October 3, 2008, the EESA was signed into law providing for, among other things, $700 billion in funding to the U.S. Treasury to purchase troubled assets from financial institutions. Then, on October 14, 2008, the Treasury, the FRB, and the FDIC issued a joint statement announcing additional steps aimed at stabilizing the financial markets. First, the Treasury announced the CPP which allows qualifying financial institutions to sell preferred shares to the Treasury. Second, the FDIC announced the TLGP, enabling the FDIC to temporarily guarantee the senior debt of all FDIC-insured institutions and certain holding companies, as well as fully insure all deposits in non-interest bearing transaction accounts. Third, to further increase access to funding for businesses in all sectors of the economy, the FRB announced further details of the CPFF, which provides a broad backstop for the commercial paper market. These actions were intended to restore confidence in the banking system, ease liquidity concerns and stabilize the rapidly deteriorating economy. Eligible institutions were covered under the TLGP at no cost for the first 30 days. Institutions that did not want to continue to participate in one or both parts of the TLGP had to notify the FDIC of their election to opt out on or before December 5, 2008. Institutions that did not opt out will be subject to a fee of 50 to 100 basis points per annum based on the length of maturity of senior unsecured debt issued and a 10 basis point surcharge will be added to the institution's current insurance assessment for balances in non-interest bearing transaction accounts that exceed the existing deposit insurance limit of $250,000. We participated in the TLGP to fully insure all non-interest bearing transaction accounts. We did not participate in any of the other TLGP programs. Congress has held hearings on implementation of the CPP and the use of funds and may adopt further legislation impacting financial institutions that obtain funding under the CPP or changing lending practices that legislators believe led to the current economic situation. On January 21, 2009, the U.S. House of Representatives approved legislation amending the TARP provisions of EESA to include quarterly reporting requirements with respect to lending activities, examinations by an institution's primary federal regulator of use of funds and compliance with program requirements, restrictions on acquisitions by depository institutions receiving TARP funds, authorization for U.S. Treasury to have an observer at board meetings of recipient institutions, and stricter executive compensation limitations, among other things. Although it is unclear whether this legislation will be enacted into law, its provisions, or similar ones, may be imposed administratively by the U.S. Treasury. Such provisions could affect our lending or increase governmental oversight of our businesses and our corporate governance practices.
On February 10, 2009, Treasury Secretary Timothy Geithner in a statement to the Senate Banking Committee Hearing outlined a Financial Stability Plan to restore stability to the U.S. financial system. In the address, Secretary Geithner discussed the Obama Administration's strategy to strengthen the U.S. economy by getting credit flowing again to families and businesses, while imposing new measures and conditions to strengthen accountability, oversight and transparency in how taxpayer dollars are spent. The Financial Stability Plan includes:
(i) the creation of a public/private partnership to purchase non-performing, illiquid legacy assets from financial institutions; (ii) the creation of a forward-looking supervisory regime, including a financial "stress test" to assist institutions in managing their balance sheets and ensuring adequate capitalization; (iii) the creation of a comprehensive housing program to forestall foreclosures and stabilize the residential mortgage market; (iv) the expansion of the Term Asset-Backed Securities Lending Facility; and (v) the creation of a small business and community lending initiative. However, many of the details of the Financial Stability Plan still have to be developed. On February 11, 2009, the OTS urged OTS-regulated institutions to suspend foreclosures on owner-occupied homes until the Financial Stability Plan's "home loan modification program" is finalized in the next few weeks. On January 27, 2008, the House Judiciary Committee approved the Bankruptcy Legislation. The Bankruptcy Legislation would grant a judge the ability to modify the terms of a mortgage for a homeowner in chapter 13 bankruptcy. Under the proposed Bankruptcy Legislation, borrowers would be eligible to have a bankruptcy judge reduce the principal balance on their home loan. If any such borrower resells their home within five years, the borrower will have to share the proceeds with their lender.

We are currently well capitalized and continue to lend in our markets. We did not participate in any of the new programs noted above other than the provisions of the TLGP to fully insure all non-interest bearing customer transaction accounts.
Net income amounted to $445.6 million for 2008, as compared to $295.9 million for 2007. For the year ended December 31, 2008, our return on average assets and average stockholders' equity were 0.91% and 9.36%, respectively, as compared to 0.74% and 6.23% for 2007. The increases in our return on average equity and average assets are due primarily to the increase in our net income during 2008 as compared to 2007.
