million for the same period in 2008. During the first six months of 2009, our net interest rate spread increased 37 basis points to 1.79% and our net interest margin increased 26 basis points to 2.11% as compared to the same period in 2008. The increases in our net interest rate spread and net interest margin were due to a steeper yield curve which allowed us to reduce deposit costs at a faster pace than the decrease in our mortgage yields.
The provision for loan losses amounted to $32.5 million for the second quarter of 2009 and $52.5 million for the six months ended June 30, 2009 as compared to $3.0 million and $5.5 million for the same respective periods in 2008. The increase in the provision for loan losses reflects the risks inherent in our loan portfolio due to decreases in real estate values in our lending markets, the increase in non-performing loans, the increase in loan charge-offs and worsening economic conditions, particularly rising levels of unemployment. Non-performing loans amounted to $430.9 million or 1.40% of total loans at June 30, 2009 as compared to $217.6 million or 0.74% of total loans at December 31, 2008. Net charge-offs amounted to $9.6 million for the second quarter of 2009 and $14.2 million for the six months ended June 30, 2009 as compared to $694,000 and $1.2 million for the same respective periods in 2008. The increase in non-performing loans reflects the current 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 income was $26.6 million for the second quarter 2009 as compared to $2.1 million for the same quarter in 2008. Included in non-interest income were net gains on securities transactions $24.0 million of which resulted from the sale of $761.6 million of mortgage-backed securities available-for-sale. Proceeds from the securities sale were primarily used to fund the purchase of first mortgage loans during the second quarter of 2009. Total non-interest expense increased $36.6 million, or 75.8%, to $84.9 million for the second quarter of 2009 from $48.3 million for the second quarter of 2008. The increase is primarily due to the Federal Deposit Insurance Corporation ("FDIC") special assessment of $21.1 million and increases of $9.3 million in Federal deposit insurance expense, $5.1 million in compensation and employee benefits expense, $382,000 in net occupancy expense, and $772,000 in other non-interest expense. Total non-interest expense increased $43.3 million, or 44.9%, to $139.7 million for the first six months of 2009 from $96.4 million for the same period in 2008. The increase is primarily due to the FDIC special assessment of $21.1 million and increases of $11.5 million in Federal deposit insurance expense, $6.3 million in compensation and employee benefits expense, and $3.0 million in other non-interest expense.
We grew our assets by 6.0% to $57.41 billion at June 30, 2009 from $54.15 billion at December 31, 2008. We grew our assets by 21.9% during 2008. We slowed our growth rate in 2009 as mortgage refinancing activity caused an increase in loan repayments and available reinvestment yields on securities decreased. We may continue to grow at a slower rate than in the past until market conditions provide for more profitable growth.
Loans increased $1.28 billion to $30.72 billion at June 30, 2009 from $29.44 billion at December 31, 2008. While the residential real estate markets have weakened considerably during the past year, low market interest rates and an increase in mortgage refinancing caused by market interest rates that are at near historic lows have resulted in increased loan originations. The increase in refinancing activity has also resulted in an increase in principal repayments.

