HUDSON CITY BANCORP INC

During 2014, we supplemented our earnings with gains on the sales of securities. This strategy was key to maintaining earnings despite a decreasing net interest margin as rates remained low and we continued to carry excess liquidity with very little appetite for reinvesting this liquidity into longer-term investments or fixed-rate residential mortgage loans. In addition, the market demand and prices provided a strong opportunity for us to sell these securities. However, in anticipation of the closing of the Merger, which was expected to close on May 1, 2015, we suspended the sale of securities during the first quarter of 2015. The unexpected news in early April that there would be a further delay in completing the Merger came too late for us to resume the sale of securities before the end of the first quarter and, as a result, our net income for the first six months of 2015 was adversely affected. We resumed the sale of securities during the second quarter of 2015. To facilitate these securities sales, in the second quarter of 2015 we transferred held to maturity securities with a carrying value of $1.22 billion and a fair value of $1.30 billion to available for sale. The after-tax net unrealized gain of $48.3 million ($81.6 million pre-tax) was recorded as a component of accumulated other comprehensive income (loss). As a result of this transfer, we are precluded from classifying any future security purchases as held to maturity for a period of two years.

sale ($44.5 million pre-tax). Accumulated other comprehensive loss at December 31, 2014 included a $68.7 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans partially offset by a $18.3 million after-tax net unrealized gain on securities available for sale ($30.9 million pre-tax). The change in accumulated other comprehensive loss of $10.2 million reflects the transfer to available for sale of all of our securities that were classified as held to maturity with a carrying value of $1.22 billion and a fair value of $1.30 billion, which occurred in the second quarter of 2015. The resulting after-tax net unrealized built-in gain of $48.3 million ($81.6 million pre-tax) was recorded as a component of accumulated other comprehensive loss. In addition, during the six months ended June 30, 2015 we reclassified $42.9 million ($72.5 million pre-tax) of realized gains out of accumulated other comprehensive loss.

Compensation and employee benefit costs increased $1.8 million, or 5.6%, to $34.2 million for the second quarter of 2015 as compared to $32.4 million for the same period in 2014. The increase in compensation and employee benefit costs is primarily due to a $1.4 million increase in pension expense. The increase in pension expense is due primarily to a decrease in the discount rate used to calculate our pension obligations as well as the updated mortality tables published in October 2014 by the Society of Actuaries. See “Critical Accounting Policies – Pension and Other Post-Retirement Benefit Assumptions”. At June 30, 2015, we had 1,466 full-time equivalent employees as compared to 1,514 at June 30, 2014. While the reduction in full-time equivalent employees resulted in a reduction in compensation and employee benefit costs, this reduction was offset by costs incurred through the use of temporary employees and consultants to fill vacant positions during the pendency of the Merger.

Interest and Dividend Income. Total interest and dividend income for the six months ended June 30, 2015 decreased $129.6 million, or 21.2%, to $482.1 million from $611.7 million for the six months ended June 30, 2014. The decrease in total interest and dividend income was primarily due to a decrease in the average balance of total interest-earning assets of $2.04 billion, or 5.5%, to $35.24 billion for the six months ended June 30, 2015 from $37.28 billion for the six months ended June 30, 2014. The decrease in total interest and dividend income was also due to a decrease of 54 basis points in the annualized weighted-average yield on total interest-earning assets to 2.74% for the six months ended June 30, 2015 from 3.28% for the six months ended June 30, 2014. The decrease in the average balance of total interest-earning assets was due primarily to repayments and sales of mortgage-related assets during the first six months of 2015 as a result of the low interest rate environment and our decision not to reinvest in low yielding, long term assets. The decrease in the annualized weighted-average yield was due to a $4.35 billion increase in the average balance of Federal funds sold and other overnight deposits, which had an average yield of 0.25% during the six months ended June 30, 2015 and a $4.05 million increase in the average balance of investment securities, which substantially consist of U.S. Treasury securities, with an annualized weighted-average yield of 0.38% for the six months ended June 30, 2015. The decrease was also due to lower market interest rates earned on mortgage-related assets.

Historically, our lending activities have emphasized residential fixed-rate first mortgage loans, while purchasing adjustable-rate or hybrid mortgage-backed securities to diversify our predominantly fixed-rate loan portfolio. In the past several years, we have originated a larger percentage of adjustable-rate mortgage loans, increased our purchases of U.S. Treasury securities, and, in recent quarters, initiated a loan program to purchase participations in commercial real estate loans in order to better manage our interest rate risk. Adjustable-rate residential 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. Growth in these types of mortgage-related assets would help moderate our exposure to interest rate fluctuations and are expected to benefit our long-term profitability, as the rate earned on these mortgage loans will increase, as prevailing market rates increase although the rates on adjustable-rate mortgage loans do not reset as quickly as market interest rates. However, this strategy to originate a higher percentage of adjustable-rate instruments may have an initial adverse impact on our net interest income and net interest margin in the short-term, as adjustable-rate interest-earning assets generally have initial interest rates lower than alternative fixed-rate investments.