrying value of securities pledged as required security for deposits and for other purposes required by law amounted to $17.4 million and $21.6 million at December 31, 2011 and 2010, respectively.

As of December 31, 2011, investment securities with an amortized cost of $500 million were pledged as collateral for securities under agreements to repurchase.

Page 69

Notes to Consolidated Financial Statements

6. Loans and Allowance for Loan Losses

Loans at December 31 are summarized as follows:

	2011		2010
	(In thousands)
First mortgage loans:
One- to four-family
Amortizing	$	23,480,909	$	24,912,935
Interest-only		4,779,863		5,136,463
FHA/VA		734,781		499,724
Multi-family and commercial		39,634		48,067
Construction		4,929		9,081
Total first mortgage loans		29,040,116		30,606,270
Consumer and other loans:
Fixed–rate second mortgages		131,597		160,896
Home equity credit lines		134,502		137,467
Other		21,130		19,264
Total consumer and other loans		287,229		317,627
Total loans	$	29,327,345	$	30,923,897

There were no loans held for sale at December 31, 2011 and 2010.

The following tables present the composition of our loan portfolio by credit quality indicator at the dates indicated:

Credit Risk Profile based on Payment Activity
					(In thousands)
	One-to four- family first mortgage loans				Other first Mortgages				Consumer and Other						Total Loans
December 31, 2011	Amortizing		Interest-only		Multi-family and Commercial		Construction		Fixed-rate second mortgages		Home Equity credit lines		Other
Performing	$	23,417,785	$	4,566,001	$	37,411	$	585	$	130,869	$	130,897	$	21,110	$	28,304,658
Non-performing		797,905		213,862		2,223		4,344		728		3,605		20		1,022,687
Total	$	24,215,690	$	4,779,863	$	39,634	$	4,929	$	131,597	$	134,502	$	21,130	$	29,327,345
December 31, 2010
Performing	$	24,733,745	$	4,957,115	$	46,950	$	1,521	$	160,456	$	135,111	$	17,740	$	30,052,638
Non-performing		678,914		179,348		1,117		7,560		440		2,356		1,524		871,259
Total	$	25,412,659	$	5,136,463	$	48,067	$	9,081	$	160,896	$	137,467	$	19,264	$	30,923,897

Page 70

Notes to Consolidated Financial Statements

Credit Risk Profile by Internally Assigned Grade
					(In thousands)
	One-to four- family first mortgage loans				Other first Mortgages				Consumer and Other						Total Loans
December 31, 2011	Amortizing		Interest-only		Multi-family and Commercial		Construction		Fixed-rate second mortgages		Home Equity credit lines		Other
Pass	$	23,325,078	$	4,536,090	$	23,997	$	-	$	130,649	$	130,487	$	19,231	$	28,165,532
Special mention		146,391		26,428		2,989		-		220		410		593		177,031
Substandard		744,221		217,345		12,648		4,929		728		3,605		1,306		984,782
Total	$	24,215,690	$	4,779,863	$	39,634	$	4,929	$	131,597	$	134,502	$	21,130	$	29,327,345
December 31, 2010
Pass	$	24,646,101	$	4,927,545	$	37,697	$	1,521	$	160,216	$	134,408	$	17,737	$	29,925,225
Special mention		151,800		29,570		1,199		-		240		703		3		183,515
Substandard		614,758		179,348		1,117		7,560		440		2,356		1,524		807,103
Doubtful		-		-		8,054		-		-		-		-		8,054
Total	$	25,412,659	$	5,136,463	$	48,067	$	9,081	$	160,896	$	137,467	$	19,264	$	30,923,897

Loan classifications are defined as follows:

• Pass – These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

• Special Mention – These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.

• Substandard – These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

• Doubtful – These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified Doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.

• Loss – These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

We evaluate the classification of our one-to four- family mortgage loans, consumer loans and other loans primarily on a pooled basis by delinquency. Loans that are past due 60 to 89 days are classified as special mention and loans that are past due 90 days or more are classified as substandard. We obtain updated valuations for one- to four- family mortgage loans by the time a loan becomes 180 days past due. If necessary, we charge-off an amount to reduce the carrying value of the loan to the value of the underlying property, less estimated selling costs. Since we record the charge-off when we receive the updated valuation, we typically do not have any residential first mortgages classified as doubtful or loss. We evaluate troubled debt restructured loans, multi-family, commercial and construction loans individually and base our classification on the debt service capability of the underlying property as well as secondary sources of repayment such as the borrower’s and any guarantor’s ability and willingness to provide debt service.

Originating loans secured by residential real estate is our primary business. Our financial results may be adversely affected by changes in prevailing economic conditions, either nationally or in our local New Jersey

Page 71

Notes to Consolidated Financial Statements

and metropolitan New York market areas, including decreases in real estate values, adverse employment conditions, the monetary and fiscal policies of the federal and state government and other significant external events. As a result of our lending practices, we have a concentration of loans secured by real property located primarily in New Jersey, New York and Connecticut (the “New York metropolitan area”). At December 31, 2011 approximately 81.7% of our total loans are in the New York metropolitan area.

Included in our loan portfolio at December 31, 2011 and December 31, 2010 are $4.78 billion and $5.14 billion, respectively, of interest-only one-to four-family residential mortgage loans. These loans are originated as adjustable-rate mortgage (“ARM”) 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. We had $213.9 million and $179.3 million of non-performing interest-only one-to four-family residential mortgage loans at December 31, 2011 and December 31, 2010, respectively.

In addition to our full documentation loan program, we originate loans to certain eligible borrowers as limited documentation loans. We have originated these types of loans for over 15 years. Loans eligible for limited documentation processing are ARM loans, interest-only first mortgage loans and 10-, 15-, 20- and 30-year fixed-rate loans to owner-occupied primary and second home applicants. These loans are available in amounts up to 70% of the lower of the appraised value or purchase price of the property. Generally the maximum loan amount for limited documentation loans is $750,000 and these loans are subject to higher interest rates than our full documentation loan products. Limited documentation loans have an inherently higher level of risk compared to loans with full documentation. Included in our loan portfolio at December 31, 2011 are $3.85 billion of originated amortizing limited documentation loans and $956.2 million of originated limited documentation interest-only loans. Non-performing loans at December 31, 2011 include $126.9 million of originated amortizing limited documentation loans and $71.0 million of originated interest-only limited documentation loans. Included in our loan portfolio at December 31, 2010 are $3.38 billion of originated amortizing limited documentation loans and $938.8 million of originated limited documentation interest-only loans. Non-performing loans at December 31, 2010 include $91.5 million of originated amortizing limited documentation loans and $58.3 million of originated interest-only limited documentation loans.

Page 72

Notes to Consolidated Financial Statements

The following table is a comparison of our delinquent loans by class as of the date indicated:

	30-59 Days		60-89 Days		90 Days or more		Total Past Due		Current Loans		Total Loans		90 Days or more and accruing (1)
At December 31, 2011		(In thousands)
One- to four-family first mortgages:
Amortizing	$	357,099	$	158,546	$	797,905	$	1,313,550	$	22,902,140	$	24,215,690	$	97,476
Interest-only		63,360		27,833		213,862		305,055		4,474,808		4,779,863		-
Multi-family and commercial mortgages		1,521		393		2,223		4,137		35,497		39,634		-
Construction loans		-		-		4,344		4,344		585		4,929		-
Consumer and other loans:
Fixed-rate second mortgages		1,202		220		728		2,150		129,447		131,597		-
Home equity lines of credit		2,471		410		3,605		6,486		128,016		134,502		-
Other		1,536		2		20		1,558		19,572		21,130		-
Total	$	427,189	$	187,404	$	1,022,687	$	1,637,280	$	27,690,065	$	29,327,345	$	97,476
At December 31, 2010
One- to four-family first mortgages:
Amortizing	$	363,583	$	161,530	$	678,914	$	1,204,027	$	24,208,632	$	25,412,659	$	64,156
Interest-only		47,479		29,570		179,348		256,397		4,880,066		5,136,463		-
Multi-family and commercial mortgages		3,199		1,199		1,117		5,515		42,552		48,067		-
Construction loans		-		-		7,560		7,560		1,521		9,081		-
Consumer and other loans:
Fixed-rate second mortgages		896		240		440		1,576		159,320		160,896		-
Home equity lines of credit		2,419		703		2,356		5,478		131,989		137,467		-
Other		1,330		3		1,524		2,857		16,407		19,264		-
Total	$	418,906	$	193,245	$	871,259	$	1,483,410	$	29,440,487	$	30,923,897	$	64,156

      (1) Loans that are past due 90 days or more and still accruing interest are loans that are guaranteed by the FHA.

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 at December 31:

	2011						2010
	Total loans			Non-performing   Loans			Total loans			Non-performing   Loans
New Jersey		44.7	%		51.3	%		44.0	%		45.7	%
New York		22.4			19.5			19.9			18.7
Connecticut		14.6			6.8			14.5			6.5
Total New York metropolitan area		81.7			77.6			78.4			70.9
Pennsylvania		4.7			1.4			3.1			1.2
Virginia		2.6			2.9			3.5			4.6
Illinois		2.3			4.7			3.0			4.9
Maryland		2.0			3.2			2.7			4.4
All others		6.7			10.2			9.3			14.0
Total outside New York metropolitan area		18.3			22.4			21.6			29.1
		100.0	%		100.0	%		100.0	%		100.0	%

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Notes to Consolidated Financial Statements

The following is a summary of loans, by class, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at December 31:

	2011		2010
	(In thousands)
Non-accrual loans:
One-to four-family amortizing loans	$	700,429	$	614,758
One-to four-family interest-only loans		213,862		179,348
Multi-family and commercial mortgages		2,223		1,117
Construction loans		4,344		7,560
Fixed-rate second mortgages		728		440
Home equity lines of credit		3,605		2,356
Other loans		20		1,524
Total non-accrual loans		925,211		807,103
Accruing loans delinquent 90 days or more (1)		97,476		64,156
Total non-performing loans	$	1,022,687	$	871,259

(1) Loans that are past due 90 days or more and still accruing interest are loans that are insured by the FHA.

