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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission File Number 0-28886

ROSLYN BANCORP, INC.

(Exact name of registrant as specified in its charter.)

(516) 942-6000

(Registrant’s telephone number, including area code)

None

Securities registered pursuant to Section 12(b) of the Act

Common Stock, $.01 par value

Securities registered pursuant to Section 12(g) of the Act

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

The aggregate market value of Common Stock held by non-affiliates of the registrant as of June 28, 2002, based on the closing price for a share of the registrant’s Common Stock on that date as reported by the NASDAQ National Market, was $1,826,826,042.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes þ    No ¨

The Registrant had 78,734,218 shares of Common Stock outstanding as of March 5, 2003.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the year ended December 31, 2002 are incorporated by reference into Part II of this Form 10-K.

Portions of the Proxy Statement for the 2003 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

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INDEX

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PART I

Private Securities Litigation Reform Act Safe Harbor Statement

Statements contained in this Form 10-K which are not historical facts are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts stated herein could vary as a result of market and other factors. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Roslyn Bancorp, Inc. (Registrant, Holding Company or, collectively with its subsidiaries, referred to as the Company) with the Securities and Exchange Commission (SEC) from time to time. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “intend” and “potential.” Examples of forward looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, changes in: interest rates; general economic conditions; monetary and fiscal policies of the U. S. Government, including policies of the U.S. Treasury and the Federal Reserve Board (FRB); the quality or composition of the loan or investment portfolios; demand for loan and non-deposit products; deposit flows; real estate values; the level of defaults, losses and prepayments on loans held by the Company in its portfolio or sold in the secondary markets; demand for financial services in the Company’s market area; completion and delivery of residential housing units being sold in connection with its joint venture real estate projects; competition; accounting principles, policies, practices or guidelines; legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. The forward-looking statements are made as of the date of this Form 10-K, and, except as required by applicable law, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. These risks and uncertainties should be considered in evaluating forward-looking statements, which speak only as of the date of this Form 10-K, and undue reliance should not be placed on such statements.

Item 1. Business

General

The Registrant was incorporated under Delaware law on July 26, 1996. On January 10, 1997, the Registrant acquired The Roslyn Savings Bank and its subsidiaries (collectively, the Bank), as part of the Bank’s conversion from a mutual to stock form of organization (the Conversion).

The Company is a savings and loan holding company and is subject to regulation by the Office of Thrift Supervision (OTS) and the SEC. At December 31, 2002 the Company had consolidated total assets of $11.02 billion, deposits of $5.71 billion and stockholders’ equity of $576.5 million. Currently, the Company’s activities consist solely of managing its subsidiaries, principally the Bank. The Bank is a community-oriented stock savings bank, which was originally chartered by the State of New York in 1875. The following discussion addresses the operations of the Company.

After the close of business on February 16, 1999, T R Financial Corp., a Delaware company, merged with and into the Company and T R Financial Corp.’s subsidiary, Roosevelt Savings Bank, a New York State chartered stock savings bank, merged with and into the Bank (the Merger). All subsidiaries of Roosevelt Savings Bank became subsidiaries of the Bank. The acquisition was accounted for as a pooling-of-interests, and, accordingly, all historical financial information for the Company has been

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restated to include T R Financial Corp.’s historical information for the earliest period presented.

In August 1995 the Bank completed its acquisition of certain assets and liabilities of Residential Mortgage Banking, Inc. (RMBI), including its loan servicing portfolio, through its wholly-owned mortgage banking subsidiary, Roslyn National Mortgage Corporation (RNMC) (formerly Residential First, Inc. (RFI)). Subsequently, on August 28, 2000, the Company announced strategic initiatives and plans to discontinue the residential mortgage banking business through the divestiture of its subsidiary, RNMC. In connection with this strategy, the Bank sold off a substantial part of the residential origination capabilities of RNMC to a third party mortgage company during the fourth quarter of 2000.

The Bank’s principal business consists of accepting retail deposits from the general public in the areas surrounding its branch offices and investing those deposits, together with funds generated from operations and borrowings, primarily in commercial real estate, multi-family and construction loans, mortgage-backed and mortgage related securities, various debt and equity securities and, to a lesser extent, home equity, consumer and student loans. In connection with the divestiture of RNMC, the Bank adopted strategic initiatives to focus on higher margin business lines, thus de-emphasizing its investment in one- to four-family residential mortgage loans. Additionally, the Bank, effective in 2003, has also de-emphasized its investment activities in home equity loans. The Bank’s revenues are derived principally from the interest income generated by its investment securities, mortgage, commercial and consumer loans and, to a lesser extent, from retail banking fees. The Bank also derives other non-interest revenues from the increase in the cash surrender value of its Bank Owned Life Insurance (BOLI) policy, as well as income from joint venture activities. The Bank’s primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities.