Net interest income increased $294.8 million, or 45.6%, to $942.0 million for the 2008 as compared to $647.2 million for 2007. During 2008, our net interest rate spread increased 46 basis points to 1.57% and our net interest margin increased 31 basis points to 1.96% as compared to 2007. The increases in our net interest rate spread and net interest margin were due to a steeper yield curve which allowed us to reduce deposit costs while mortgage yields remained stable. The provision for loan losses amounted to $19.5 million for 2008 as compared to $4.8 million for 2007. The increase in the provision for loan losses reflects the risks inherent in our loan portfolio due to decreases in real estate values in our lending markets, the increase in non-performing loans, the increase in loan charge-offs, increasing unemployment rates, the current economic conditions and the overall growth of our loan portfolio. Non-performing loans were $217.6 million or 0.74% of total loans at December 31, 2008 as compared to $79.4 million or 0.33% of total loans at December 31, 2007. The increase in non-performing loans reflects the economic recession coupled with the continued deterioration of the housing market. The conditions in the housing market are evidenced by declining house prices, reduced levels of home sales, increasing inventories of houses on the market, and an increase in the length of time houses remain on the market.
Total non-interest expense increased $30.2 million, or 18.0%, to $198.1 million for 2008 from $167.9 million for 2007. The increase is primarily due to a $20.6 million increase in compensation and employee benefits expense and a $5.9 million increase in other non-interest expense. The increases in non-interest expenses were due primarily to various operating expenses related to the growth of our branch network and our increased retail loan production. At December 31, 2008 we had 127 branches as compared to 119 at December 31, 2007. We have been able to grow our assets by 21.9% to $54.15 billion at December 31, 2008 from $44.42 billion at December 31, 2007, by originating and purchasing mortgage loans and purchasing mortgage-backed securities. Loans increased $5.24 billion to $29.44 billion at December 31, 2008 from $24.20 billion at December 31, 2007. While the residential real estate markets have weakened considerably during the past year, our competitive rates and the decreased lending competition have resulted in increased origination activity. Total securities increased $4.21 billion to $22.95 billion at December 31, 2008 from $18.74 billion at December 31, 2007. The increase in securities was primarily due to purchases of mortgage-backed and investment securities of $7.18 billion and $2.10 billion, respectively, partially offset by principal collections on mortgage-backed securities of $2.31 billion and calls of investment securities of $2.81 billion.
The increase in our total assets was funded primarily by an increase in borrowings and customer deposits. Borrowed funds increased $6.09 billion to $30.23 billion at December 31, 2008 from $24.14 billion at December 31, 2007. Deposits increased $3.31 billion to $18.46 billion at December 31, 2008 from $15.15

billion at December 31, 2007. The additional borrowed funds were used primarily to fund our asset growth. The increase in deposits was attributable to growth in our time deposits and money market accounts. The increase in these accounts was a result of our competitive pricing strategies that focused on attracting these types of deposits as well as customer preferences for time deposits rather than other types of deposit accounts. In addition, we believe the turmoil in the credit and equity markets has made deposit products in strong financial institutions desirable for many customers.
Comparison of Financial Condition at December 31, 2008 and December 31, 2007 During 2008, our total assets increased $9.73 billion, or 21.9%, to $54.15 billion at December 31, 2008 from $44.42 billion at December 31, 2007. Loans increased $5.24 billion, or 21.7%, to $29.44 billion at December 31, 2008 from $24.20 billion at December 31, 2007 due primarily to the origination of one-to four- family first mortgage loans in New Jersey, New York and Connecticut and our continued loan purchase activity. For 2008, we originated $5.04 billion and purchased $3.06 billion of loans, compared to originations of $3.35 billion and purchases of $3.97 billion for 2007. The origination and purchases of loans were partially offset by principal repayments of $2.82 billion in 2008 as compared to $2.19 billion for 2007. While the residential real estate markets have deteriorated during the past year, our competitive rates and the decreased mortgage lending competition have resulted in increased retail origination activity for 2008. The overall decrease in the purchase of mortgage loans was due primarily to the continued reduction of activity in the secondary residential mortgage market as a result of the disruption and volatility in the financial and capital marketplaces.