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $56.2 million. The total amount of interest income received during the year on non-accrual loans amounted to approximately $2.6 million during 2011. Hudson City is not committed to lend additional funds to borrowers on non-accrual status.

Loans modified in a troubled debt restructuring totaled $66.5 million at December 31, 2011 of which $7.4 million are 30 to 59 days past due, $4.8 million are 60 to 89 days past due and $11.4 million are 90 days or more past due and are included in non-accrual loans. The remaining troubled debt restructurings were current at December 31, 2011 and have complied with the terms of their restructure agreement. We discontinue accruing interest on troubled debt restructurings that are past due 90 days or more or if we believe we will not collect all amounts contractually due. Approximately $3.3 million of troubled debt restructurings that were previously accruing interest became 90 days or more past due during 2011 for which we ceased accruing interest. At December 31, 2010, loans modified in a troubled debt restructuring totaled $11.1 million all of which were current at the time of their restructuring and were in compliance with the terms of their restructure agreement at December 31, 2010. As a result of our adoption of ASU No. 2011-02 in the second quarter of 2011, we determined that approximately $26.2 million of residential mortgage loans were troubled debt restructurings that were not previously considered as such.

The following table is a comparison of our troubled debt restructuring by class as of the date indicated.

	December 31, 2011						December 31, 2010
	Number of   Contracts		Pre-restructuring   Outstanding Recorded Investment		Post-restructuring   Outstanding Recorded Investment		Number of   Contracts		Pre-restructuring   Outstanding Recorded Investment		Post-restructuring   Outstanding Recorded Investment
	(In thousands)
Troubled debt restructurings:
One-to-four family first mortgages:
Amortizing		146	$	57,336	$	53,831		6	$	2,014	$	2,031
Interest-only		9		4,970		4,799		1		1,093		1,103
Multi-family and commercial mortgages		2		7,911		7,911		2		7,911		7,911
Total		157	$	70,217	$	66,541		9	$	11,018	$	11,045

Page 74

Notes to Consolidated Financial Statements

Upon request, we will generally agree to a short-term payment plan for certain residential mortgage loan borrowers. Many of these customers are current as to their mortgage payments, but may be anticipating a short-term cash flow need and want to protect their credit history. The extent of these plans is generally limited to no more than a six-month deferral of principal payments. Pursuant to these short-term payment plans, we do not modify mortgage notes, recast legal documents, extend maturities or reduce interest rates. We also do not forgive any interest or principal. These loans have not been classified as troubled debt restructurings since we collect all principal and interest, the deferral period is short and any reduction in the present value of cash flows is due to the insignificant delay in the timing of principal payments. As a result, these restructurings did not meet the requirements in ASU No. 2011-02 to be considered a troubled debt restructuring. The principal balance of loans with payment plans at December 31, 2011 amounted to $28.1 million, including $19.7 million of loans that are current, $2.0 million that are 30 to 59 days past due, $3.1 million that are 60 to 89 days past due and $3.3 million that are non-accrual loans and 90 days or more past due. The principal balance of loans with payment plans at December 31, 2010 amounted to $81.3 million, including loans that were determined to be troubled debt restructurings as a result of our adoption of ASU No. 2011-02. Of the $81.3 million of loans in payment plans at December 31, 2010, $54.4 million were current, $13.9 million were 30 to 59 days past due, $4.7 million were 60 to 89 days past due and $8.3 million were 90 days or more past due.

Loans evaluated for impairment include loans classified as troubled debt restructurings and non-performing multi-family, commercial and construction loans. The following table presents our loans evaluated for impairment by class at the date indicated:

	Recorded  Investment		Unpaid Principal Balance		Related  Allowance		Average Recorded  Investment		Interest Income  Recognized
	(In thousands)
December 31, 2011
One-to four-family amortizing loans	$	53,831	$	56,876	$	-	$	55,595	$	2,411
One-to four-family interest-only loans		4,799		4,974		-		4,891		159
Multi-family and commercial mortgages		6,548		10,266		3,718		10,294		485
Construction loans		3,622		4,344		722		4,752		-
Total	$	68,800	$	76,460	$	4,440	$	75,532	$	3,055
December 31, 2010
One-to four-family amortizing loans	$	2,031	$	2,031	$	-	$	2,031	$	106
One-to four-family interest-only loans		1,104		1,104		-		1,104		55
Multi-family and commercial mortgages		5,712		9,161		3,449		9,159		485
Construction loans		5,863		7,560		1,697		6,949		-
Total	$	14,710	$	19,856	$	5,146	$	19,243	$	646

Page 75

Notes to Consolidated Financial Statements

An analysis of the ALL at December 31 follows:

	2011		2010		2009
	(In thousands)
Balance at beginning of year	$	236,574	$	140,074	$	49,797
Charge-offs		(97,096)		(110,771)		(48,133)
Recoveries		14,313		12,271		910
Net charge-offs		(82,783)		(98,500)		(47,223)
Provision for loan losses		120,000		195,000		137,500
Balance at end of year	$	273,791	$	236,574	$	140,074

The following table presents the activity in our ALL by portfolio segment at the year indicated.

	At December 31, 2011
	One-to four- Family Mortgages		Multi-family and Commercial Mortgages		Construction		Consumer and Other Loans		Total
	(In thousands)
Balance at December 31, 2009	$	133,927	$	1,304	$	1,865	$	2,978	$	140,074
Provision for loan losses		191,697		3,115		(137)		325		195,000
Charge-offs		(110,669)		-		-		(102)		(110,771)
Recoveries		12,269		-		-		2		12,271
Net (charge-offs) recoveries		(98,400)		-		-		(100)		(98,500)
Balance at December 31, 2010	$	227,224	$	4,419	$	1,728	$	3,203	$	236,574
Provision for loan losses		120,126		(37)		(994)		905		120,000
Charge-offs		(96,714)		-		-		(382)		(97,096)
Recoveries		14,286		-		-		27		14,313
Net (charge-offs) recoveries		(82,428)		-		-		(355)		(82,783)
Balance at December 31, 2011	$	264,922	$	4,382	$	734	$	3,753	$	273,791
Loan portfolio:
Balance at end of year
Individually evaluated for impairment	$	58,630	$	10,266	$	4,344	$	-	$	73,240
Collectively evaluated for impairment		28,936,923		29,368		585		287,229		29,254,105
Allowance
Individually evaluated for impairment	$	1,335	$	3,718	$	722	$	-	$	5,775
Collectively evaluated for impairment		263,587		664		12		3,753		268,016

The ultimate ability to collect the loan portfolio is subject to changes in the real estate market and future economic conditions. Since 2008, there has been a decline in house prices, both nationally and locally. Housing market conditions in our lending market areas weakened during this period 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.

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. While we continue to adhere to prudent underwriting standards, we are geographically concentrated in the New York metropolitan area of the United States and, therefore, are not immune to negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the housing industry. Continued decreases in real estate values could adversely affect the value of property used as collateral for our loans. No assurance can be given in any particular case that our loan-to-value ratios will provide full protection in the event of borrower default. Adverse changes in the economy and increases in the unemployment rate may have a

Page 76

Notes to Consolidated Financial Statements

negative effect on the ability of our borrowers to make timely loan payments, which would have an adverse impact on our earnings. A further increase in loan delinquencies would decrease our net interest income and may adversely impact our loss experience on non-performing loans which may result in an increase in the loss factors used in our quantitative analysis of the ALL, causing increases in our provision and ALL. 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.

We obtain new collateral values by the time a loan becomes 180 days delinquent and then annually thereafter. 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. Net charge-offs amounted to $82.8 million for 2011 as compared to $98.5 million for 2010.

7.    Banking Premises and Equipment, net

A summary of the net carrying value of banking premises and equipment at December 31 is as follows:

	2011		2010
	(In thousands)
Land	$	5,806	$	5,806
Buildings		56,659		56,127
Leasehold improvements		46,202		45,812
Furniture, fixtures and equipment		91,424		83,278
Total acquisition cost		200,091		191,023
Accumulated depreciation and amortization		(129,481)		(121,579)
Total banking premises and equipment, net	$	70,610	$	69,444

Amounts charged to net occupancy expense for depreciation and amortization of banking premises and equipment amounted to $8.4 million, $8.7 million and $9.7 million in 2011, 2010 and 2009, respectively.

Hudson City has entered into non-cancelable operating lease agreements with respect to banking premises and equipment. It is expected that many agreements will be renewed at expiration in the normal course of business. Future minimum rental commitments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:

Year	Amount
	(In thousands)
2012	$	9,516
2013		9,624
2014		9,511
2015		9,214
2016		9,010
Thereafter		92,723
Total	$	139,598

Page 77

Notes to Consolidated Financial Statements

Net occupancy expense included gross rental expense for bank premises of $11.8 million, $11.2 million, and $10.4 million in 2011, 2010, and 2009, respectively, and rental income of $340,000, $334,000, and $356,000 for the respective years.

8.    Goodwill and Other Intangible Assets

Goodwill and other intangible assets amounted to $155.2 million and were recorded as a result of Hudson City Bancorp’s acquisition of Sound Federal Bancorp, Inc. in 2006.