Following the divestiture of RNMC, the Bank entered into a private label program for origination of one- to four-family loans through its existing branch network under a mortgage origination assistance agreement with a third party mortgage originator. Under this program, the Bank utilizes the third party’s mortgage loan origination platforms (including, among others, telephone and internet platforms) to originate loans based on defined underwriting criteria and in accordance with Federal National Mortgage Association (FNMA) guidelines. Such loans close in the Bank’s name and utilize the Bank’s licensing. The Bank funds such loans directly, and, under a separate loan and servicing rights purchase and sale agreement with the third party mortgage originator, has the option to retain the loans for its portfolio, sell the loans to a third party investor or deliver the loans back to the same third party mortgage originator at agreed upon pricing.

The Bank intends to enter into a private label agreement, during the second quarter of 2003, with a nationally recognized third party for the purpose of originating lines of credit and fixed rate second mortgages. The loans will be underwritten in accordance with the Bank’s underwriting guidelines for these products. The loans may be sold to the originator under a separate purchase and sale agreement at a predetermined price, or the Bank may elect to retain the originated loans for its own portfolio. Additionally, the loans originated under this program will be serviced by a third party servicer.

The Bank maintains various subsidiaries, incorporated in New York, to either (a) maintain ownership of specific real estate properties utilized by the Bank as retail branches or acquired by the Bank as a result of foreclosure or otherwise in connection with its lending activities; or (b) operate as a real estate investment trust (REIT); or (c) offer annuity, mutual fund and insurance products. The Bank previously offered savings bank life insurance through its Savings Bank Life Insurance Department prior to the dissolution of the department on December 31, 1999.

The Holding Company, in addition to the Bank, maintains various subsidiaries formed in New York, Delaware and Vermont to either (a) operate a captive reinsurance company for the purpose of

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reinsuring policies of mortgage insurance; (b) operate as a joint venture partner in the development of residential communities; or (c) to form a Delaware statutory business trust for the exclusive purpose of issuing guaranteed preferred beneficial interests in junior subordinate debentures and using the proceeds to acquire Junior Subordinated Debentures issued by the Holding Company.

Company Website and Availability of Securities and Exchange Commission Filings

The Company makes available on or through its Internet website, www.roslyn.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such reports are free of charge and are available as soon as reasonably practicable after the Company electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Market Area and Competition

The Bank is a community-oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. Currently, the Bank operates 37 banking offices in the boroughs of Kings, Queens and The Bronx and the counties of Nassau and Suffolk in New York. The Bank’s primary deposit gathering area is currently concentrated in the areas where its banking offices are located in the boroughs of Kings, Queens and The Bronx and the counties of Nassau and Suffolk in New York, which the Bank generally considers to be its primary market area. The Bank’s primary lending area is concentrated in the New York City metropolitan area.

The New York City metropolitan area has historically benefited from having a large number of corporate headquarters and a diversity of financial service entities. Additionally, the counties of Nassau and Suffolk and the borough of Queens have historically benefited from a large developed suburban market, well educated employment base and a diversity of industrial, service and high technology businesses. During the late 1980’s and early 1990’s, however, due in part to the effects of a prolonged period of weakness in the national economy, the decline in the regional economy, layoffs in the financial services industry and corporate relocations, the New York City metropolitan area experienced reduced levels of employment. After a prolonged period of decline, which was marked by layoffs in the financial services and defense industries and corporate relocations and downsizings, the economy in the greater New York metropolitan area improved. During 2000 and early 2001, the residential and commercial real estate market in the New York City metropolitan area was favorably impacted by the increased demand for housing and development, low unemployment levels and a strong underlying economy. During the mid to later part of 2001, the residential and commercial real estate market in the New York City metropolitan area was impacted by a downturn in the economy, rising unemployment and the tragic events of September 11, 2001; however, downward pressure on interest rates throughout 2002 brought on by, among other things, the actions of the Federal Reserve Board continued to fuel loan demand, especially in the counties of Nassau and Suffolk, and the demand for housing remained strong though this period.

The recent rise in unemployment and the decline in consumer spending that have affected the economy of the United States also have, to a slightly lesser extent, impacted the economy of New York City. The economy in the counties of Nassau and Suffolk has not displayed the full impact of these trends during 2002. The economy in the counties of Nassau and Suffolk has benefited from the impact of the low interest rate environment that existed during 2002. The residential housing median prices for Nassau and Suffolk Counties displayed double digit growth in 2002, reflecting the impact of low mortgage rates, coupled with a fixed supply and strong demand for housing in the area.

The Bank faces significant competition in its primary market area in attracting deposits, originating loans and selling non-deposit products. The New York City metropolitan area is a highly

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competitive market. The Bank faces direct competition from a significant number of financial institutions operating in its market area, many with a state-wide or regional presence, and, in some cases, a national or international presence. This competition arises from commercial banks, savings banks, mortgage brokers, credit unions, financial holding companies and other providers of financial services, many of which are significantly larger than the Bank and, therefore, have greater financial and marketing resources than those of the Bank.

