Executive Summary

We continue to focus on our traditional 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 during the first quarter of 2012 and, as a result, we continued to reduce the size of our balance sheet and intend to restrain any future growth until the yields available on mortgage-related assets increase and make growth more profitable.

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 national and local economic and competitive conditions, particularly those with respect to changes in market interest rates, credit quality, government policies and actions of regulatory authorities. Our results are also affected by the market price of our stock, as the expense of our employee stock ownership plan is related to the current price of our common stock.

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 in 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 in 2011.

The Transactions were 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.

The Federal Open Market Committee of the Board of Governors of the Federal Reserve System (the "FOMC") noted that the economy has been expanding moderately and conditions in the labor market have improved in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment continue to expand while the housing sector remains depressed. The national unemployment rate decreased to 8.2% in March 2012 from 8.5% in December 2011 and 8.9% in March 2011. The FOMC decided to maintain the overnight lending rate at zero to 0.25% during the first quarter of 2012. In addition, the FOMC has continued to purchase up to $400 billion of Treasury securities with maturities of 6 to 30 years funded by the sale of an equal amount of Treasury securities with remaining maturities of 3 years or less in a program commonly referred to as "Operation Twist". This shift in security holdings is intended to put downward pressure on longer-term interest rates. As a result, market interest rates have remained at low levels, and consequently, the yields on our mortgage-related assets have decreased during the first quarter of 2012.

Net interest income decreased $22.3 million, or 8.7%, to $234.1 million for the first quarter of 2012 as compared to $256.4 million for the first quarter of 2011. Our net interest rate spread increased to 1.95% for the first quarter of 2012 as compared to 1.51% for the linked fourth quarter of 2011 and 1.50% for the first quarter of 2011. Our net interest margin increased to 2.15% for the first quarter of 2012 as compared to 1.73% for the linked fourth quarter of 2011 and 1.72% for the first quarter of 2011. The increase in our interest rate spread and net interest margin during the first quarter of 2012 is primarily due to the effects of the Transactions. Notwithstanding the increase in the interest rate spread and net interest margin, net interest income decreased reflecting the overall decrease in interest-earning assets and interest-bearing liabilities.

Market interest rates on mortgage-related assets remained at near-historic lows primarily due to the FRB's 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 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 the 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 for the remainder of 2012.

The provision for loan losses amounted to $25.0 million for the quarter ended March 31, 2012 as compared to $40.0 million for the quarter ended March 31, 2011. For the linked fourth quarter of 2011, the provision for loan losses amounted to $25.0 million. The decrease in our provision for loan losses during the first quarter of 2012 as compared to the same period in 2011 was due primarily to the improvement 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 $1.06 billion at March 31, 2012 compared with $1.02 billion at December 31, 2011. The ratio of non-performing loans to total loans was 3.71% at March 31, 2012 compared with 3.48% at December 31, 2011. The highly publicized foreclosure issues that have 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 have been delayed. We are now experiencing 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 and our ability to maximize any recoveries.

Total non-interest income was $2.8 million for the first quarter of 2012 as compared to $105.2 million for the same quarter in 2011. Included in non-interest income for the first quarter of 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 pay off borrowings in the Restructuring Transaction. There were no securities sales for the three month period ended March 31, 2012.

Total non-interest expense amounted to $91.6 million for the first quarter of 2012 as compared to $1.24 billion for the first quarter of 2011. Included in total non-interest expense for the 2011 first quarter was a $1.17 billion loss on the extinguishment of debt related to the Restructuring Transaction.

Net loans amounted to $28.53 billion at March 31, 2012 as compared to $29.14 billion at December 31, 2011. During the first quarter of 2012, our loan production amounted to $1.08 billion as compared to $1.55 billion for the first quarter of 2011. Loan production was offset by principal repayments of $1.64 billion, as compared to $2.08 billion for the first quarter of 2011.

Total mortgage-backed securities decreased $392.4 million to $12.89 billion at March 31, 2012 from $13.29 billion at December 31, 2011. The decrease in mortgage-backed securities reflected repayments of $837.4 million, partially offset by purchases of $444.6 million of mortgage-backed securities issued by GSEs.

Investment securities decreased $500.0 million to $39.0 million at March 31, 2012 from $539.0 million at December 31, 2011 due to the calls of securities during the first quarter of 2012. A portion of the proceeds from these calls were invested in a corporate bond in the amount of $307.9 million.

Borrowings amounted to $14.18 billion at March 31, 2012 as compared to $15.08 billion at December 31, 2011. The decrease in borrowings was due to the maturity of short-term borrowings utilized as part of the Restructuring Transaction.

During 2012, the Company intends to focus on strengthening the balance sheet and increasing regulatory capital ratios by developing new lending distribution channels and exploring ways to diversify the balance sheet and sources of revenue. We do not expect that these actions will have a significant impact on the results of operations for 2012.