Due to declines in our common stock price during the third quarter of 2011, we assessed goodwill for impairment. Based on Step 1 of our analysis, the estimated fair value of the Company was less than the Company’s book value which indicated potential goodwill impairment. Based on our Step 2 analysis, the implied goodwill of the Company exceeded the carrying value of goodwill. Therefore, we did not recognize any impairment of goodwill or other intangible assets during the nine months ended September 30, 2011.

We reported a net loss of $360.5 million during the fourth quarter of 2011 due primarily to the debt extinguishment transaction described in Note 10. As a result, our shareholders equity decreased by $419.0 million or 8.4%, to $4.56 billion. Due to the decline in the Company’s book value during the fourth quarter of 2011, we re-assessed goodwill for impairment at December 31, 2011. We performed a goodwill impairment analysis with the assistance of an independent third-party valuation firm. We utilized multiple approaches in estimating the fair value of the Company including (i) a comparable transactions approach based on acquisition pricing multiples or ratios recently paid in the sale or merger of relatively comparable banking franchises; (ii) a control premium approach based on the Company’s trading price adjusted by a premium for acquiring control based on control premium data for recent banking sales or mergers; (iii) a public market peers control premium approach based on the trading prices of similar publicly-traded companies as measured by standard valuation multiples or ratios adjusted by a premium for acquiring control based on control premium data for recent banking sales or mergers; and, (iv) the discounted cash flow approach whereby value is determined based on the present value of the sum of the projected dividends and a terminal value in the future.

Based on the results of the goodwill impairment analysis, we concluded that goodwill was not impaired. Therefore, we did not recognize any impairment of goodwill or other intangible assets during 2011. The estimation of the fair value of the Company requires the use of estimates and assumptions that are subject to a greater degree of uncertainty. In addition, the estimated fair value of the Company is based on, among other things, the market price of our common stock, the change-in-control premiums for recent acquisitions and our projection of net income in future periods. As a result of the current volatility in market and economic conditions, these estimates and assumptions are subject to change in the near-term and may result in the impairment in future periods of some or all of the goodwill on our balance sheet.

Page 78

Notes to Consolidated Financial Statements

9.    Deposits

Deposits at December 31 are summarized as follows:

	2011							2010
	Balance		Percent			Weighted Average Rate		Balance		Percent			Weighted  Average Rate
	(Dollars in thousands)
Savings	$	870,887		3.41	%		0.49%	$	860,806		3.42	%	0.64  %
Noninterest-bearing demand		604,449		2.37			-		567,230		2.25		-
Interest-bearing demand		1,984,962		7.78			0.68%		2,152,460		8.55		0.73
Money market		8,456,020		33.15			0.87%		6,310,080		25.07		1.04
Time deposits		13,591,442		53.29			1.56%		15,282,550		60.71		1.67
Total deposits	$	25,507,760		100.00	%		1.19%	$	25,173,126		100.00	%	1.36  %

Time deposits of $100,000 or more amounted to $5.25 billion and $5.78 billion at December 31, 2011 and 2010, respectively. Interest expense on time deposits of $100,000 or more for the years ended December 31, 2011, 2010 and 2009 was $86.4 million, $100.8 million, and $112.1 million, respectively. Included in noninterest-bearing demand accounts are mortgage escrow deposits of $98.5 million and $97.6 million at December 31, 2011 and 2010, respectively.

Scheduled maturities of time deposits at December 31, 2011 are as follows:

Year	Amount
	(In thousands)
2012	$	8,851,935
2013		2,222,452
2014		641,638
2015		1,201,272
2016		674,145
Total	$	13,591,442

Page 79

Notes to Consolidated Financial Statements

10. Borrowed Funds

Borrowed funds at December 31 are summarized as follows:

	2011					2010
	Principal		Weighted Average Rate			Principal		Weighted       Average       Rate
	(Dollars in thousands)
Securities sold under agreements to repurchase:
FHLB	$	800,000		4.53	%	$	2,150,000	4.29  %
Other brokers		6,150,000		4.44			12,650,000	4.00
Total securities sold under agreements to repurchase		6,950,000		4.45			14,800,000	4.04
Advances from the FHLB		8,125,000		3.39			14,875,000	3.99
Total borrowed funds	$	15,075,000		3.87	%	$	29,675,000	4.02  %
Accrued interest payable	$	66,252				$	151,215

The average balances of borrowings and the maximum amount outstanding at any month-end are as follows:

	At or for the Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Repurchase Agreements:
Average balance outstanding during the year	$	9,127,800		$	15,034,110		$    15,100,221
Maximum balance outstanding at any month-end during the year	$	14,750,000		$	15,100,000		$    15,100,000
Weighted average rate during the period		4.37	%		4.10	%	4.05	%
FHLB Advances:
Average balance outstanding during the year	$	13,349,342		$	14,875,000		$    15,035,798
Maximum balance outstanding at any month-end during the year	$	14,875,000		$	14,875,000		$    15,575,000
Weighted average rate during the period		3.44	%		4.04	%	4.01	%

Page 80

Notes to Consolidated Financial Statements

At December 31, 2011, approximately $7.93 billion of our borrowed funds may be put back to us at the discretion of the issuer after an initial no-put period. At that date, borrowed funds had scheduled maturities and potential put dates as follows:

	Borrowings by Scheduled Maturity Date					Borrowings by Earlier of Scheduled Maturity or Next Potential Put Date
Year	Principal		Weighted Average Rate			Principal		Weighted Average Rate
	(Dollars in thousands)
2012	$	2,900,000		0.88	%	$	5,575,000	2.57  %
2013		-		-			1,325,000	4.69
2014		-		-			3,725,000	4.47
2015		75,000		4.62			275,000	4.10
2016		3,925,000		4.92			3,925,000	4.92
2017		2,475,000		4.37			-	-
2018		700,000		3.65			250,000	3.10
2019		1,725,000		4.62			-	-
2020		3,275,000		4.53			-	-
Total	$	15,075,000		3.87	%	$	15,075,000	3.87  %

The amortized cost and fair value of the underlying securities used as collateral for securities sold under agreements to repurchase, at or for the years ended December 31 are as follows:

	At December 31,
	2011		2010		2009
	(In thousands)
Amortized cost of collateral:
United States government-sponsored enterprise securities	$	500,000	$	2,529,995	$	2,429,640
Mortgage-backed securities		8,467,397		14,653,221		14,482,533
Total amortized cost of collateral	$	8,967,397	$	17,183,216	$	16,912,173
Fair value of collateral:
United States government-sponsored enterprise securities	$	500,464	$	2,475,720	$	2,363,328
Mortgage-backed securities		8,747,418		15,125,185		15,115,964
Total fair value of collateral	$	9,247,882	$	17,600,905	$	17,479,292

During the first quarter of 2011, we completed a restructuring of our balance sheet (referred to as the “Restructuring Transaction”) that included the extinguishment of $12.50 billion of structured borrowings. The borrowings extinguished were structured putable borrowings with a weighted average rate of 3.56% and consisted of borrowings with the Federal Home Loan Bank of New York (“FHLB”) and some of the larger banks in the industry. The extinguishments were funded by proceeds from the sales of $8.58 billion of mortgage-backed securities available for sale and $80.0 million of investment securities available for sale. We also placed on the balance sheet, as part of the funding for the Restructuring Transaction, $5.00 billion of fixed-rate, fixed-maturity borrowings with a weighted average rate of 0.66%. These new borrowings have monthly maturities of $250.0 million that began in April 2011 and will conclude in November 2012.

Page 81

Notes to Consolidated Financial Statements

The Company also extinguished $4.3 billion of structured putable borrowings with a weighted average rate of 4.21% during the fourth quarter of 2011. The extinguishments were funded by excess liquidity provided by cash flows received in the ordinary course of business. The cash flows were primarily from $3.1 billion in calls of investment securities during the second half of 2011 and, to a lesser extent, proceeds received from the repayment of mortgage-related assets.

The Restructuring Transaction and the extinguishment of debt during the fourth quarter of 2011, (collectively referred to as the “Transactions”) resulted in a pre-tax charge of $1.90 billion which was recorded in non-interest expense during 2011.

During the year ended December 31, 2011, we also modified $4.00 billion of putable borrowings to fixed-maturity borrowings thereby eliminating the put option.

The Company had 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 (“SIPA”). Mortgage-backed securities with an amortized cost of approximately $114.1 million were pledged as collateral for these borrowings and we demanded the return of this collateral. The trustee for the SIPA liquidation of Lehman Brothers, Inc. (the “Trustee”) notified the Company in the fourth quarter of 2011 that it no longer holds these securities and considers our claim to be approximately $13.9 million representing the excess of the market value of the collateral over the $100 million repurchase price. While we dispute the Trustee’s calculation of the claim, as a result of the Trustee’s position, we removed the mortgage-backed securities and the borrowings from our balance sheet and recorded the net amount as a receivable included in other assets (the “Net Claim”). While we intend to pursue full recovery of our Net Claim, we established a reserve of $3.9 million against the receivable balance at December 31, 2011. There can be no assurances as to the amount of the final settlement of this transaction.

At December 31, 2011, we had unused lines of credit available from the FHLB, other than repurchase agreements, of up to $500.0 million. These lines of credit are renewed on an annual basis by the FHLB. Our advances from the FHLB are secured by our investment in FHLB stock and by a blanket security agreement. This agreement requires us to maintain as collateral certain qualifying assets (such as one- to-four family residential mortgage loans) with a fair value, as defined, at least equal to 110% of any outstanding advances.