Lending Activities

Loan Portfolio Composition. The Bank’s loan portfolio consists primarily of first mortgage loans secured by one- to four-family residences, commercial real estate and multi-family properties located in its primary lending area. The types of loans that the Bank may originate or purchase are subject to federal and state laws and regulations. The interest rates charged by the Bank on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and the rates offered by its competitors. These factors are, in turn, affected by general and economic conditions, monetary policies of the federal government, including the FRB, legislative tax policies and governmental budgetary matters, among other things.

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The following table sets forth the composition of the Company’s loan portfolio, including loans held-for-sale, in dollar amounts and in percentages of the respective gross loan portfolios at the dates indicated:

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Loan Originations. The Bank directly originates all commercial real estate, multi-family, construction and development, consumer and student loans. Home equity loans were originated directly by the Bank through early 2003, after which the Company intends for them to be originated through a third party provider. One- to four-family loans are originated through a third party mortgage originator. The Bank has entered into a private label program for the origination of one- to four-family loans through its existing branch network under a mortgage origination assistance agreement with a third party mortgage originator. Under this program, the Bank will utilize the third party’s mortgage loan origination platforms (including, among others, telephone and internet platforms) to originate loans, based on defined underwriting criteria and in accordance with FNMA guidelines. Such loans close in the Bank’s name and utilize the Bank’s licensing. The Bank will fund such loans directly, and, under a separate loan and servicing rights purchase and sale agreement with the third party mortgage originator, has the option to retain the loans for its portfolio, sell the loans to a third party investor or deliver the loans back to the same third party mortgage originator at agreed upon pricing. During the year ended December 31, 2002 the Bank originated $147.3 million of one- to four-family loans under the aforementioned program, of which the Bank retained none.

All loans originated by the Bank are underwritten in accordance with Bank-approved loan underwriting policies and procedures. The Bank originates both adjustable-rate and fixed-rate one- to four-family loans, multi-family loans, commercial real estate loans, home equity and second mortgage loans, construction and development loans, consumer loans and student loans. Prior to the divestiture of RNMC, the Bank emphasized the origination and retention of one- to four-family loans. Presently, the Bank emphasizes the origination and retention of commercial real estate, multi-family and construction loans to selected real estate developers operating within the Bank’s primary market area. Also, prior to the RNMC divestiture, the Bank had emphasized the sale of one- to four-family loans to the secondary market. The Bank’s ability to originate loans is dependent, in part, upon the relative customer demand for the types of loans offered by it and demand for fixed-rate or adjustable-rate loans, which is affected by current and expected future levels of interest rates.

During 2002 and 2001, the Bank did not purchase any residential whole loans from unaffiliated originators. It is not anticipated that the Company will purchase a significant amount of one- to four-family loans during 2003. The Company intends to sell, on a servicing-released basis and without recourse, a significant amount of its one- to four-family and home equity loans to be originated during 2003.

Loan Servicing, Sales and Mortgage Banking Activities. Currently, the Bank services all of its commercial, construction and development, multi-family, home equity, second mortgage, consumer and student loans. Principally all one- to four-family loans are serviced by a third party service provider on behalf of the Bank. The same third party service provider services all servicing retained conforming one- to four-family loans sold to other investors. Most Federal Housing Administration (FHA) and Veterans Administration (VA) loans originated by the Bank, as well as other selected loans, have been sold, on a servicing-released basis, to private institutional investors. At December 31, 2002 the Bank’s loan servicing portfolio totaled $71.7 million. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. Additionally, the fees generated from servicing loans for third parties during 2002 and 2001 have been significantly reduced due to principal repayments and servicing rights sales that occurred during 2000 and the elimination of the Bank’s mortgage banking subsidiary during the year ended December 31, 2000.

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As consideration for subservicing the Bank’s portfolios, the third party service provider receives an annual flat fee per loan and a portion of the ancillary fee income collected. The Bank recognizes servicing fee income in excess of servicing fees paid to the third party service provider, a portion of the ancillary fee income and retains the use of the related loan escrow balances.

During the years ended 2002 and 2001 the Bank sold, on a servicing-released basis and without recourse, $145.0 million and $68.6 million, respectively of one- to four-family loans. During the year ended December 31, 2000, the Bank, through RNMC, sold without recourse, $387.2 million of whole loans with loan servicing retained. The Bank also sold during the years ended 2002 and 2001, on a servicing-released basis and without recourse, $1.7 million and $1.9 million, respectively of student loans to the Student Loan Marketing Association (Sallie Mae).

Prior to the 2000 divestiture of RNMC, all of the Bank’s mortgage banking operations were conducted through RNMC with the exception of the servicing of one- to four-family loans originated by the Bank prior to the establishment of RNMC, which were being serviced directly by a third party provider on behalf of the Bank. As a result of the 2000 divestiture of RNMC, no income related to mortgage banking operations has been recorded during the years ended December 31, 2002 and 2001. RNMC’s mortgage banking revenues generally consisted of loan origination fees, interest income earned on mortgages during the period they were held-for-sale, less the interest expense incurred to finance the mortgages, gains (or losses) from the sale of mortgage loans, loan servicing fees and gains (or losses) from the sale of loan servicing. Prior to the establishment of RNMC in 1995, the Bank’s loan sale, purchase and servicing activities were conducted directly by the Bank.