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. In addition, we agreed to develop a written Strategic Plan for the Bank which will establish various objectives, including, but not limited to, objectives for the Bank's overall risk profile, earnings performance, growth and balance sheet mix and to enhance our enterprise risk management program.

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) obtain approval from the FRB prior to receiving a capital distribution from the Bank or declaring a dividend to

shareholders, (b) obtain approval from the FRB prior to repurchasing or redeeming any Company stock or incurring any debt with a maturity of greater than one year and (c) submit a comprehensive Capital Plan and a comprehensive Earnings Plan to the FRB. 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).

Comparison of Financial Condition at March 31, 2012 and December 31, 2011

Total assets decreased $1.22 billion, or 2.7%, to $44.14 billion at March 31, 2012 from $45.36 billion at December 31, 2011. The decrease in total assets reflected a $603.3 million decrease in net loans, a $392.4 million decrease in total mortgage-backed securities, and a $188.8 million decrease in investment securities.

Net loans amounted to $28.53 billion at March 31, 2012 as compared to $29.14 billion at December 31, 2011. During the first quarter of 2012, our loan production amounted to $1.08 billion as compared to $1.55 billion for the first quarter of 2011. Loan production was offset by principal repayments of $1.64 billion, as compared to $2.08 billion for the first quarter of 2011.

Loan originations declined during the first quarter of 2012 as compared to the first quarter of 2011, 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 low market interest rate environment. In addition, refinancing activity caused by low market interest rates have caused repayments to remain elevated during the first quarter of 2012.

Our first mortgage loan production during the first quarter of 2012 was substantially all in one- to four-family mortgage loans. Approximately 64.0% of mortgage loan originations for the first quarter of 2012 were variable-rate loans as compared to approximately 40.0% for the first quarter of 2011. Fixed-rate mortgage loans accounted for 65.8% of our first mortgage loan portfolio at March 31, 2012 and 66.8% at December 31, 2011.

Our ALL amounted to $280.7 million at March 31, 2012 and $273.8 million at December 31, 2011. Non-performing loans amounted to $1.06 billion or 3.71% of total loans at March 31, 2012 as compared to $1.02 billion or 3.48% of total loans at December 31, 2011.

Total mortgage-backed securities decreased $392.4 million to $12.89 billion at March 31, 2012 from $13.29 billion at December 31, 2011. The decrease in mortgage-backed securities reflected repayments of $837.4 million, partially offset by purchases of $444.6 million of mortgage-backed securities issued by GSEs. At March 31, 2012, variable-rate mortgage-backed securities accounted for 84.7% of our portfolio compared with 84.1% at December 31, 2011.

Total investment securities decreased $188.8 million, or 34.6%, to $357.6 billion at March 31, 2012 as compared to $546.4 million at December 31, 2011. The decrease in investment securities is primarily due to calls of $500.0 million of investment securities partially offset by a purchase of a corporate bond in the amount of $307.9 million.

Total cash and cash equivalents increased $76.6 million to $830.7 million at March 31, 2012 as compared to $754.1 million at December 31, 2011. Other assets decreased $48.3 million to $680.9 million at March 31, 2012 from $729.2 million at December 31, 2011. The decrease in other assets is due to a decrease in current and deferred taxes of $48.3 million as a result of tax expense on earnings during the first quarter of 2012.

Total liabilities decreased $1.28 billion, or 3.1%, to $39.52 billion at March 31, 2012 from $40.80 billion at December 31, 2011. The decrease in total liabilities primarily reflected a $900.0 million decrease in borrowed funds and a decrease in total deposits of $386.2 million. Borrowings amounted to $14.18 billion at March 31, 2012 as compared to $15.08 billion at December 31, 2011.

Total deposits decreased $386.2 million, or 1.5%, to $25.12 billion at March 31, 2012 from $25.51 billion at December 31, 2011. The decrease in total deposits reflected a $317.9 million decrease in our money market accounts and a decrease of $288.7 million in our time deposits, partially offset by an increase in interest-bearing transaction and savings accounts of $110.4 million and $30.1 million, respectively. The decrease in our money market and time deposit accounts is primarily due to planned reductions in our deposit rates to curtail deposit growth at this time of excess liquidity and fewer investment opportunities. We had 135 branches at both March 31, 2012 and December 31, 2011.

Borrowings decreased $900.0 million, or 6.0%, to $14.18 billion at March 31, 2012 as compared to $15.08 billion at December 31, 2011. The decrease in borrowings was due to the maturity of short-term borrowings utilized as part of the Restructuring Transaction.