11. Employee Benefit Plans

a) Retirement and Other Postretirement Benefits

Non-contributory retirement and postretirement plans are maintained 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. In 2005, participation in the non-contributory retirement plan was restricted to those employees hired on or before July 31, 2005. Employees hired on or after August 1, 2005 will not participate in the plan. Also in 2005, the plan for postretirement benefits, other than pensions, was changed to restrict participation to those employees hired on or before July 31, 2005, and placed a cap on the premium value of the non-contributory coverage provided at the 2007 premium rate, beginning in 2008, for those eligible employees who retire after December 31, 2005.

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, for certain executive officers, is unfunded and had a projected benefit obligation of $23.3 million at December 31, 2011 and $19.5 million at December 31, 2010. Certain health care and life insurance benefits are provided to eligible retired employees (“other

Page 82

Notes to Consolidated Financial Statements

benefits”). Participants generally become eligible for retiree health care and life insurance benefits after 10 years of service. The measurement date for year-end disclosure information is December 31 and the measurement date for net periodic benefit cost is January 1.

The following table shows the change in benefit obligation, the change in plan assets, and the funded status for the retirement plans and other benefits at December 31:

	Retirement Plans				Other Benefits
	2011		2010		2011		2010
	(In thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	156,015	$	141,828	$	48,355	$	34,221
Service cost		4,160		4,043		970		489
Interest cost		8,926		8,339		2,584		1,668
Participant contributions		-		-		155		144
Actuarial loss (gain)		20,444		6,278		1,743		14,135
Benefits paid		(4,130)		(4,473)		(2,086)		(2,404)
Medicare subsidy		-		-		-		102
Benefit obligation at end of year		185,415		156,015		51,721		48,355
Change in Plan Assets:
Fair value of plan assets at beginning of year		151,876		143,768		-		-
Actual return on plan assets		319		12,249		-		-
Employer contributions		332		332		1,931		2,260
Participant contributions		-		-		155		144
Benefits paid		(4,130)		(4,473)		(2,086)		(2,404)
Fair value of plan assets at end of year		148,397		151,876		-		-
Funded status	$	(37,018)	$	(4,139)	$	(51,721)	$	(48,355)

Funded status amounts recognized in the consolidated statements of financial condition at December 31 consist of:

	Retirement Plans				Other Benefits
	2011		2010		2011		2010
	(In thousands)
Accrued expenses and other liabilities	$	37,018	$	4,139	$	51,721	$	48,355

Pre-tax amounts recognized as components of total accumulated other comprehensive income at December 31 consist of:

	Retirement Plans				Other Benefits
	2011		2010		2011		2010
		(In thousands)
Net actuarial loss	$	78,939	$	50,565	$	22,851	$	22,413
Prior service cost (credit)		1,554		1,900		(19,340)		(20,905)
Total	$	80,493	$	52,465	$	3,511	$	1,508

Page 83

Notes to Consolidated Financial Statements

The accumulated benefit obligation for all defined benefit retirement plans was $154.3 million and $133.4 million at December 31, 2011 and 2010, respectively.

Net periodic benefit cost for the years ended December 31 included the following components:

		1(12,312)1		1(12,312)1		1(12,312)1		1(12,312)1		1(12,312)1	1(12,312)1
	Retirement Plans						Other Benefits
	2011		2010		2009		2011		2010		2009
	(In thousands)
Net periodic benefit cost:
Service cost	$	4,160	$	4,043	$	4,001	$	970	$	489	$        583
Interest cost		8,926		8,339		7,776		2,584		1,668	1,884
Expected return on assets		(12,312)		(11,659)		(8,575)		-		-	-
Amortization of:
Net actuarial loss		4,062		3,106		3,686		1,305		23	301
Prior service cost (credit)		346		339		338		(1,565)		(1,565)	(1,565)
Net periodic benefit cost		5,182		4,168		7,226		3,294		615	1,203
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss (gain)		32,436		5,690		(4,081)		1,743		14,135	(2,659)
Amortization of net actuarial loss		(4,062)		(3,106)		(3,686)		(1,305)		(23)	(301)
Amortization of prior service cost		(346)		(339)		(338)		1,565		1,565	1,565
Total recognized in other comprehensive income		28,028		2,245		(8,105)		2,003		15,677	(1,395)
Total recognized in net periodic benefit cost and other comprehensive income	$	33,210	$	6,413	$	(879)	$	5,297	$	16,292	$        (192)

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2012 are $5.5 million and $358,000 respectively. The estimated net actuarial loss and prior service credit for other defined benefit post-retirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2012 are $1.2 million and $(1.6) million, respectively.

The following are the weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:

		000,000			000,000			000,000			000,000			000,000		000,000
	Retirement Plans									Other Benefits
	2011			2010			2009			2011			2010			2009
Discount rate		5.75	%		6.00	%		5.75	%		5.50	%		5.75	%	5.75  %
Expected return on assets		8.25			8.25			8.25			-			-		-
Rate of compensation increase		4.00			4.00			4.25			-			-		-

The following are the weighted-average assumptions used to determine benefit obligations at December 31:

	Retirement Plans						Other Benefits
	2011			2010			2011			2010
Discount rate		4.75	%		5.75	%		4.55	%	5.50  %
Rate of compensation increase		4.00			4.00			-		-

Page 84

Notes to Consolidated Financial Statements

The overall expected return on assets assumption is based on the historical performance of the pension fund. The average return over the past ten years was determined for the market value of assets, which is the value used in the calculation of annual net periodic benefit cost.

The assumed health care cost trend rate used to measure the expected cost of other benefits for 2011 was 8.00%. The rate was assumed to decrease gradually to 4.75% for 2019 and remain at that level thereafter.

A 1% change in the assumed health care cost trend rate would have the following effects on other benefits:

	1% Increase		1% Decrease
	(In thousands)
Effect on total service cost and interest cost		$                          (19)	$                              50
Effect on other benefit obligations		451	(18)

Funds in Hudson City’s qualified retirement plan are invested in a commingled asset allocation fund (the “Fund”) of a well-established asset management company and in Hudson City Bancorp, Inc. common stock. The purpose of the Fund is to provide a diversified portfolio of equities, fixed income instruments and cash. The plan trustee, in its absolute discretion, manages the Fund. The Fund is maintained with the objective of providing investment results that outperform a static mix of 55% equity, 35% bond and 10% cash, as well as the median manager of balanced funds. In order to achieve the Fund’s return objective, the Fund will combine fundamental analysis and a quantitative proprietary model to allocate and reallocate assets among the three broad investment categories of equities, money market instruments and other fixed income obligations. As market and economic conditions change, these ratios will be adjusted in moderate increments of about five percentage points. It is intended that the equity portion will represent approximately 40% to 70%, the bond portion approximately 25% to 55% and the money market portion 0% to 25%. Performance results are reviewed at least annually with the asset management company of the Fund.

Equity securities held by the Fund include Hudson City Bancorp common stock in the amount of $4.4 million (3.0% of total plan assets) as of December 31, 2011, and $8.9 million (5.9% of total plan assets) as of December 31, 2010. This stock was purchased at an aggregate cost of $6.0 million using a cash contribution made by Hudson City Savings in July 2003. Our plan may not purchase our common stock if, after the purchase, the fair value of our common stock held by the plan equals or exceeds 10% of the fair value of plan assets. We review with the plan administrator the rebalancing of plan assets if the fair value of our common stock held by the plan exceeds 20% of the fair value of the total plan assets.

Page 85

Notes to Consolidated Financial Statements

The following table presents the fair value of the retirement plan’s assets at December 31, 2011 and 2010 by asset class:

		000,000		000,000		000,000		000,000
			Fair Value Measurements at December 31, 2011
Asset Class	Carrying   Value		Quoted Prices in Active      Markets for Identical Assets (Level 1)		Significant Other     Observable Inputs     (Level 2)		Significant Unobservable     Inputs (Level 3)
	(In thousands)
Cash		4,316		4,316		-		-
Guaranteed deposit fund (a)		11,912		-		-		11,912
Equity Securities (b)		76,298		76,298		-		-
Fixed income securities (c)		55,871		-		55,871		-
	$	148,397	$	80,614	$	55,871	$	11,912
			Fair Value Measurements at December 31, 2010
Asset Class	Carrying Value		Quoted Prices in Active      Markets for Identical Assets (Level 1)		Significant Other     Observable Inputs     (Level 2)		Significant Unobservable     Inputs (Level 3)
	(In thousands)
Cash		13,599		13,599		-		-
Guaranteed deposit fund (a)		11,977		-		-		11,977
Equity Securities (b)		81,017		81,017		-		-
Fixed income securities (c)		45,283		-		45,283		-
	$	151,876	$	94,616	$	45,283	$	11,977

(a) The Guaranteed Deposit Fund (the “Fund”) is an investment in the general account of the Prudential Retirement Insurance and Annuity Company and represents an insurance claim supported by all general account assets. The Fund’s assets are intermediate-term, high-grade fixed income securities consisting of commercial mortgages, private placement bonds, publicly-traded debt securities and asset-backed securities.

(b) This class includes a mutual fund that invests primarily in stocks representative of the whole U.S. stock market. The objectives of this mutual fund is to outperform the U.S. stock markets. This class also includes $4.4 million of Hudson City Bancorp, Inc. common stock at December 31, 2011.

(c) This class includes investments in U.S. Treasuries, MBSs issued by GSEs, investment-grade corporate bonds and sovereign debt.

The following table presents a reconciliation of Level 3 assets measured at fair value at December 31:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(In thousands)
	Guaranteed Deposit Fund
	2011		2010
Beginning balance	$	11,977	$	12,059
Purchases, sales, issuances and settlements (net)		(65)		(82)
Ending balance	$	11,912	$	11,977

We made no contributions to our retirement plans during 2011. We do not expect to make a contribution during 2012.