Letters of Credit. Included in outstanding loan commitments at December 31, 2002 are $8.0 million of performance standby letters of credit with approximate terms of one year. These performance standby letters of credit were issued primarily for the benefit of local municipalities on behalf of certain of the Bank’s borrowers. These borrowers have a current relationship with the Bank and are primarily residential subdivision borrowers. Performance standby letters of credit obligate the Bank to make payments in the event a specified third party fails to perform under non-financial contractual obligations. Also included in outstanding loan commitments at December 31, 2002 were $11.9 million of financial standby letters of credit with approximate terms of one to three years. These financial standby letters of credit were issued primarily for the benefit of other financial institutions, on behalf of certain of the Bank’s current borrowers. Financial standby letters of credit obligate the Bank to guarantee payment of a specified financial obligation. The Bank collects a fee upon the issuance of performance and financial standby letters of credit.

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The following table shows the maturity of the Bank’s loan portfolio at December 31, 2002. Loans held-for-sale are included in the “Within One Year” maturity category. The table does not include prepayments or scheduled principal amortization. Prepayments and scheduled principal amortization on loans totaled $1.43 billion for the year ended December 31, 2002.

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The following table sets forth, at December 31, 2002, the dollar amount of gross loans receivable contractually due after December 31, 2003 and whether such loans have fixed or adjustable interest rates:

One- to Four-Family Loans. The Bank, through its private label origination program with a third party mortgage originator, offers both fixed- and adjustable-rate mortgage loans secured by one- to four-family residences located in the Bank’s primary market area. Under its agreement with the third party mortgage originator, the Bank offers a range of one- to four-family mortgage loan products to current and prospective customers through various delivery channels, supported by direct consumer advertising, including telemarketing, Bank branch office traffic and the Bank’s internet website. In addition, the Bank may purchase whole loans in the secondary market. All loans purchased in the secondary market are quality control reviewed for adherence to the Bank’s underwriting standards.

At December 31, 2002, the Bank’s one- to four-family loans totaled $1.30 billion, or 41.21% of total gross loans and included $65.5 million of purchased loans. Of the one- to four-family loans outstanding at that date, 63.6% were fixed-rate loans and 36.4% were adjustable-rate loans. The interest rates for the majority of the Bank’s adjustable-rate one- to four-family mortgage loans are indexed to the one year and five year Constant Maturity Treasury Index (the CMT Index). Interest rate adjustments on such loans are limited to a 2% annual adjustment cap and a maximum adjustment of 6% over the life of the loan. Certain of the Bank’s adjustable-rate mortgage loans can be converted to fixed-rate loans with interest rates based upon the then-current market rates plus a varying margin.

One- to four-family residential first mortgage loans are generally underwritten according to FNMA guidelines. The Bank, through a third party mortgage originator, generally originates one- to four-family residential mortgage loans in amounts up to $1.0 million following such guidelines, subject to certain exceptions which require the approval of a senior lending officer. The Bank generally requires private mortgage insurance to be obtained for loans in excess of an 80% loan-to-value (LTV) ratio. Mortgage loans originated by the Bank and retained for its portfolio generally include due-on-sale clauses, which provide the Bank with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property without the Bank’s consent. Due-on-sale clauses are an important means of adjusting the yields on the Bank’s fixed-rate mortgage loan portfolio, and the Bank generally has exercised its rights under these clauses.

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Multi-Family Lending. The Bank originates fixed- and adjustable-rate multi-family mortgage loans generally secured by five to 400 unit buildings located in the Bank’s primary market area. At December 31, 2002 the Bank’s multi-family loan portfolio was $337.2 million, or 10.69% of total gross loans. In reaching its decision on whether to make a multi-family loan, the Bank considers the borrower’s qualifications and financial condition, including credit history, profitability and expertise, as well as the value and condition of the underlying property. Additional factors considered by the Bank may include: the net operating income of the mortgaged premises before debt service and depreciation; the debt coverage ratio (the ratio of net operating income to debt service); and the ratio of loan amount to appraised value. Pursuant to the Bank’s underwriting policies, multi-family mortgage loans generally may be made in amounts up to 85% of the lower of the appraised value or sales price of the underlying properties, with amortization periods of up to 30 years. The Bank’s adjustable-rate multi-family loans generally have been originated with rates that are fixed for the first five years with a single adjustment on the fifth anniversary of the loan based upon the average monthly yield on U.S. Treasury obligations, adjusted to a constant maturity of five years, plus a margin of 1.50% to 2.50%. Ten year fixed-rate loans are also offered based on similar spreads. During 2001 the Bank began to substitute the posted rates of the Federal Home Loan Bank of New York (FHLB) as the index for fixed-rate advances instead of the treasury rates for this type of financing. For such loans, margins of 1.75% to 2.75% are typically added. The Bank generally offers multi-family loans with terms of up to 10 years. The Bank’s current policies limit the amount of multi-family loans it may hold to 60% of the aggregate loan portfolio. The Bank’s current policies also limit such loans to $20 million per project and an aggregate of $50 million in loans outstanding per relationship, although the Bank will make exceptions to this policy upon the approval of the Bank’s Board of Directors (Board) or the Executive Loan Committee of the Board, as applicable. In addition, the Bank generally requires a minimum debt service coverage ratio of 120%. The Bank also requires title insurance and an appraisal on the subject properties conducted by an independent appraiser. Finally, the Bank generally requires a market occupancy rate of at least 90% prior to lending for multi-unit apartment buildings.