Total securities increased $1.67 billion to $24.62 billion at June 30, 2009 from $22.95 billion at December 31, 2008. The increase in securities was primarily due to purchases (including purchases recorded in the second quarter of 2009 with settlement dates after June 30, 2009) of mortgage-backed and investment securities of $3.16 billion and $3.32 billion, respectively, partially offset by principal collections on mortgage-backed securities of $1.94 billion and sales of mortgage-backed securities of $761.6 million and calls of investment securities of $2.27 billion.
The increase in our total assets during the first six months of 2009 was funded primarily by an increase in customer deposits. Deposits increased $3.23 billion to $21.69 billion at June 30, 2009 from $18.46 billion at December 31, 2008. The increase in deposits was attributable to growth in our time deposits and money market accounts. Borrowed funds decreased $200.0 million to $30.03 billion at June 30, 2009 from $30.23 billion at December 31, 2008.
In June 2009, the Obama Administration released a white paper setting forth its comprehensive plan for financial regulatory reform, or the Reform Plan. Most significantly for us, the Reform Plan contains proposals eliminating the federal thrift charter, which would result in Hudson City Savings becoming a national bank, Hudson City Bancorp becoming a bank holding company subject to consolidated capital requirements and Bank Holding Company Act activity limitations and potential significant erosion of federal preemption of state law, all of which are described in greater detail in Item 1A. "Risk Factors" below.
Comparison of Financial Condition at June 30, 2009 and December 31, 2008 Total assets increased $3.26 billion, or 6.0%, to $57.41 billion at June 30, 2009 from $54.15 billion at December 31, 2008.
Loans increased $1.28 billion, or 4.3%, to $30.72 billion at June 30, 2009 from $29.44 billion at December 31, 2008 due primarily to the origination of residential first mortgage loans in New Jersey, New York and Connecticut as well as our continued loan purchase activity. For the first six months of 2009, we originated $2.97 billion and purchased $1.88 billion of loans, compared to originations of $2.42 billion and purchases of $2.17 billion for the comparable period in 2008. The origination and purchases of loans were partially offset by principal repayments of $3.50 billion in the first six months of 2009 as compared to $1.54 billion for the first six months of 2008. Loan originations have increased due primarily to our competitive rates and an increase in mortgage refinancing caused by market interest rates that are at near-historic lows. The increase in refinancing activity occurring in the marketplace has also caused an increase in principal repayments during the first six months of 2009. Our first mortgage loan originations and purchases during the first six months of 2009 were substantially all in one-to four-family mortgage loans. Approximately 45.0% of mortgage loan originations for the first six months of 2009 were variable-rate loans as compared to approximately 53.0% for the comparable period in 2008. Approximately 58.4% of mortgage loans purchased during the six months ended June 30, 2009 were fixed-rate mortgage loans. Substantially all of the loans purchased during the six months ended June 30, 2008 were fixed-rate mortgages. Fixed-rate mortgage loans accounted for 73.7% of our first mortgage loan portfolio at June 30, 2009 and 75.7% at December 31, 2008.

The following table presents the geographic distribution of our loan portfolio and our non-performing loans:

                                                             At June 30, 2009                               At December 31, 2008
                                                 Total loans         Non-performing loans         Total loans        Non-performing loans
New Jersey                                             43.7 %                      41.7 %              44.8 %                      40.4 %
New York                                               17.3 %                      18.2 %              15.6 %                      22.6 %
Connecticut                                            10.9 %                       4.5 %               9.3 %                       2.3 %

Total New York metropolitan area                       71.9 %                      64.4 %              69.7 %                      65.3 %


Virginia                                                5.0 %                       4.9 %               5.5 %                       4.2 %
Illinois                                                4.0 %                       4.5 %               4.3 %                       3.5 %
Maryland                                                3.9 %                       4.9 %               4.2 %                       5.4 %
Massachusetts                                           2.8 %                       2.5 %               3.0 %                       2.7 %
Minnesota                                               1.6 %                       3.0 %               1.8 %                       3.8 %
Michigan                                                1.5 %                       4.0 %               1.7 %                       3.7 %
Pennsylvania                                            1.6 %                       1.8 %               1.5 %                       1.5 %
All others                                              7.7 %                      10.0 %               8.3 %                       9.9 %

                                                       28.1 %                      35.6 %              30.3 %                      34.7 %

                                                      100.0 %                     100.0 %             100.0 %                     100.0 %

Total mortgage-backed securities increased $631.6 million to $20.12 billion at June 30, 2009 from $19.49 billion at December 31, 2008. This increase in total mortgage-backed securities resulted from the purchase of $3.16 billion of mortgage-backed securities, primarily collateralized mortgage obligations, all of which were issued by U.S. government-sponsored enterprises. The increase was partially offset by repayments of $1.94 billion and sales of $761.6 million. At June 30, 2009, variable-rate mortgage-backed securities accounted for 73.2% of our portfolio compared with 83.5% at December 31, 2008. The purchase of variable-rate mortgage-backed securities is a component of our interest rate risk management strategy. Since our loan portfolio includes a concentration of fixed-rate mortgage loans, the purchase of variable-rate mortgage-backed securities provides us with an asset that reduces our exposure to interest rate fluctuations.
Total investment securities increased $1.04 billion to $4.50 billion at June 30, 2009 as compared to $3.46 billion at December 31, 2008. The increase in investment securities is primarily due to purchases of $3.32 billion. The increase was partially offset by calls of investment securities of $2.27 billion. We invest primarily in mortgage-backed securities and other securities issued by U.S. government-sponsored enterprises ("GSE's"). There were no debt or equity securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the security.
Total cash and cash equivalents increased $350.3 million to $612.1 million at June 30, 2009 as compared to $261.8 million at December 31, 2008. This increase is due to liquidity being provided by strong deposit growth and increased repayments on mortgage-related assets. Other assets decreased $44.5 million, primarily due to a decrease in deferred tax assets of $45.7 million.