Page 86

Notes to Consolidated Financial Statements

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid under the current provisions of the plans.

	Retirement		Other
Year	Plans		Benefits
	(In thousands)
2012	$	5,971	$	2,658
2013		6,615		2,827
2014		7,217		2,964
2015		7,806		3,134
2016		8,491		3,264
2017 through 2021		53,640		17,402

b) Employee Stock Ownership Plan

The ESOP is a tax-qualified plan designed to invest primarily in Hudson City common stock that provides employees with the opportunity to receive an employer-funded retirement benefit based primarily on the value of Hudson City common stock. Employees are generally eligible to participate in the ESOP after one year of service providing they worked at least 1,000 hours during the plan year and attained age 21. Participants who do not have at least 1,000 hours of service during the plan year or are not employed on the last working day of a plan year are generally not eligible for an allocation of stock for such year. The ESOP was authorized to purchase 27,879,385 shares following our initial public offering and an additional 15,719,223 shares following our second-step conversion for a total of 43,598,608 shares of Hudson City common stock which were purchased at an average price of $5.69 per share with loans from Hudson City Bancorp.

The combined outstanding loan principal at December 31, 2011 was $226.6 million. Those shares purchased were pledged as collateral for the loan and are released from the pledge for allocation to participants as loan payments are made. The loan will be repaid and the shares purchased will be allocated to employees in equal installments of 962,185 shares per year over a forty-year period. The annual allocation of shares is based on the ratio of a participant’s eligible compensation, as defined in the ESOP document, as a percentage of total eligible compensation of all participants in the ESOP. Dividends on allocated and unallocated shares, to the extent that they exceed the scheduled principal and interest payments on the ESOP loan, are paid to participants in cash.

Through December 31, 2011, a total of 11,846,514 shares have been allocated or committed to be allocated to participants. Unallocated ESOP shares held in suspense totaled 31,752,094 at December 31, 2011 and had a fair market value of $198.5 million. ESOP compensation expense for the years ended December 31, 2011, 2010 and 2009 was $7.9 million, $21.2 million, and $20.8 million, respectively. The decrease in the 2011 expense for the ESOP plan was due primarily to a decline in the market price of our common stock during 2011.

The ESOP restoration plan is a non-qualified plan that provides supplemental benefits to certain executives who are prevented from receiving the full benefits contemplated by the employee stock ownership plan’s benefit formula. The supplemental cash payments consist of payments representing shares that cannot be allocated to participants under the ESOP due to the legal limitations imposed on tax-qualified plans and, in the case of participants who retire before the repayment in full of the ESOP’s loan, payments representing the shares that would have been allocated if employment had continued through the full term of the loan. We accrue for these benefits over the period during which employees provide services to earn these benefits. At December 31, 2011 and 2010, we had accrued $24.2 million and $33.4 million, respectively for the ESOP restoration plan. Compensation expense related to this plan amounted to $(8.7) million, $539,000 and $3.7 million in 2011, 2010 and 2009, respectively. The decrease in the accrual at December 31, 2011 and the 2011 expense for the ESOP restoration plan was due primarily to a decline in the market price of our common stock during 2011.

Page 87

Notes to Consolidated Financial Statements

c) Stock Option Plans

Compensation expense for stock option grants is recognized based upon the grant-date fair value of those awards over the period of requisite service. The purpose of our stock-based compensation plans is to promote the growth and profitability of Hudson City Bancorp by providing directors, officers and employees with an equity interest in Hudson City Bancorp as an incentive to achieve corporate goals.

Each stock option granted entitles the holder to purchase one share of Hudson City’s common stock at an exercise price not less than the fair market value of a share of common stock at the date of grant. Options granted generally vest over a five year period from the date of grant and will expire no later than 10 years following the grant date. Under the Hudson City stock option plans existing prior to 2006, 36,323,960 shares of Hudson City Bancorp, Inc. common stock have been reserved for issuance. Directors and employees have been granted 36,503,507 stock options, including 240,819 shares previously issued, but forfeited by plan participants prior to exercise.

In June 2006, our shareholders approved the Hudson City Bancorp, Inc. 2006 Stock Incentive Plan (the “SIP”) 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 2006 SIP. Grants of stock options made through December 31, 2010 pursuant to the 2006 SIP amounted to 23,120,000 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, 6,067,500 have vesting periods ranging from one to five years and an expiration period of ten years. The remaining 17,052,500 shares have vesting periods ranging from two to three years if certain financial performance measures are met. The financial performance measures for each of these awards, other than the performance stock options granted in 2010 (“2010 grants”), have either been met, or are considered, subject to review and verification of the Committee, probable to be met, so we have recorded compensation expenses for these awards accordingly. The Company has determined that it is more than likely that one of the two performance measures related to the 2010 option grants will not be met. As a result, the Company expects that half of the 2010 option grants will vest and the expense for these options has been adjusted accordingly.

In April 2011, our shareholders approved the Hudson City Bancorp, Inc. Amended and Restated 2011 Stock Incentive Plan (the “2011 SIP”) authorizing us to grant up to 28,750,000 shares of common stock including the 2,070,000 shares remaining under the 2006 SIP. During 2011, the Committee authorized stock option grants (the “2011 option grants”) pursuant to the 2011 SIP for 1,618,932 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, 1,308,513 will vest between April 2014 and July 2014 if certain financial performance measures are met and employment continues through the vesting date (the “2011 Performance Options”). The remaining 310,419 options will vest in April 2012 (the “2011 Retention Options”). The 2011 option grants have an expiration period of ten years. We have determined that it is probable these performance measures for the 2011 Performance Options will be met and have recorded compensation expense for the those grants accordingly.

Page 88

Notes to Consolidated Financial Statements

The fair values of the option grants were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2011						2010						2009
	Retention Options			Performance Options			Retention Options			Performance Options			Retention Options			Performance Options
Expected dividend yield		3.37	%		3.37	%		4.57	%		4.57	%		4.80	%		4.80  %
Expected volatility		43.54			36.93			41.30			34.58			33.43			29.08
Risk-free interest rate		1.06			2.01			1.65			2.55			1.29			1.75
Expected option life		3 years			5 years			3.6 years			5.6 years			3.5 years			5.5 years
Fair value of options granted	$	2.32		$	2.39		$	3.00		$	2.87		$	2.05		$	1.92

The dividend yield assumptions were based on our current declared dividend as a percentage of the stock price on the grant date. The expected volatility assumptions were 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.

Compensation expense related to our outstanding stock options amounted to $8.3 million, $11.1 million and $12.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

A summary of the status of the granted, but unexercised stock options as of December 31, and changes during those years, is presented below:

	2011				2010				2009
	Number of Stock Options		Weighted Average Exercise Price		Number of Stock Options		Weighted Average Exercise Price		Number of   Stock Options		Weighted   Average Exercise Price
Outstanding at beginning of year		28,129,885	$	12.68		24,262,692	$	12.51		26,728,119	$	10.35
Granted		1,618,932		9.22		4,232,500		13.13		3,375,000		12.11
Exercised		(870,331)		3.64		(242,807)		5.08		(5,840,427)		2.30
Forfeited		(52,500)		12.13		(122,500)		14.06		-		-
Outstanding at end of year		28,825,986	$	12.77		28,129,885	$	12.68		24,262,692	$	12.51

Shares issued upon the exercise of stock options are issued from treasury stock. Hudson City has an adequate number of treasury shares available for sale for future stock option exercises. The total intrinsic value of the options exercised during 2011, 2010 and 2009 was $3.9 million, $1.9 million, and $63.0 million, respectively.

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Notes to Consolidated Financial Statements

The following table summarizes information about our stock options outstanding at December 31, 2011:

Options Outstanding				Options Exercisable
Number Of Options Outstanding	Weighted Average Remaining Contractual Life	Weighted     Average     Exercise     Price		Number       Of Options       Exercisable		Weighted        Average        Exercise         Price
9,618	1 month		4.20		9,618		4.20
614,440	4 months		5.53		614,440		5.53
111,959	1 years		5.96		111,959		5.96
206,480	1 years		6.35		206,480		6.35
448,840	2 years		10.33		448,840		10.33
415,784	3 years		11.17		415,784		11.17
305,592	2 years		11.91		305,592		11.91
2,299,341	2 years		12.22		2,299,341		12.22
7,872,500	4.5 years		12.76		7,872,500		12.76
350,000	5.5 years		13.35		350,000		13.35
3,110,000	5 years		13.78		3,060,000		13.78
3,625,000	6 years		15.69		3,625,000		15.69
350,000	6 years		18.84		350,000		18.84
350,000	7 years		12.81		350,000		12.81
2,930,000	7 years		12.03		150,000		12.03
3,870,000	8 years		13.10		164,998		13.10
300,000	8 years		13.62		300,000		13.62
37,500	8.5 years		12.10		37,500		12.10
1,406,700	9 years		9.50		-		-
160,419	9 years		9.77		-		-
51,813	9 years		8.33		-		-
28,825,986		$	12.77		20,672,052	$	13.07

The total intrinsic value of the options outstanding and options exercisable were $495,000 as of December 31, 2011. At December 31, 2011, unearned compensation costs related to all nonvested awards of options and restricted stock not yet recognized totaled $10.6 million, and will be recognized over a weighted-average period of approximately 2.9 years.

d) Restricted Stock Plans

Hudson City Bancorp granted stock awards pursuant to the RRP established in January 2000 and the SIP established in January 2006. Expense for stock awards is recognized ratably over the vesting period based on the fair value of the common stock on the grant date. No stock awards have been granted pursuant to the 2011 SIP.

