1. Financial Stocks Kate Farley Ryan O’Connor

2. Agenda Brief overview of Sector Business Analysis Reasons for our stock pick Financials and Valuation Recommendation

3. Financial Sector Worst performing sector of the S&P 500 Down over 41% YTD* compared to –14.75% of index Uncertainty regarding Gov’t bailout Potential bank nationalization Increased stake in Citigroup and AIG Currently underweighted by 113bps Will increase underweighting by 150bps *As of 2/23/09

5. Who is HCBK? Hudson City Bancorp Inc. Regional Holding Company based out of New Jersey Traded on the NASDAQ Currently part of S&P 500 Index Weathered the storm better than most

6. Business Analysis of Stocks Goldman Sachs 2008 10-K is 731 pages Bank holding company and global investment banking, security, and investment management firm Investment Banking, trading and principal investments and asset management and securities services are main segments Current Market cap of $37B Hudson City Bankcorp Holding company for only Hudson City Banking 127 banks in NJ, NY, and CT Sources of revenue: interest on mortgages, MB securities and interest and dividends on investments Sources of funds: deposits, borrowings, payments on mortgages, maturities on investments Current Market cap of $5 billion

7. Why HCBK? Never underwritten subprime, negative amortization or Option ARM loans Strict Maximum Loan-to-Value 0.43% non-performing assets Refused TARP money in November Kramer recommended staying away ( Jan 26, 2009) Named Best-Managed Bank in America Two Years in a Row- Forbes Magazine http://community.investopedia.com/news/IA/2009/Hudson-City-Flourishes-During-Downturn- HCBK0211.aspx?partner=YahooSA

8. Loan to Value Maximums Max Loan AmountsMax LTV Up to $600,00090% $ 600,100-$1,000,00080% $1,000,100-$1,500,00075% $1,500,100-$2,000,00070% $2,000,100-$2,500,00065% $2,500,100-$3,000,00060%

9. Recent Earnings and Dividends * Estimates from finance.yahoo.com

10. Hudson City Valuation

11. Hudson City DCF Model Used average expenses percentage over past 3 years Using 14.5% discount rate due to financials cyclical nature Assuming no change in number of shares outstanding Terminal Growth Rate of 4% Assuming constant margins and tax rates based on historic figures

12. Valuation and Price Targets DCF approximately $22 with 123% upside Terminal Discount Rate of 14.5% Terminal FCF Rate of 4.0% Ratio Analysis Gave us price target between $9 and $23 depending ratio P/B was $21.53 Our price target is $18.00 (77% upside)

13. Goldman Sachs Valuation

14. Reasons to dump GS 2 students dropped this class after being assigned GS ROE (ttm) 4.3% Sales growth predicted to drop 21% in the next quarter and 19% in 3Q09* Took $10 billion in TARP funds and now has to dance to the Gov’t tune In order to repay has to raise the money in a government approved equity offering of similar amount Price Target of 97.00 Berkshire Hathaway has a $5 billion investment * finance.yahoo.com

15. New SIM Financials Portfolio NameSymbol% of SIM Financials Berkshire Hathaway Inc. BRK.A47.2% Wells FargoWFC11.7% Hudson City Bancorp HCBK41.1%

16. Recommendations Sell entire GS position (~400bps) Purchase 340 bps of HCBK Consensus growth rate higher than S&P 500 Undervalued compared to financials and itself No exposure to Real Estate Sell off 68 bps of BRKA and 22 of WFC Should bring us to underweighting of 263 bps

17. What questions do you have?

18. Off Balance Sheet Commitments Payments Due By Period Less Than One Year to Three Year s to More Than Contractual Obligation Total One Year Three Year s Five Years (In thousands) Mortgage loan originations $337,590 $ $— $— $— Mortgage loan purchases 219,117 — — — Mortgage-backed security purchases 516,000 — — — Operating leases 149,776 8,404 17,311 16,925 107,136 Total $1,222,483 $1,081,111 $17,311 $16,925 $107,136

19. Not Selling all of WFC… DCF still gives about 25% upside with more conservative estimates than other analysts Ratio valuation gives target in high teens/low twenties EPS of about 28 cents in first quarter expected Still have dividend Lowest weight in ratio