Total liabilities increased $3.05 billion, or 6.2%, to $52.26 billion at June 30, 2009 from $49.21 billion at December 31, 2008. The increase in total liabilities primarily reflected a $3.23 billion increase in deposits, partially offset by a $200.0 million decrease in borrowed funds.
Total deposits increased $3.23 billion, or 17.5%, to $21.69 billion at June 30, 2009 as compared to $18.46 billion at December 31, 2008. The increase in total deposits included a $1.90 billion increase in our time deposits, a $986.1 million increase in our money market checking accounts and a $237.6 million increase in our interest-bearing transaction accounts and savings accounts. The increases in our deposits reflect our strategy to expand our branch network and to grow deposits in our existing branches by offering competitive rates. Also, in response to the economic recession, households have increased their personal savings. The U.S. household savings rate increased to an average of 6.25% for April and May 2009 as compared to 2.4% for the same period in 2008. We believe that this increase in the household savings rate has contributed to our growth in deposits. At June 30, 2009 we had 131 branches as compared to 127 at December 31, 2008 and 121 at June 30, 2008. Borrowings amounted to $30.03 billion at June 30, 2009 as compared to $30.23 billion at December 31, 2008. The decrease in borrowed funds was the result of repayments of $950.0 million with a weighted average rate of 1.63%, largely offset by $750.0 million of new borrowings at a weighted-average rate of 1.69%. During the second quarter of 2009, we modified $300.0 million of borrowings to extend the maturity and call dates of the borrowings by between two and three years. The underlying interest rates remained unchanged. Borrowed funds at June 30, 2009 were comprised of $14.93 billion of FHLB advances and $15.10 billion of securities sold under agreements to repurchase. Substantially all of our borrowed funds are callable at the discretion of the lender after an initial non-call period. As a result, if interest rates were to decrease, or remain consistent with current rates, these borrowings would probably not be called and our average cost of existing borrowings would not decrease even as market interest rates decrease. Conversely, if interest rates increase above the market interest rate for similar borrowings, these borrowings would likely be called at their next call date and our cost to replace these borrowings would increase. These call features are generally quarterly, after an initial non-call period of one 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 have used this type of borrowing primarily to fund our loan growth because they have a longer duration than shorter-term non-callable borrowings and have a lower cost than a non-callable borrowing with a maturity date similar to the initial call date of the callable borrowing. However, during the first six months of 2009, we have been able to fund our asset growth with deposit inflows. We anticipate that we will be able to continue to use deposit growth to fund our asset growth, however, we may use borrowings as a supplemental funding source if deposit growth decreases. In order to fund our growth and provide for our liquidity we may borrow a combination of short-term borrowings with maturities of three to six months and longer term fixed-maturity borrowings with terms of two to five years. Our new borrowings during the first six months of 2009 consisted of non-callable borrowings of $400.0 million with maturities of one to three months and $350.0 million of non-callable borrowings with maturities of two to three years.
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 and have filed 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 $250.0 million at June 30, 2009 as compared to $239.1 million at December 31, 2008. Due to brokers at June 30, 2009 represents securities purchased in the second quarter of 2009 with settlement dates after June 30, 2009. Other liabilities increased to $295.8 million at June 30, 2009 as compared to $278.4 million at December 31, 2008. The increase is primarily the result of an increase in accrued expenses of $23.6 million.
Total shareholders' equity increased $204.5 million to $5.14 billion at June 30, 2009 from $4.94 billion at December 31, 2008. The increase was primarily due to net income of $255.6 million for the six months ended June 30, 2009 and a $102.1 million increase in accumulated other comprehensive income, primarily due to an increase in the net unrealized gain on securities available-for-sale. These increases to shareholders' equity were partially offset by cash dividends paid to common shareholders of $141.4 million and repurchases of our common stock of $43.5 million.
As of June 30, 2009, 50,123,550 shares were available for repurchase under our existing stock repurchase programs. During the first six months of 2009, we repurchased 4.0 million shares of our outstanding common stock at a total cost of $43.5 million. The average price of shares repurchased in the first six months was $10.95. Our capital ratios remain in excess of the regulatory requirements for a well-capitalized bank. See "Liquidity and Capital Resources". The accumulated other comprehensive income of $149.7 million at June 30, 2009 includes a $177.6 million after-tax net unrealized gain on securities available-for-sale ($300.3 million pre-tax) partially offset by a $27.9 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans.
At June 30, 2009, our shareholders' equity to asset ratio was 8.96% compared with 9.12% at December 31, 2008. For the first six months of 2009, the ratio of average shareholders' equity to average assets was 9.08% compared with 10.17% for the same period in 2008. The lower equity-to-assets ratios reflect our strategy to grow assets and pay dividends. Our book value per share, using the period-end number of outstanding shares, less purchased but unallocated employee stock ownership plan shares and less purchased but unvested recognition and retention plan shares, was $10.54 at June 30, 2009 and $10.10 at December 31, 2008. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from shareholders' equity, was $10.21 as of June 30, 2009 and $9.77 at December 31, 2008.