The RRP were authorized, in the aggregate, to purchase not more than 14,901,480 shares of common stock, and have purchased 14,887,855 shares on the open market at an average price of $2.91 per share. Generally, restricted stock grants are held in escrow for the benefit of the award recipient until vested. Awards outstanding generally vest in five annual installments commencing one year from the date of the award. As of December 31, 2011, common stock that had not been awarded totaled 13,625 shares.

During 2009, the Compensation Committee authorized performance-based stock awards (the “2009 stock awards”) pursuant to the SIP Plan for 847,750 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

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Notes to Consolidated Financial Statements

met and employment continues through the vesting date. None of these shares may be sold or transferred before the 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. Expense attributable to both plans amounted to $3.5 million, $3.8 million and $4.6 million for the years ended December 31, 2011, 2010 and 2009, respectively.

A summary of the status of the granted, but unvested shares under the RRP and SIP Plan as of December 31, and changes during those years, is presented below:

	Restricted Stock Awards
	2011				2010				2009
	Number of     Shares		Weighted   Average   Grant Date   Fair Value		Number of     Shares		Weighted Average Grant Date Fair Value		Number of     Shares		Weighted  Average  Grant Date  Fair Value
Outstanding at beginning of period		583,167	$	12.06		959,956	$	12.00		224,417	$	11.73
Granted		-		-		18,000		13.12		847,750		12.03
Vested		(288,583)		12.05		(394,789)		11.94		(112,211)		11.73
Outstanding at end of period		294,584	$	12.07		583,167	$	12.06		959,956	$	12.00

The per share weighted-average vesting date fair value of the shares vested during 2011, 2010, and 2009 was $9.50, $13.16, and $12.56, respectively.

e) Stock Unit Awards

Hudson City Bancorp granted stock unit awards to a newly appointed member of the Board of Directors in July 2010. These awards were for a value of $250,000 which was converted to common stock equivalents (stock units) of 20,661 shares. These units vest annually over a three-year period if service continues through the vesting dates. Vested units will be settled in shares of our common stock following the director’s departure from the Board of Directors. Stock unit awards were also made in 2011 (the “2011 stock unit awards”) pursuant to the 2011 SIP for a total value of $9.7 million, or stock units of 1,004,230 shares. 2011 stock unit awards to employees vest if service continues through the third anniversary of the awards, and will be settled, if vested, in shares of our common stock on the third and fifth anniversaries of the awards. 2011 stock unit awards to directors vest if service continues through the first anniversary of the award, and are settled in shares of our common stock following the director’s departure from the Board of Directors. Expense for the stock unit awards is recognized over their vesting period and is based on the fair value of our common stock on each stock unit grant date, based on quoted market prices. Expense attributable to the stock unit awards amounted to $2.6 million and $42,000 for the years ended December 31, 2011 and 2010, respectively.

f) Incentive Plans

A tax-qualified profit sharing and savings plan is maintained based on Hudson City’s profitability. All employees are eligible after one year of employment and the attainment of age 21. Expense related to this plan was $2.3 million, $2.5 million, and $3.0 million in 2011, 2010 and 2009, respectively.

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Notes to Consolidated Financial Statements

Certain incentive plans are maintained to recognize key executives who are able to make substantial contributions to the long-term success and financial strength of Hudson City. At the end of each performance period, the value of the award is determined in accordance with established criteria. Participants can elect cash payment or elect to defer the award until retirement. The expense related to these plans was $3.6 million, $6.8 million, and $7.3 million in 2011, 2010 and 2009, respectively.

12. Income Taxes

Income tax expense (benefit) is summarized as follows for the years ended December 31:

	2011		2010		2009
	(In thousands)
Federal:
Current	$	(361,196)	$	334,736	$	323,152
Deferred		(35,605)		(44,256)		(36,368)
Total federal		(396,801)		290,480		286,784
State:
Current		13,878		76,294		70,270
Deferred		(136,397)		(11,547)		(10,332)
Total state		(122,519)		64,747		59,938
Total income tax (benefit) expense		(519,320)	$	355,227	$	346,722

Not included in the above table are deferred income tax expense amounts of $(76.8) million, $68.5 million, and $94.4 million for 2011, 2010 and 2009, respectively, which represent the deferred income taxes relating to the changes in accumulated other comprehensive income (loss).

The amounts reported as income tax expense vary from the amounts that would be reported by applying the statutory federal income tax rate to income before income taxes due to the following:

	2011			2010			2009
	(Dollars in thousands)
Net (Loss) Income before income tax (benefit) expense	$	(1,255,309)		$	892,433		$	873,966
Statutory income tax rate		35	%		35	%		35	%
Computed expected income tax (benefit) expense		(439,358)			312,352			305,888
State income taxes, net of federal income tax (benefit) expense		(79,638)			42,086			38,960
ESOP fair market value adjustment		657			2,183			2,212
Other, net		(981)			(1,394)			(338)
Income tax (benefit) expense	$	(519,320)		$	355,227		$	346,722

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Notes to Consolidated Financial Statements

The net deferred tax asset consists of the following at December 31:

		2011		2010
		(In thousands)
Deferred tax asset:
	Allowance for loan losses	$	110,783	$	95,470
	Loss on debt extinguishment		69,239		-
	State operating loss carryforward		75,751		-
	Postretirement benefits		55,046		42,804
	Non-qualified benefit plans		49,306		50,734
	ESOP expense		12,709		10,105
	Interest on non-accrual loans		35,394		23,725
	Other		12,345		12,042
	Total deferred tax assets		420,573		234,880
Deferred tax liabilities:
	Postretirement benefits		23,527		24,275
	Net unrealized gain on securities available for sale		62,768		80,998
	Other		1,463		3,409
	Total deferred tax liabilities		87,758		108,682
	Net deferred tax asset (included in other assets)	$	332,815	$	126,198

The net deferred tax asset represents the anticipated federal and state tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes comprising this balance. Federal deferred tax assets are recoverable due to the three year loss carryback period for federal purposes. State deferred tax assets, including the state net operating loss are dependent upon the Company’s taxable income in future periods. In management’s opinion, in view of Hudson City’s previous, current and projected future earnings trends, such net deferred tax asset will more likely than not be fully realized. Accordingly, no valuation allowance was deemed to be required at December 31, 2011 and 2010.

In July 2006, FASB issued guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Accrued estimated penalties and interest on unrecognized tax benefits were approximately $2.5 million and $1.3 million at December 31, 2011 and 2010, respectively. Estimated penalties and interest of $1.2 million, $626,000 and $(270,000) are included in income tax (benefit) expense at December 31, 2011, 2010, and 2009, respectively. The Company’s tax returns are subject to examination in the normal course by federal tax authorities for the years 2007 through 2011 and by state authorities for the years 2007 through 2011.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows:

		2011			2010
		(In thousands)
Balance at January 1	$		5,357	$		4,053
Additions based on tax positions related to the current year			2,366			1,754
Reductions for tax positions of prior years			(661)			(450)
Balance at December 31	$		7,062	$		5,357

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Notes to Consolidated Financial Statements

Retained earnings at December 31, 2011 included approximately $58.0 million for which no deferred income taxes have been provided. This amount represents the base year allocation of income to bad debt deduction for tax purposes. Under FASB guidance, this amount is treated as a permanent difference and deferred taxes are not recognized unless it appears that the amount will be reduced and result in taxable income in the foreseeable future. Events that would result in taxation of these reserves include failure to qualify as a bank for tax purposes or distributions in excess of Hudson City Savings’ current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. The unrecognized deferred tax liability with respect to our base-year deduction amounted to $23.5 million at December 31, 2011 and 2010.

13. Fair Value Measurements and Disclosures

a) Fair Value Measurements

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 December 31, 2011 and 2010, respectively. 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, Fair Value Measurements and Disclosures, 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 monthly from an independent nationally recognized pricing service. On a monthly basis, we assess the reasonableness of the fair values obtained by reference to a second 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

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Notes to Consolidated Financial Statements

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. On an annual basis, we obtain the models, inputs and assumptions utilized by our pricing service and review them for reasonableness. We also own equity securities with a carrying value of $7.4 million and $7.1 million at December 31, 2011 and 2010, respectively, 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 December 31, 2011 and 2010.

			Fair Value at December 31, 2011 using
Description	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
					(In thousands)
Available for sale debt securities:
Mortgage-backed securities	$	9,170,390	$	-	$	9,170,390	$                        -
Total available for sale debt securities	$	9,170,390	$	-	$	9,170,390	$                        -
Available for sale equity securities:
Financial services industry	$	7,368	$	7,368	$	-	$                        -
Total available for sale equity securities		7,368		7,368		-	-
Total available for sale securities	$	9,177,758	$	7,368	$	9,170,390	$                        -

			Fair Value at December 31, 2010 using
Description	Carrying Value		Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
					(In thousands)
Available for sale debt securities:
Mortgage-backed securities	$	18,120,537	$	-	$	18,120,537	$                        -
U.S. government-sponsored enterprises debt		82,647		-		82,647	-
Total available for sale debt securities		18,203,184		-		18,203,184	-
Available for sale equity securities:
Financial services industry	$	7,148	$	7,148	$	-	$                        -
Total available for sale equity securities		7,148		7,148		-	-
Total available for sale securities	$	18,210,332	$	7,148	$	18,203,184	$                        -

Assets that were measured at fair value on a non-recurring basis at December 31, 2011 and 2010 were limited to non-performing commercial and construction loans that are collateral dependent, troubled debt restructurings and foreclosed real estate. Loans evaluated for impairment in accordance with FASB guidance amounted to $73.2 million and $16.7 million at December 31, 2011 and 2010, respectively. Based on this evaluation, we established an ALL of $4.4 million and $5.1 million for those same respective periods. The provision for loan losses related to these loans amounted to $2.3 million and $3.0 million for 2011 and 2010. These impaired loans are

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Notes to Consolidated Financial Statements

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 these impaired loans 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 consisted of one-to four-family properties at December 31, 2011 and 2010 and amounted to $40.6 million and $45.7 million, respectively. During 2011 and 2010, charge-offs to the ALL related to loans that were transferred to foreclosed real estate amounted to $4.4 million and $5.3 million, respectively. Write downs and net loss on sale related to foreclosed real estate that were charged to non-interest expense amounted to $7.5 million and $2.7 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 December 31, 2011 and 2010.