Multi-family financing is generally considered to involve a moderate degree of credit risk as compared to construction and development financing since these loans tend to be long-term funding collateralized by improved, stabilized real estate. The risk of loss on a multi-family loan is dependent largely upon the accuracy of the estimate of the collateral value and the current net operating income generated thereby. If the estimated value or income projections prove to be inaccurate, the Bank may be confronted with a property having a value that is insufficient to assure full repayment of the loan.

When evaluating the qualifications of multi-family loan borrowers, the Bank considers the financial resources and income level of the borrower, the borrower’s experience in owning or managing similar property and the Bank’s lending experience with the borrower. The Bank’s underwriting guidelines require that the borrower demonstrate appropriate management skills and the ability to maintain the property based on current rental income. These guidelines require borrowers to present evidence of the ability to repay the mortgage and a history of making mortgage payments on a timely basis. In making its assessment of the creditworthiness of a borrower, the Bank generally reviews the borrower’s financial statements and credit history, as well as other related documentation.

Commercial Real Estate Lending. The Bank originates commercial real estate loans secured by properties used for business purposes and located in the Bank’s primary market area. The Bank’s underwriting guidelines provide that commercial real estate loans generally may be made in amounts up to 75% of the lower of the appraised value or sales price of the underlying property, subject to the

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Bank’s current loans-to-one-borrower limit, which, at December 31, 2002, was $20 million per project and an aggregate of $50 million in loans outstanding per relationship. The Bank may make exceptions to these guidelines, from time to time, upon the approval of the Bank’s Board or the Executive Loan Committee of the Board, as applicable. These loans may be made with terms up to 25 years and generally are offered at interest rates that adjust in accordance with the CMT Index or the FHLB advance rate. The Bank’s assessment of credit risk and underwriting standards and procedures for commercial real estate loans are similar to those applicable to its multi-family loans, whereby the Bank considers the net operating income of the collateral property and the borrower’s expertise, credit history and profitability, among other things. The Bank generally has required that the properties securing commercial real estate loans have debt service coverage ratios of at least 125%. At December 31, 2002 the Bank’s commercial real estate loan portfolio totaled $800.1 million, or 25.36% of total gross loans.

Construction and Development Lending. The Bank originates loans for the acquisition and development of commercial, multi-family and residential property located in its primary market area. Construction and development loans are offered primarily to experienced local developers operating in the Bank’s primary market area. The majority of the Bank’s construction loans are originated to finance the construction of one- to four-family owner-occupied residential, multi-family and commercial real estate properties located in the Bank’s primary market area. At December 31, 2002 the Bank had outstanding $423.1 million of construction and development loans, or 13.41% of total gross loans, and $135.7 million of unfunded construction loan commitments. Construction loans generally are offered with terms up to three years for residential property and up to two years for multi-family and commercial property and generally may be made in amounts up to 90% of the estimated cost to construct. For such loans, the Bank’s practice, where applicable, is to require that residential properties being financed be pre-sold, or to require borrowers to secure permanent financing commitments from generally recognized lenders for an amount equal to or greater than the amount of the loan. In some cases, the Bank itself may provide permanent financing. Loan proceeds are disbursed incrementally as construction progresses and as inspections by the Bank’s supervising engineer warrant.

Construction and development financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, stabilized real estate and, therefore, borrowers of such loans are required to provide a personal guarantee during construction. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost (including interest) of construction and other assumptions, including, for example, the estimated time to sell residential properties. If the estimate of value proves to be inaccurate, the Bank may be confronted with a project, when completed, having a value which is insufficient to assure full repayment.

Home Equity and Second Mortgage Lending. The Bank offers fixed-rate, fixed-term home equity loans and adjustable-rate home equity lines-of-credit in its primary market area. At December 31, 2002 the Bank’s home equity and second mortgage portfolio was $192.8 million, or 6.11% of total gross loans. Standard fixed-rate, fixed-term home equity loans are offered in amounts which, together with the amount of any applicable first mortgage loan, do not exceed 80% of the appraised value of the property (a combined LTV, or CLTV) with a maximum loan amount of $100,000. Standard adjustable-rate home equity lines-of-credit are offered in amounts at CLTVs of up to 80% of the appraised value of the property with a maximum line amount of $250,000.

