UPDATE 1-Hudson City Bancorp net sets record, raises dividend

* Quarterly profit up 44 percent, dividend increased

* Nonperforming loans rise by nearly half from year end

* Shares rise 7 pct in regular trading; dip after hours

NEW YORK, April 21 (Reuters) - Mortgage specialist Hudson City Bancorp Inc (HCBK.O) said first-quarter profit rose 44 percent to a record, as increases in mortgage lending and deposit gathering by the largest U.S. savings and loan offset a jump in bad loans.

Net income for the Paramus, New Jersey-based parent of Hudson City Savings Bank rose to $127.7 million, or 26 cents per share, from $88.7 million, or 18 cents, a year earlier.

The thrift raised its quarterly common stock dividend 7 percent to 15 cents per share from 14 cents. Hudson City took no money from the government's Troubled Asset Relief Program.

Analysts on average expected profit of 25 cents per share, according to Reuters Estimates.

Chief Executive Ronald Hermance said the thrift made $2.04 billion of loans in the first quarter, which were almost fully funded by a $1.98 billion increase in deposits.

The amount Hudson City set aside for loan losses more than doubled from the fourth quarter to $20 million from $9 million, as the economy worsened and unemployment rose. Nonperforming loans rose 47 percent from year end to $320.2 million, or 1.06 percent of total loans, from $217.6 million, or 0.74 percent.

Hudson City has never offered riskier subprime and "option" adjustable-rate mortgages, instead offering "jumbo" loans to borrowers who plan to live in their homes and can put 20 percent down. The thrift operates 130 branches, and ended March with $56.6 billion of assets.

Shares of Hudson City shares closed Tuesday up 80 cents at $12.53 on the Nasdaq. They dipped to $12.44 after hours. Since June 2007, roughly when the credit crisis began, Hudson City shares are up 3 percent, while the KBW Mortgage Finance Index .MFX, which includes the thrift, is down 80 percent. (Reporting by Jonathan Stempel; Editing Bernard Orr)