	Fair Value Measurements at December 31, 2011 using
Description	Quoted Prices in Active     Markets for Identical     Assets (Level 1)		Significant Other     Observable Inputs      (Level 2)		Significant     Unobservable Inputs     (Level 3)		Total     Gains     (Losses)
			(In thousands)
Impaired loans	$	-	$	-	$	73,240	$	(2,280)
Foreclosed real estate		-		-		40,619		(7,461)

	Fair Value Measurements at December 31, 2010 using
Description	Quoted Prices in Active     Markets for Identical     Assets (Level 1)		Significant Other     Observable Inputs      (Level 2)		Significant     Unobservable Inputs      (Level 3)		Total     Gains     (Losses)
			(In thousands)
Impaired loans	$	-	$	-	$	16,721	$	-
Foreclosed real estate		-		-		45,693		(2,739)

The following table provides a reconciliation of assets measured at fair value on a non-recurring basis at December 31, 2011.

	Fair Value Measurements Using     Significant Unobservable Inputs (Level  3)
	(In thousands)
	Foreclosed Real Estate		Impaired Loans
Balance at December 31, 2009	$	16,736	$	11,178
Net (losses) gains		(2,739)		-
Net transfers in (out)		31,696		5,543
Balance at December 31, 2010	$	45,693	$	16,721
Net (losses) gains		(7,461)		(2,280)
Net transfers in (out)		2,387		58,799
Balance at December 31, 2011	$	40,619	$	73,240

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Notes to Consolidated Financial Statements

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 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. Published pricing in the secondary and securitization markets was also utilized to assist in the fair value of the loan portfolio. The valuation of our loan portfolio is consistent with accounting guidance but does not fully incorporate the exit price approach.

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’s retail branch delivery system, its existing core deposit base and banking premises and equipment.

The estimated fair value of Hudson City’s financial instruments is summarized as follows at December 31:

	2011				2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated   Fair Value
	(In thousands)
Assets:
Cash and due from banks	$	194,029	$	194,029	$	175,769	$	175,769
Federal funds sold		560,051		560,051		493,628		493,628
Investment securities held to maturity		539,011		545,761		3,939,006		3,867,488
Investment securities available for sale		7,368		7,368		89,795		89,795
Federal Home Loan Bank of New York stock		510,564		510,564		871,940		871,940
Mortgage-backed securities held to maturity		4,115,523		4,368,423		5,914,372		6,199,507
Mortgage-backed securities available for sale		9,170,390		9,170,390		18,120,537		18,120,537
Loans		29,137,359		30,935,705		30,773,956		32,328,933
Liabilities:
Deposits		25,507,760		25,707,551		25,173,126		25,584,478
Borrowed funds		15,075,000		17,428,484		29,675,000		32,975,633

Page 97

Notes to Consolidated Financial Statements

14. Regulatory Matters

Hudson City Savings is subject to comprehensive regulation, supervision and periodic examination by the OCC. Deposits at Hudson City Savings are insured up to standard limits of coverage provided by the Deposit Insurance Fund (“DIF”) of the FDIC.

On June 24, 2011, the Bank entered into a Memorandum of Understanding with the OTS (the “MOU”), which was reviewed and approved by the Bank’s Board of Directors (the “Bank MOU”). Effective July 21, 2011, pursuant to the applicable provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”), the OTS transferred all powers, authorities, rights and duties to supervise the Bank to the OCC. In accordance with the Bank MOU, the Bank has adopted and has implemented enhanced operating policies and procedures that will enable us to continue to (a) reduce our level of interest rate risk, (b) reduce our funding concentration, (c) diversify our funding sources, (d) enhance our liquidity position, (e) monitor and manage loan modifications and (f) maintain our capital position in accordance with our existing capital plan. In addition, we have implemented an increased governance structure over compliance and risk management practices including the establishment of a Risk Committee of the Board of Directors.

The Company also entered into a separate MOU with the OTS (the “Company MOU”). Effective July 21, 2011, the OTS transferred all powers, authorities, rights and duties to supervise the Company to the FRB. In accordance with the Company MOU, the Company must, among other things support the Bank’s compliance with the Bank MOU. The Company MOU also requires the Company to: (a) provide notice to the regulators in accordance with published regulatory guidance prior to declaring a dividend to shareholders and (b) provide notice to and obtain written non-objection from the regulators prior to the Company incurring any debt outside the ordinary course of business. The Company MOU does not affect our dividend policy and our current dividend to shareholders is consistent with our capital plan.

These agreements will remain in effect until modified or terminated by the OCC (with respect to the Bank MOU) and the FRB (with respect to the Company MOU).

OCC regulations require federally chartered savings banks to meet three minimum capital ratios: a 1.5% tangible capital ratio, a 4% leverage (core capital) ratio and an 8% total risk-based capital ratio. In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors but also qualitative factors. Management believes that, as of December 31, 2011, Hudson City Savings met all capital adequacy requirements to which it is subject. As of December 31, 2011, Hudson City Savings met the applicable requirements to be considered “well capitalized”.

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Notes to Consolidated Financial Statements

The following is a summary of Hudson City Savings’ actual capital amounts and ratios as of December 31, 2011 and 2010, compared to the OCC minimum capital adequacy requirements and the OCC requirements for classification as a well-capitalized institution:

						OCC Requirements
	Bank Actual					Minimum Capital Adequacy					For Classification as Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2011
Tangible capital	$	3,980,011		8.83	%	$	676,054		1.50	%		n/a		n/a
Leverage (core) capital		3,980,011		8.83			1,802,810		4.00		$	2,253,512		5.00	%
Total-risk-based capital		4,245,598		20.00			1,698,024		8.00			2,122,531		10.00
December 31, 2010
Tangible capital	$	4,799,114		7.95	%	$	904,977		1.50	%		n/a		n/a
Leverage (core) capital		4,799,114		7.95			2,413,272		4.00		$	3,016,590		5.00	%
Total-risk-based capital		5,026,339		22.74			1,768,682		8.00			2,210,827		10.00

The OCC may take certain supervisory actions under the prompt corrective action regulations of the Federal Deposit Insurance Corporation Improvement Act with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements. The regulations establish a framework for the classification of savings institutions into five categories: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the OCC regulations, an institution is considered well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.0% and a total risk-based capital ratio of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCC about capital components, risk-weightings and other factors.

The Reform Act requires the federal banking agencies to establish consolidated risk-based and leverage capital requirements for insured depository institutions, depository institution holding companies and systemically important nonbank financial companies. These requirements must be no less than those to which insured depository institutions are currently subject. As a result, on the fifth anniversary of the effective date of the Reform Act, we will become subject to consolidated capital requirements which we have not been subject to previously. In addition, on September 12, 2010, the Basel Committee adopted the Basel III rules. These rules, which will be phased in over a period of years, set new standards for common equity, Tier 1 and total capital, determined on a risk-weighted basis.

The OCC regulates all capital distributions by Hudson City Savings directly or indirectly to Hudson City Bancorp, including dividend payments. Hudson City Savings may not pay dividends to Hudson City Bancorp if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage and tangible capital ratio requirements. A subsidiary of a savings and loan holding company, such as Hudson City Savings, must file a notice or seek affirmative approval from the OCC at least 30 days prior to each proposed capital distribution. Whether an application is required is based on a number of factors including whether the institution qualifies for expedited treatment under the OCC rules and regulations or if the total amount of all capital distributions (including each proposed capital distribution) for the applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years. Currently, Hudson City Savings must seek approval from the OCC for future capital distributions. In addition, as the subsidiary of a savings and loan holding company, Hudson City Savings must also receive approval from the FRB before declaring a dividend.

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Notes to Consolidated Financial Statements

Upon completion of the second-step conversion, Hudson City Bancorp established a “liquidation account” in an amount equal to the total equity of Hudson City Savings as of the latest practicable date prior to the second-step conversion. The liquidation account was established to provide a limited priority claim to the assets of Hudson City Savings to “eligible account holders” and “supplemental eligible account holders”, as defined in the plan of conversion and reorganization, who continue to maintain deposits in Hudson City Savings after the second-step conversion. In the unlikely event of a complete liquidation of Hudson City Savings at a time when Hudson City Savings has a positive net worth, and only in such event, each eligible account holder and supplemental eligible account holder would be entitled to receive a liquidation distribution, prior to any payment to the stockholders of Hudson City Bancorp. In the unlikely event of a complete liquidation of Hudson City Savings and Hudson City Bancorp does not have sufficient assets (other than the stock of Hudson City Savings) to fund the obligation under the liquidation account, Hudson City Savings will fund the remaining obligation as if Hudson City Savings had established the liquidation account rather than Hudson City Bancorp. Any assets remaining after the liquidation rights of eligible account holders and supplemental eligible account holders are satisfied would be distributed to Hudson City Bancorp as the sole stockholder of Hudson City Savings.