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The Bank also offers home equity loans and lines-of-credit where loan-to-value ratios, expense ratios or credit histories fall outside of the ranges used for the standard product. The alternative products include fixed-rate loans at CLTVs of up to 90% of the appraised value of the property with a maximum loan amount of $100,000. The alternative products also include adjustable-rate lines-of-credit at CLTVs of up to 90% with a maximum loan amount of $100,000, or a CLTV of up to 80% of the appraised value of the property with a maximum loan amount of $250,000. Such alternative loan/line-of-credit products generally carry interest rates greater than those offered on the Bank’s standard home equity loan products. All the Bank’s home equity lines-of-credit carry an adjustable rate feature and thus reprice monthly based on the movement of a specified index. This rapid repricing feature allows these loans to maintain pace with current market conditions. At December 31, 2002 the Bank had $79.8 million of unused home equity lines of credit.

The Bank intends to enter into a private label agreement, during the second quarter of 2003, with a nationally recognized third party for the purpose of originating lines of credit and fixed rate second mortgages. The loans will be underwritten in accordance with the Bank’s underwriting guidelines for these products. The loans may be sold to the originator under a separate purchase and sale agreement at a predetermined price, or the Bank may elect to retain the originated loans for its own portfolio. Additionally, the loans originated under this program will be serviced by a third party servicer.

Consumer, Student and Other Lending. At December 31, 2002 the Bank’s portfolio of consumer, student and other loans was $98.5 million, or 3.12% of total gross loans, and primarily consisted of private banking, secured and unsecured personal loans, automobile loans, home improvement loans and student loans. Private banking entails offering a wide array of deposit and loan products that are customized to meet the needs of a specific client base, principally composed of entrepreneurs, professionals, senior corporate executives and wealthy individuals. A private banking loan can be either fixed or adjustable-rate, secured or unsecured and typically has a maturity of one year or less, or is payable on demand. Secured personal loans are collateralized with deposits from federally insured financial institutions. Unsecured personal loans are offered with maximum terms of five years and maximum amounts of $15,000. The Bank also offers automobile loans with terms up to five years and $50,000 for a new automobile and four years and $25,000 for a used automobile, depending on the vehicle year. Home improvement loans are offered to homeowners for the purpose of modernization and maintenance of owner-occupied properties for terms up to five years and to a maximum loan amount of $20,000. The Bank offers both subsidized and unsubsidized student loans through a forward purchasing and servicing agreement with the Sallie Mae. Cash cushion loans (checking overdraft protection) are offered in amounts up to $5,000. The Bank also offers Master Card^®™ and Visa^®™ credit cards through an affinity relationship with MBNA America, which assumes underwriting responsibility and credit risk for all advances.

Automobile Leases. At December 31, 2002, there were $3.2 million of automobile leases outstanding, or 0.10% of total gross loans. The Bank previously had originated, or purchased, leases originated by an unrelated third party, which were secured by automobiles. As of July 30, 1999, the Bank terminated its agreement with the third party and has no plans to originate or purchase automobile leases.

Loan Approval Procedures and Authority. The Board establishes the lending policies and loan approval limits of the Bank. The Board has established an Executive Loan Committee, comprised of rotating members of the Board, to review and approve commercial real estate loans in amounts greater

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than $5.0 million. Minutes of the meetings of the Executive Loan Committee are provided to the full Board at its regular monthly meetings. The Board has authorized the following persons to approve loans up to the amounts indicated: (a) commercial real estate loans of up to $1.0 million require approval by the applicable Commercial Relationship Officer, plus the Commercial Lending Division Deputy; (b) commercial real estate loans in excess of $1.0 million and up to $2.0 million require approval by a Commercial Relationship Officer and the Senior Commercial Lending Officer; (c) commercial real estate loans in excess of $2.0 million and up to $5.0 million require approval by a Commercial Relationship Officer, the Senior Commercial Lending Officer, and either the Chairman and Chief Executive Officer or the President and Chief Operating Officer of the Bank. Home equity loans, lines of credit, personal loans, and home improvement loans require approval by a Consumer Loan Officer up to a defined maximum amount established by the Board. Loan amounts greater than the defined maximum amount must be countersigned by the Senior Consumer Lending Officer.

With respect to home equity loans, upon receipt of a completed loan application from a prospective borrower, a credit report is ordered and certain other information is verified by independent credit agencies. If necessary, additional financial information may be required. An appraisal of real estate intended to secure a proposed loan generally is required to be performed by appraisers approved by the Bank. For proposed mortgage loans, the Board from time to time approves the independent appraisers used by the Bank and the Bank’s appraisal policy. The Bank’s policy is to obtain title and hazard insurance on all mortgage loans, and the Bank may require borrowers to make payments to a mortgage escrow account for the payment of property taxes. Any exceptions to the Bank’s underwriting policies must be noted on an underwriting standards checklist and approved in accordance with the loan approval procedures described above.