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2009 and 2008
Average Balance Sheet. The following table presents the average balance sheets, average yields and costs and certain other information for the three months ended June 30, 2009 and 2008. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Nonaccrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are amortized or accreted to interest income.

                                                              For the Three Months Ended June 30,
                                                   2009                                                  2008
                                                                    Average                                               Average
                                Average                             Yield/            Average                             Yield/
                                Balance           Interest           Cost             Balance           Interest           Cost
                                                                     (Dollars in thousands)
Assets:
Interest-earnings
assets:
First mortgage loans,
net (1)                       $ 29,693,723        $ 413,282             5.57 %      $ 25,708,148        $ 369,096             5.74 %
Consumer and other loans           386,060            5,427             5.62             426,390            6,877             6.45
Federal funds sold and
other overnight deposits           477,376              187             0.16             244,780            1,205             1.98
Mortgage-backed
securities at amortized
cost                            19,829,258          248,476             5.01          16,308,532          212,571             5.21
Federal Home Loan Bank
stock                              879,323           12,044             5.48             774,089           13,993             7.23
Investment securities,
at amortized cost                4,180,303           48,343             4.63           3,488,540           42,918             4.92

Total interest-earning
assets                          55,446,043          727,759             5.25          46,950,479          646,660             5.51

Noninterest-earnings
assets                           1,022,988                                               817,708

Total Assets                  $ 56,469,031                                          $ 47,768,187

Liabilities and
Shareholders' Equity:
Interest-bearing
liabilities:
Savings accounts              $    743,736            1,394             0.75        $    736,421            1,382             0.75
Interest-bearing
transaction accounts             1,739,356            8,039             1.85           1,595,180           11,788             2.97
Money market accounts            3,417,795           16,253             1.91           2,146,642           16,570             3.10
Time deposits                   14,461,215           97,568             2.71          11,417,332          111,659             3.93

Total interest-bearing
deposits                        20,362,102          123,254             2.43          15,895,575          141,399             3.58

Repurchase agreements           15,100,934          152,025             4.04          12,884,615          134,454             4.20
Federal Home Loan Bank
of New York advances            15,000,178          150,083             4.01          13,345,879          137,675             4.15

Total borrowed funds            30,101,112          302,108             4.03          26,230,494          272,129             4.17

Total interest-bearing
liabilities                     50,463,214          425,362             3.38          42,126,069          413,528             3.95

Noninterest-bearing
liabilities:
. . .