15. Commitments and Contingencies

Hudson City Savings is a party to commitments to extend credit in the normal course of business to meet the financial needs of its customers and commitments to purchase loans and mortgage-backed securities to meet our growth initiatives. 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 or other termination clauses, whereas home equity lines of credit have no expiration date. 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.

At December 31, 2011, Hudson City Savings had variable- and fixed-rate first mortgage loan commitments to extend credit of approximately $259.2 million and $178.7 million, respectively; commitments to purchase fixed-rate first mortgage loans of $140,000; and unused home equity, overdraft and commercial/construction lines of credit of approximately $172.9 million, $2.6 million, and $3.3 million, respectively. At December 31, 2010, Hudson City Savings had variable- and fixed-rate first mortgage loan commitments to extend credit of approximately $226.6 million and $292.4 million, respectively; commitments to purchase fixed-rate first mortgage loans of $500,000; commitments to purchase variable- and fixed-rate mortgage-backed securities of $2.60 billion and $9.6 million, respectively; and unused home equity, overdraft and commercial/construction lines of credit of approximately $188.5 million, $2.8 million, and $8.6 million, respectively. These commitment amounts are not included in the accompanying financial statements. There is no exposure to credit loss in the event the other party to commitments to extend credit does not exercise its rights to borrow under the commitment.

In the normal course of business, there are various outstanding legal proceedings. In the opinion of management, the consolidated financial statements of Hudson City will not be materially affected as a result of such legal proceedings.

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Notes to Consolidated Financial Statements

16. Parent Company Only Financial Statements

Set forth below are the condensed financial statements for Hudson City Bancorp, Inc.:

Statements of Financial Condition

	December 31, 2011		December 31, 2010
	(In thousands)
Assets:
Cash and due from subsidiary bank	$	137,822	$	239,587
Investment in subsidiary		4,199,876		5,041,494
ESOP loan receivable		226,593		229,288
Other assets		-		-
Total Assets	$	4,564,291	$	5,510,369
Stockholders’ Equity:
Accrued expenses	$	3,851	$	131
Total stockholders’ equity		4,560,440		5,510,238
Total Liabilities and Stockholders’ Equity	$	4,564,291	$	5,510,369

Statements of Operations

	Year Ended December 31,
	2011		2010		2009
	(In thousands)
Income:
Dividends received from subsidiary	$	87,524	$	320,000	$	338,500
Interest on ESOP loan receivable		11,464		11,593		11,715
Interest on deposit with subsidiary		733		1,483		2,646
Total income		99,721		333,076		352,861
Expenses		1,380		1,466		1,419
Income before income tax expense and equity in undistributed net (loss) income of subsidiary		98,341		331,610		351,442
Income tax expense		4,068		4,360		3,397
Income before equity in undistributed net (loss) income of subsidiary		94,273		327,250		348,045
Equity in undistributed net (loss) income of subsidiary		(830,262)		209,956		179,199
Net (loss) income	$	(735,989)	$	537,206	$	527,244

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Notes to Consolidated Financial Statements

Statements of Cash Flows

	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Cash Flows from Operating Activities:
Net (loss) income	$	(735,989	)	$	537,206		$	527,244
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net (loss) income		830,262			(209,956	)		(179,199)
Decrease in other assets		-			231			7,168
Increase in accrued expenses		3,720			131			-
Net Cash Provided by Operating Activities		97,993			327,612			355,213
Cash Flows from Investing Activities:
Principal collected on ESOP loan		2,695			2,568			2,444
Net Cash Provided by Investing Activities		2,695			2,568			2,444
Cash Flows from Financing Activities:
Purchases of treasury stock		(163	)		(464	)		(43,477)
Exercise of stock options		3,165			1,235			13,500
Cash dividends paid on unallocated ESOP shares		(12,757	)		(20,208	)		(20,436)
Cash dividends paid		(192,698	)		(295,757	)		(288,408)
Net Cash Used in Financing Activities		(202,453	)		(315,194	)		(338,821)
Net (Decrease) Increase in Cash Due from Bank		(101,765	)		14,986			18,836
Cash Due from Bank at Beginning of Year		239,587			224,601			205,765
Cash Due from Bank at End of Year	$	137,822		$	239,587		$	224,601

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Notes to Consolidated Financial Statements

17. Selected Quarterly Financial Data (Unaudited)

The following tables are a summary of certain quarterly financial data for the years ended December 31, 2011 and 2010.

	2011 Quarter Ended
	March 31		June 30		September 30		December 31
	(In thousands, except per share data)
Interest and dividend income	$	617,523	$	552,732	$	524,238	$	472,844
Interest expense		361,122		279,823		279,895		265,863
Net interest income		256,401		272,909		244,643		206,981
Provision for loan losses		40,000		30,000		25,000		25,000
Net interest income after provision for loan losses		216,401		242,909		219,643		181,981
Non-interest income		105,207		2,732		3,094		2,884
Non-interest expense		1,240,568		85,837		83,661		820,094
(Loss) income before income tax expense		(918,960)		159,804		139,076		(635,229)
Income tax (benefit) expense		(363,296)		63,796		54,873		(274,693)
Net (loss) income	$	(555,664)	$	96,008	$	84,203	$	(360,536)
Basic (loss) earnings per share	$	(1.13)	$	0.19	$	0.17	$	(0.73)
Diluted (loss) earnings per share	$	(1.13)	$	0.19	$	0.17	$	(0.73)

	2010 Quarter Ended
	March 31		June 30		September 30		December 31
	(In thousands, except per share data)
Interest and dividend income	$	734,870	$	717,580	$	688,810	$	643,236
Interest expense		403,725		400,066		398,476		391,402
Net interest income		331,145		317,514		290,334		251,834
Provision for loan losses		50,000		50,000		50,000		45,000
Net interest income after provision for loan losses		281,145		267,514		240,334		206,834
Non-interest income		32,998		33,210		33,859		62,927
Non-interest expense		66,531		64,596		65,706		69,555
Income before income tax expense		247,612		236,128		208,487		200,206
Income tax expense		98,727		93,537		83,918		79,045
Net income	$	148,885	$	142,591	$	124,569	$	121,161
Basic earnings per share	$	0.30	$	0.29	$	0.25	$	0.25
Diluted earnings per share	$	0.30	$	0.29	$	0.25	$	0.25

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Notes to Consolidated Financial Statements

18. Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.

	For the Year Ended December 31,
	2011						2010						2009
	Income		Shares		Per Share Amount		Income		Shares		Per Share Amount		Income		Shares		Per  Share  Amount
	(In thousands, except per share data)
Net (loss) income	$	(735,989)					$	537,206					$	527,244
Basic (loss) earnings per share:
(Loss) income available to common stockholders	$	(735,989)		494,629	$	(1.49)	$	537,206		493,033	$	1.09	$	527,244		488,908	$    1.08
Effect of dilutive common stock equivalents		-		-				-		1,281				-		2,388
Diluted (loss) earnings per share:
(Loss) income available to common stockholders	$	(735,989)		494,629	$	(1.49)	$	537,206		494,314	$	1.09	$	527,244		491,296	$    1.07

Excludes options to purchase 26,833,269 shares, 16,160,000 shares and 7,007,500 shares, respectively, of the Company’s common stock which were outstanding for the years ended December 31, 2011, 2010 and 2009 as their inclusion would be anti-dilutive.

19. Recent Accounting Pronouncements

In September 2011, FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit, as described in the accounting guidance. The guidance in ASU 2011-08 also provides entities with the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test and an entity may resume performing the qualitative assessment in any subsequent period. ASU 2011-08 does not change current accounting guidance for testing other indefinite-lived intangible assets for impairment. This guidance is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted, including annual and interim goodwill impairment tests performed prior to September 15, 2011. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This update allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either option, an entity is

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Notes to Consolidated Financial Statements

required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the presentation of components other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”). The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs which include (1) application of the highest and best use and valuation premise concepts. The amendments specify that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets; (2) include requirements specific to measuring the fair value of those instruments, such as equity interests issued as consideration in a business combination; (3) clarify that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy; (4) permit an exception to the requirements in Topic 820 for measuring fair value when a reporting entity manages its financial instruments on the basis of its net exposure, rather than its gross exposure, to those risks. The exception permits a reporting entity to measure the fair value of such financial assets and financial liabilities at the price that would be received to sell a net asset position for a particular risk or to transfer a net liability position for a particular risk in an orderly transaction between market participants at the measurement date; and (5) expanded disclosures about fair value measurements for recurring Level 3 fair value measurements to include the valuation processes used by the reporting entity and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, reporting entities must categorize by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. This guidance is effective for interim periods beginning after December 15, 2011. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In April 2011, FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. This ASU addresses the criteria used to determine whether a repurchase agreement should be accounted for as a sale or as a secured borrowing. The amendments in this ASU remove from the assessment of effective control the criterion requiring the transferor’s ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Other criteria applicable to the assessment of effective control are not changed by the amendments in this ASU. The new guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance is to be applied prospectively to transactions or modification of existing transactions that occur on or after the effective date. Early adoption is not permitted. We do not expect this ASU will have a material impact on our financial condition, results of operations or financial statement disclosures.

In April 2011, FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This ASU amends Topic 310 and provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. The amendments in this update became effective for the first interim or annual period beginning on or after June 15, 2011. The guidance requires creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in more modifications

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Notes to Consolidated Financial Statements

and restructurings being considered troubled debt restructurings. We adopted this accounting standards update on April 1, 2011. The adoption of ASU No. 2011-02 did not have a material impact on our financial condition or results of operations. The financial statement disclosures are included in footnote 6 to the consolidated financial statements.

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