Our first mortgage loan originations and purchases during 2008 were substantially all in one-to four-family mortgage loans. Approximately 58.0% of mortgage loan originations for 2008 were variable-rate loans as compared to approximately 47.0% for 2007. Substantially all purchased mortgage loans during the year ended December 31, 2008 were fixed-rate loans since variable-rate loans available for purchase are typically outside of our defined geographic parameters and include features, such as option ARM's, that do not meet our underwriting standards. Fixed-rate mortgage loans accounted for 75.7% of our first mortgage loan portfolio at December 31, 2008 and 80.5% at December 31, 2007.
Total mortgage-backed securities increased $4.92 billion to $19.49 billion at December 31, 2008 from $14.57 billion at December 31, 2007. This increase in total mortgage-backed securities resulted from the purchase of $7.18 billion of mortgage-backed securities, all of which were issued by U.S. government-sponsored enterprises. The increase was partially offset by repayments of $2.31 billion. At December 31, 2008, variable-rate mortgage-backed securities accounted for 83.5% of our portfolio compared with 82.3% at December 31, 2007. The purchase of variable-rate mortgage-backed securities is a component of our interest rate risk management strategy. Since a substantial portion of our loan production consists of fixed-rate mortgage loans, the purchase of variable-rate mortgage-backed securities provides us with an asset that reduces our exposure to interest rate fluctuations.
Total investment securities decreased $710.3 million to $3.46 billion at December 31, 2008 as compared to $4.17 billion at December 31, 2007. Investment securities held to maturity decreased $1.36 billion partially offset by a $648.1 million increase in investment securities available for sale. The decrease in total investment securities was the result of calls of held to maturity and available for sale investment securities of $1.36 billion and $1.45 billion, respectively. The calls were partially offset by purchases of investment securities available for sale of $2.10 billion for 2008.

Total cash and cash equivalents increased $44.3 million to $261.8 million at December 31, 2008 as compared to $217.5 million at December 31, 2007. Accrued interest receivable increased $53.9 million, primarily due to increased balances in loans and investments.
Total liabilities increased $9.40 billion, or 23.6%, to $49.21 billion at December 31, 2008 from $39.81 billion at December 31, 2007. The increase in total liabilities primarily reflected a $6.09 billion increase in borrowed funds and a $3.31 billion increase in deposits.
Total deposits amounted to $18.46 billion at December 31, 2008 as compared to $15.15 billion at December 31, 2007. The increase in total deposits reflected a $2.21 billion increase in our time deposits and a $1.14 billion increase in our money market checking accounts. The increase in our time deposits and money market checking accounts reflects our competitive pricing, our branch expansion and customer preference for these types of deposits. At December 31, 2008 we had 127 branches as compared to 119 at December 31, 2007. In addition, we believe that the turmoil in the credit and equity markets has made deposit products in strong financial institutions desirable for many customers.
Borrowings amounted to $30.23 billion at December 31, 2008 as compared to $24.14 billion at December 31, 2007. The increase in borrowed funds was the result of $6.65 billion of new borrowings at a weighted-average rate of 2.99%, partially offset by repayments of $566.0 million with a weighted average rate of 3.05%. The new borrowings primarily have final maturities of ten years and initial reprice dates of one to three years. In addition, we also borrowed $600.0 million with maturities of less than one year. The additional borrowed funds were used primarily to fund our asset growth. Borrowed funds at December 31, 2008 were comprised of $15.13 billion of FHLB advances and $15.10 billion of securities sold under agreements to repurchase. Substantially all of our borrowed funds are callable at the discretion of the issuer after an initial non-call period. As a result, if interest rates were to decrease, these borrowings would probably not be called and our average cost of existing borrowings would not decrease even as market interest rates decrease. Conversely, if interest rates increase above the market interest rate for similar borrowings, these borrowings would likely be called at their next call date and our cost to replace these borrowings would increase. These call features are generally quarterly, after an initial non-call period of three months to five years from the date of borrowing.