The Bank subjects all loan commitments for non-residential mortgage loans to an environmental site assessment. “See Environmental Issues.”

Delinquent Loans, Real Estate Owned and Classified Assets

Management and the Board perform a monthly review of all delinquent loans. The procedures taken by the Bank with respect to delinquencies vary depending on the nature of the loan and period of delinquency. The Bank generally requires that delinquent residential and commercial mortgage loans be reviewed, that a delinquency notice be mailed no later than the sixteenth day of delinquency and that a late charge be assessed after 15 days. The Bank’s third party subservicer follows similar delinquency procedures. The Bank’s procedures provide that telephone contact should be attempted to ascertain the reasons for delinquency and the prospects of repayment. When contact is made with a borrower at any time prior to foreclosure, the Bank will attempt to obtain full payment or work out a repayment schedule to avoid foreclosure. It is the Bank’s policy generally to discontinue accruing interest on all loans that are contractually past due 90 days or more or when, in the opinion of management, such suspension is warranted. Property acquired by the Bank as a result of foreclosure on a mortgage loan is classified as real estate owned (REO) and is recorded at the lower of the unpaid principal balance or fair value less estimated costs to sell at the date of acquisition. It is the Bank’s policy to require an appraisal of the REO property shortly before foreclosure and, thereafter, to appraise the property on an as-needed basis.

At December 31, 2002 the Bank’s REO, consisted of foreclosed one- to four-family properties totaling $717,000 which were held directly by the Bank or through its subsidiaries formed for the purpose of holding and maintaining such properties. See “Subsidiary Activities.” Bank personnel or independent

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inspectors generally conduct periodic external inspections on all properties securing loans in foreclosure. Based upon such inspections and appraisals, the Bank will charge-off any loan principal it deems uncollectible at such time. Bank personnel conduct monthly reviews of its foreclosed real estate and periodically adjust the Bank’s valuation allowance, if any, for declines in the estimated fair value of REO. At December 31, 2002 the Bank had no allowance for losses on REO.

The Bank’s policies permit the financing of the sale of its foreclosed real estate on substantially the same terms applicable to its other real estate mortgage loans except that the Bank may loan no more than 80% of the lesser of the appraised value or sales price of the foreclosed property.

Federal regulations and the Bank’s policies require that the Bank utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Bank currently classifies problem and potential problem assets as “Substandard,” “Doubtful” or “Loss” assets. An asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not currently expose the Bank to sufficient risk to warrant classification in one of the aforementioned categories, but possess certain other types of weaknesses, are designated as “Special Mention.”

When the Bank classifies one or more assets, or portions thereof, as Substandard or Doubtful, it is required to establish a general valuation allowance for loan losses in an amount deemed prudent by management, unless the loss of principal appears to be remote. General valuation allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When the Bank classifies one or more assets, or portions thereof, as Loss, it is required either to establish a specific allowance for losses equal to 100% of the amount of the assets so classified or to charge-off such amount.

A New York State chartered savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Federal Deposit Insurance Company (FDIC) and New York State Banking Department (NYSBD), either of which can order the establishment of additional general or specific loss allowances. The FDIC, in conjunction with the other federal banking agencies, has adopted an inter-agency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectibility of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. While the Bank believes that it has established an adequate allowance for loan losses, there can be no assurance that regulators, in reviewing the Bank’s loan portfolio, will not request the Bank to materially increase its allowance for loan

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losses, thereby negatively affecting the Company’s financial condition and earnings at that time. Furthermore, although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary under as yet undetermined circumstances.

At December 31, 2002 the Bank had $49.9 million of loans designated as Substandard, consisting of 15 commercial real estate and 66 one- to four-family loans, and no loans classified as Doubtful or Loss. At December 31, 2002 the Bank also had $104.1 million of assets designated as Special Mention, consisting of 20 commercial real estate and 9 one- to four-family loans, which were so designated due to past loan delinquencies.

Non-Accrual and Past-Due Loans. The following table sets forth information regarding non-accrual loans and non-performing assets:

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The principal balance of non-accrual loans was $38.3 million, $39.6 million and $9.8 million at December 31, 2002, 2001 and 2000, respectively. Interest income that would have been recorded if these loans had been performing in accordance with their original terms aggregated $3.0 million, $1.6 million and $596,000 during the years ended December 31, 2002, 2001 and 2000, respectively. Actual interest income recorded on these non-accrual loans was $65,000, $1.2 million and $490,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Non-accrual loans at December 31, 2002 include two large commercial credits added to non-accrual status during the fourth quarter 2001. The first commercial credit consists of loans totaling $13.3 million secured by four commercial properties in the New York Metropolitan area. As a preferred alternative to pursuing foreclosure, the Bank, the borrowers’ other creditors and the chapter 11 debtors reached agreement on a plan that provided for the prompt sale of all of the properties securing the Bank’s loans and full repayment of all sums owed to the Bank under its notes, with consideration in excess of that amount being paid to the subordinated secured creditors. During the first quarter of 2003, three of the four collateral properties were sold, generating $11.1 million in proceeds which were entirely utilized to reduce this non-performing credit to $2.2 million. In consideration for the Bank’s agreement to release the borrower’s principals from liability for the debt, the borrowers transferred title to the fourth remaining property to a subsidiary of the Bank by deed-in-lieu of foreclosure and assigned to such subsidiary all of the borrower’s rights under a certain contract for the sale of the property to a third party, which is expected to close during the first quarter of 2003.