At March 31, 2012 and December 31, 2011 borrowings consisted of the following:

                                                March 31, 2012                      December 31, 2011
                                                             Weighted                             Weighted
                                                             Average                              Average
                                          Principal            Rate            Principal            Rate
                                                               (Dollars in thousands)

Structured borrowings:
Quarterly put option                     $  3,325,000             4.40 %      $  3,325,000             4.40 %
One-time put option                         4,600,000             4.52           4,600,000             4.52

                                            7,925,000             4.47           7,925,000             4.47

Fixed-rate/fixed-maturity borrowings        6,250,000             3.54           7,150,000             3.21

Total borrowed funds                     $ 14,175,000             4.06 %      $ 15,075,000             3.87 %

At March 31, 2012, 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 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, in the fourth quarter of 2011 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. There can be no assurances as to the amount of the final settlement of this transaction.

Other liabilities increased to $224.5 million at March 31, 2012 from $212.7 million at December 31, 2011 due primarily to accrued FDIC assessments.

Total shareholders' equity increased $57.1 million to $4.62 billion at March 31, 2012 from $4.56 billion at December 31, 2011. The increase was primarily due to net income of $73.0 million for the quarter ended March 31, 2012 and an increase in accumulated other comprehensive income of $15.4 million. The increase was partially offset by cash dividends paid to common shareholders of $39.7 million.

The accumulated other comprehensive income of $55.1 million at March 31, 2012 included a $104.0 million after-tax net unrealized gain on securities available for sale ($175.6 million pre-tax), partially offset by a $48.9 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans. 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), partially offset by a $49.6 million after-tax accumulated other comprehensive loss related to the funded status of our employee benefit plans.

As of March 31, 2012, there remained 50,123,550 shares that may be purchased under our existing stock repurchase programs. We did not repurchase any shares of our common stock during the first three months of 2012 pursuant to our repurchase programs. Pursuant to the Company MOU, any future share repurchases must be approved by the FRB. During the first quarter of 2012, 62,579 shares were surrendered by employees for withholding taxes related to vesting stock awards. At March 31, 2012, our capital ratios were in excess of the applicable regulatory requirements to be considered well-capitalized. See "Liquidity and Capital Resources."

At March 31, 2012, our shareholders' equity to asset ratio was 10.46% compared with 10.05% at December 31, 2011. The ratio of average shareholders' equity to average assets was 10.28% for the three months ended March 31, 2012 as compared to 8.98% for the three months ended March 31, 2011. 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 $9.30 at March 31, 2012 and $9.20 at December 31, 2011. Our tangible book value per share, calculated by deducting goodwill and the core deposit intangible from shareholders' equity, was $8.99 as of March 31, 2012 and $8.89 at December 31, 2011.

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2012 and 2011

Average Balance Sheet. The following table presents the average balance sheets, average yields and costs and certain other information for the three months ended March 31, 2012 and 2011. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we considered to be adjustments to yields. Yields on tax-exempt obligations were not computed on a tax equivalent basis. Nonaccrual loans were included in the computation of average balances and therefore have a zero yield. The yields set forth below include the effect of deferred loan origination fees and costs, and purchase discounts and premiums that are amortized or accreted to interest income.

                                                                 For the Three Months Ended March 31,
                                                          2012                                          2011
                                                                        Average                                       Average
                                          Average                       Yield/          Average                       Yield/
                                          Balance        Interest        Cost           Balance        Interest        Cost
                                                                        (Dollars in thousands)
Assets:
Interest-earnings assets:
First mortgage loans, net (1)           $ 28,537,843     $ 342,725          4.80 %    $ 30,051,014     $ 382,953          5.10 %
Consumer and other loans                     287,685         3,383          4.70           321,407         4,148          5.16
Federal funds sold and other
overnight deposits                           904,295           568          0.25         1,540,837           711          0.19
Mortgage-backed securities at
amortized cost                            12,744,610        90,640          2.84        21,516,223       183,308          3.41
Federal Home Loan Bank stock                 495,223         8,489          6.86           868,615        12,801          5.89
Investment securities, at amortized
cost                                         402,317         2,986          2.97         3,998,704        33,602          3.36

Total interest-earning assets             43,371,973       448,791          4.14        58,296,800       617,523          4.24

Noninterest-earnings assets (4)            1,515,313                                     1,338,090

Total Assets                            $ 44,887,286                                  $ 59,634,890

Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Savings accounts                        $    881,077           819          0.37      $    860,612         1,372          0.65
Interest-bearing transaction accounts      2,006,461         3,266          0.65         2,112,630         4,146          0.80
Money market accounts                      8,350,175        12,657          0.61         6,877,170        17,868          1.05
Time deposits                             13,464,569        51,134          1.53        14,879,043        60,932          1.66

Total interest-bearing deposits           24,702,282        67,876          1.11        24,729,455        84,318          1.38

Repurchase agreements                      6,950,000        78,182          4.52        13,687,190       139,693          4.14
Federal Home Loan Bank of New York
advances                                   7,774,195        68,615          3.55        15,019,833       137,111          3.70

Total borrowed funds                      14,724,195       146,797          4.01        28,707,023       276,804          3.91

Total interest-bearing liabilities        39,426,477       214,673          2.19        53,436,478       361,122          2.74

Noninterest-bearing liabilities:
. . .