Our callable borrowings typically have a final maturity of ten years and may not be called for an initial period of one to five years. We use this type of borrowing primarily to fund our loan growth because they have a longer duration than shorter-term non-callable borrowings and have a slightly lower cost than a non-callable borrowing with a maturity date similar to the first call date of the callable borrowing. During the current period of credit instability we may not be able to borrow in this manner. We believe that we will continue to be able to borrow from the same institutions as in the past, but structured callable borrowings may not be available. In order to fund our growth and provide for our liquidity we may need to borrow short-term, that is, borrowings with three to six month maturities. These borrowings are typically at lower interest rates than longer-term callable borrowings and, as a result, may decrease our borrowing costs. However, using short-term borrowings may increase our interest rate risk, especially if market interest rates were to increase. While we will utilize these short-term borrowings while the current conditions exist in the credit markets, we intend to use structured callable borrowings when these types of borrowings become available.
The Company has two collateralized borrowings in the form of repurchase agreements totaling $100.0 million with Lehman Brothers, Inc. Lehman Brothers, Inc. is currently in liquidation under the Securities Industry Protection Act. Mortgage-backed securities with an amortized cost of approximately $114.5

million are pledged as collateral for these borrowings. We intend to pursue full recovery of the pledged collateral in accordance with the contractual terms of the repurchase agreements. If full recovery of the collateral does not occur, we will be pursuing a customer claim against the Lehman Brothers, Inc. estate for the $14.5 million difference between the amortized cost of the securities and the amount of the underlying borrowings. There can be no assurances that the final settlement of this transaction will result in the full recovery of the collateral or the full amount of the claim. We have not recognized a loss in our financial statements related to these repurchase agreements.
Due to brokers amounted to $239.1 million at December 31, 2008 as compared to $281.9 million at December 31, 2007. Due to brokers at December 31, 2008 represents securities purchased in the fourth quarter of 2008 with settlement dates in the first quarter of 2009. Other liabilities increased to $278.4 million at December 31, 2008 as compared to $236.4 million at December 31, 2007. The increase is primarily the result of an increase in accrued expenses of $39.5 million and accrued interest payable on borrowings of $23.3 million. These increases were partially offset by a decrease in accrued taxes of $20.3 million. The increase in accrued expenses is due primarily to a $25.4 million increase in accrued pension liabilities that resulted from a decrease in the plan's funded status primarily as a result of a decrease in the market value of the plan's assets.
Total shareholders' equity increased $327.5 million to $4.94 billion at December 31, 2008 from $4.61 billion at December 31, 2007. The increase was primarily due to net income of $445.6 million and a $31.0 million increase in accumulated other comprehensive income, partially offset by cash dividends paid to common shareholders of $218.0 million.
As of December 31, 2008, 54,073,550 shares were available for repurchase under our existing stock repurchase programs. During 2008, we repurchased 1.1 million shares of our outstanding common stock at a total cost of $17.0 million as compared to 40.6 million shares repurchased during 2007 at a total cost of $550.2 million. We repurchased fewer shares in 2008 because we were able to leverage our capital more effectively by growing our balance sheet as the yield curve became steeper.
The accumulated other comprehensive income of $47.7 million at December 31, 2008 includes a $74.6 million after-tax net unrealized gain on securities available for sale ($126.1 million pre-tax) partially offset by a $27.0 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans. We invest primarily in mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, as well as other securities issued by U.S. government-sponsored enterprises. We do not purchase unrated or private label mortgage-backed securities or other higher risk securities such as those backed by sub-prime loans. In addition, we do not own any common or preferred stock issued by Fannie Mae or Freddie Mac. 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.
At December 31, 2008, our stockholders' equity to asset ratio was 9.12% compared with 10.38% at December 31, 2007. For 2008, the ratio of average stockholders' equity to average assets was 9.74% compared with 11.93% for the year 2007. The lower equity-to-assets ratios reflect our strategy to grow assets and pay dividends. Our book value per share, using the period-end number of outstanding shares, less purchased but unallocated employee stock ownership plan shares and less purchased but unvested recognition and retention plan shares, was $10.10 at December 31, 2008 and $9.55 at December 31, 2007. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from stockholders' equity, was $9.77 as of December 31, 2008 and $9.22 at December 31, 2007.

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

Average Balance Sheet. The following table presents certain information regarding our financial condition and net interest income for 2008, 2007, and 2006. 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,
                                                 2008                                                 2007                                                 2006
                                                                  Average                                              Average                                              Average
. . .