The second credit is an $18.8 million loan secured by two assisted living facilities in the New York Metropolitan area. A court-appointed receiver has operated the facilities since the commencement of the borrowers’ consolidated bankruptcy filing in November 2001 and has improved the facilities’ cash flows and profitability since that time. Concurrently, the facilities are actively being marketed for sale. Independent third parties have valued the facilities in excess of $16.0 million and, based upon such independent opinion of values, management believes it has allocated an appropriate amount of the allowance for loan losses to this credit.

Allowance for Loan Losses

The Company’s formalized process for assessing the adequacy of the allowance for loan losses, and the resultant need, if any, for periodic provisions to the allowance charged to income, entails both individual loan analyses and loan pool analyses. The individual loan analyses are periodically performed on individually significant loans or otherwise as management deems necessary. Such analyses primarily involve multi-family, commercial real estate and construction and development loans. The result of these individual analyses is the allocation of the overall allowance for loan losses to specific allowances for individual loans, including both loans considered impaired and non-impaired.

The loan pool analyses are performed on the portfolio, excluding those analyzed on an individual basis, and consist primarily of one- to-four family residential and consumer loans. The pools consist of aggregations of homogeneous loans having similar credit risk characteristics. Examples of pools defined by the Company for this purpose are Company-originated, fixed-rate residential loans; Company-originated, adjustable-rate residential loans; purchased residential loans; outside-serviced residential loans; residential second mortgage loans; participation in conventional first mortgages; residential construction and development loans; commercial real estate loans; commercial construction loans, multi-family loans, etc. For each such defined pool, there is a set of sub-pools based upon delinquency status:

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current, 30-59 days, 60-89 days, 90-119 days and 120+ days (the latter three sub-pools are considered to be “classified” by the Company). For each sub-pool, the Company has developed a range of allowance necessary to adequately provide for probable losses inherent in each sub-pool. These ranges are based upon a number of factors, including the risk characteristics of the sub-pool, actual loss and migration experience, expected loss and migration experience considering current economic conditions, industry norms, and the relative seasoning of the sub-pool. The ranges of allowance developed by the Company are applied to the outstanding principal balance of the loans in each sub-pool; as a result, further specific and general allocations of the overall allowance are made (the allocations for the classified sub-pools are considered specific and the allocations for the non-classified sub-pools are considered general).

The Company’s allowance for loan losses also takes into consideration known and expected trends that are likely to affect the creditworthiness of the loan portfolio as a whole, national and local economic conditions, unemployment conditions in the local lending area and the timeliness of court foreclosure proceedings in the Company’s local and other lending areas.

As of December 31, 2002 the Bank’s allowance for loan losses was $43.4 million, or 1.38% of loans and 103.72% of total non-performing loans, as compared to $40.6 million, or 1.10% of total loans and 89.29% of total non-performing loans, as of December 31, 2001. A significant factor supporting management’s decision to increase the allowance for loan losses in 2002 was the migration of the loan portfolio toward higher risk commercial real estate, construction and multi-family loans. The Bank had total non-performing loans of $41.9 million and $45.5 million at December 31, 2002 and 2001, respectively, and non-performing loans to total loans ratio of 1.33% and 1.23%, respectively. The Bank will continue to monitor and modify its allowance for loan losses as conditions dictate. Management believes that, based on information currently available, the Bank’s allowance for loan losses is sufficient to cover losses inherent in its loan portfolio. No assurance can be given that the Bank’s level of allowance for loan losses will be sufficient to cover future loan losses incurred by it or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance for loan losses. Management may in the future change its level of loan loss allowance as a percentage of total loans and non-performing loans based on, among other things, increases in the level of multi-family, commercial real estate, construction and development or other lending as a percentage of its total loan portfolio. In addition, the FDIC and NYSBD periodically review the Bank’s allowance for loan losses as part of their examination processes. Such agencies, from time to time, may require the Bank to make changes to provisions for loan losses based upon judgments that may differ from those of management.

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The following table sets forth activity in the Bank’s allowance for loan losses for the periods indicated:

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The following tables set forth the Bank’s percent of allowance for loan losses to total allowance and the percent of loans to total loans (including loans held-for-sale) in each of the categories listed at the dates indicated: