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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the Fiscal Year Ended June 30, 2002

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transaction period from

 to

Commission file Number 0-27782

Dime Community Bancshares, Inc.

(Exact Name of registrant as specified in its charter)

Registrant's telephone number, including area code: (718) 782-6200

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

Preferred Stock Purchase Rights

(Title of Class)

Indicate by check mark whether the Company (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 twelve months (or for such shorter period that the Registrant was required to file reports) and (2) has been subject to such requirements for the past 90 days.

YES

 X  

NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.   [X]

As of September 18, 2002, there were 25,806,254 shares of the Company's common stock, $0.01 par value, outstanding.  The aggregate market value of the voting stock held by non-affiliates of the Company as of September 18, 2002 was approximately $441,593,500.  This figure is based upon the closing price on the NASDAQ National Market for a share of the Company's common stock on September 18, 2002, which was $21.14 as reported in the Wall Street Journal on September 19, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

(1) The definitive Proxy Statement dated October 7, 2002 to be distributed on behalf of the Board of Directors of Registrant in connection with the Annual Meeting of Shareholders to be held on November 14, 2002 and any adjournment thereof and which is expected to be filed with the Securities and Exchange Commission on or about October 8, 2002, is incorporated by reference in Part III.

TABLE OF CONTENTS

Page

PART I

Item 1.  Business

      General

3

      Acquisitions

3

      Market Area, Competition and Factors That May Affect Future Results

4

      Lending Activities

5

      Asset Quality

11

      Allowance for Loan Losses

14

      Investment Activities

16

      Sources of Funds

20

      Subsidiary Activities

23

      Personnel

23

      Federal, State and Local Taxation

                 Federal Taxation

24

                 State and Local Taxation

24

      Regulation

                 General

25

                 Regulation of Federal Savings Associations

25

                 Regulation of Holding Company

33

                 Federal Securities Laws

33

Item 2. Properties

34

Item 3. Legal Proceedings

34

Item 4. Submission of Matters to a Vote of Security Holders

34

PART II

Item 5. Market for the Company's Common Stock and Related Stockholder

                 Matters

34

Item 6. Selected Financial Data

36

Item 7. Management Discussion and Analysis of Financial Condition and

                 Results of Operations

38

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

50

Item 8.    Financial Statements and Supplementary Data

54

Item 9.    Changes in and Disagreements with Accountants on Accounting and

                 Financial Disclosure

54

PART III

Item 10. Directors and Executive Officers of the Company

54

Item 11. Executive Compensation

54

Item 12. Security Ownership of Certain Beneficial Owners and

                  Management

54

Item 13. Certain Relationships and Related Transactions

55

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on

                 Form 8-K

55

Signatures

56

Certification of Chief Executive Officer

57

Certification of Chief Financial Officer

57

Certain statements contained in this Annual Report on Form 10-K may be forward-looking within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These statements may be identified by the use of words such as "anticipate," believe," "could," "estimate," "expect," "intend," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would," and similar terms and phrases, including references to assumptions.  Forward looking information is inherently subject to various factors which could cause actual results to differ materially from these estimates.  These factors include:  changes in general, economic and mark et conditions; changes in interest rates, deposit flows, loan demand, real estate values and competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services.  The Company has no obligation to update these forward looking statements.

PART I

Item 1.

Business

General

Dime Community Bancshares, Inc. (the "Holding Company," and together with its direct and indirect subsidiaries, the "Company") is a Delaware corporation and parent company of The Dime Savings Bank of Williamsburgh (the "Bank"), a federally-chartered stock savings bank.  

The Holding Company is a unitary savings and loan holding company, which, under existing law, is generally not restricted as to the types of business activities in which it may engage, provided that the Bank continues to be a qualified thrift lender ("QTL").  The Holding Company's primary business is the operation of its wholly-owned subsidiary, the Bank. Under regulations of the Office of Thrift Supervision ("OTS"), the Bank is a QTL if its ratio of qualified thrift investments to portfolio assets ("QTL Ratio") is 65% or more, on a monthly average basis, in nine of the previous twelve months.  At June 30, 2002, the Bank's QTL Ratio was 84.8%, and the Bank has maintained more than 65% of its portfolio assets in qualified thrift investments in each of the twelve months ended June 30, 2002.

The Holding Company neither owns nor leases any property but instead uses the premises and equipment of the Bank.  At the present time, the Holding Company does not employ any persons other than certain officers of the Bank who do not receive any extra compensation as officers of the Holding Company.  The Holding Company utilizes the support staff of the Bank from time to time, as required.  Additional employees may be hired as deemed appropriate by the Holding Company's management.

The Bank's principal business has been, and continues to be, gathering deposits from customers within its market area, and investing those deposits primarily in multi-family residential mortgage loans, commercial real estate loans, one- to four-family residential mortgage loans, consumer loans, mortgage-backed securities, and obligations of the U.S. Government and Government Sponsored Entities ("GSEs"). The Bank's revenues are derived principally from interest on its loan and securities portfolios. The Bank's primary sources of funds are: deposits; loan amortization, prepayments and maturities; amortization, prepayments and maturities of mortgage-backed and investment securities; Federal Home Loan Bank of New York ("FHLBNY") borrowings; and, to a lesser extent, the sale of fixed-rate mortgage loans to the secondary market.  

Acquisitions

On January 21, 1999, the Holding Company completed the acquisition of Financial Bancorp, Inc., the holding company of Financial Federal Savings Bank, F.S.B (the "FIBC Acquisition").  The consolidated operating results for the fiscal year ended June 30, 1999 reflected the addition of earnings from the FIBC Acquisition for the period January 21, 1999 through June 30, 1999.  The FIBC Acquisition was accounted for as a purchase transaction, generating $44.2 million of goodwill.   

On June 26, 1996, the Holding Company completed the acquisition of Conestoga Bancorp, Inc. ("Conestoga"), resulting in the merger of Conestoga's wholly-owned subsidiary, Pioneer Savings Bank, F.S.B. with and into the Bank, with the Bank as the resulting financial institution (the "Conestoga Acquisition"). Shareholders of Conestoga were paid approximately $101.3 million in cash, and the Conestoga Acquisition was accounted for as a purchase transaction, resulting in goodwill of $28.4 million.  

There are currently no other arrangements, understandings or agreements regarding any such additional acquisitions or expansion.

Market Area, Competition and Factors That May Affect Future Results

The Bank has been, and intends to remain, a community-oriented financial institution providing financial services and loans for housing within its market areas. The Bank maintains its headquarters in the Williamsburg section of the borough of Brooklyn, New York, and operates twenty full-service retail banking offices located in the New York City boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County, New York.  The Bank gathers deposits primarily from the communities and neighborhoods in close proximity to its branches.  The Bank's primary lending area is the New York City metropolitan area, although its overall lending area is much larger, and extends approximately 150 miles in each direction from its corporate headquarters in Brooklyn.  The majority of the Bank's mortgage loans are secured by properties located in its primary lending area, and approximately 75% of these loans are secured by real estate properties located in the New York City boroughs of Brooklyn, Queens and Manhattan.

The New York City banking environment is extremely competitive.  The Bank's competition for loans exists principally from savings banks, commercial banks, mortgage banks and insurance companies. The Bank has faced sustained competition for the origination of multi-family residential and commercial real estate loans, which together comprised 91.4% of the Bank's loan portfolio at June 30, 2002.  Management anticipates that the current level of competition for multi-family residential and commercial real estate loans will continue for the foreseeable future, and this competition may inhibit the Bank's ability to maintain its current level of such loans.

The Bank gathers deposits in direct competition with commercial banks, savings banks, brokerage firms, and mutual funds, many among the largest in the nation.  In addition, it must also compete for deposit monies against the stock markets and mutual funds, especially during periods of strong performance in the U.S. equity markets.  However, the Bank's principal competition for deposit funds comes from local savings banks and commercial banks with branches located in its delineated trade area.  Over the previous decade, consolidation in the financial services industry, coupled with the emergence of Internet banking, has dramatically altered the deposit gathering landscape.  The number of banks and thrifts and the number of branches serving the New York City metropolitan market, has declined even as total banking deposits have increased.  Facing increasingly efficient and larger competitors, the Bank’s strategy to attract depositors and originate loans has been, and continues to be, the utilization of targeted marketing and delivery of technology-enhanced, customer-friendly banking services while controlling operating expenses.

All of this competition occurs within an economic and financial framework that is largely beyond the control of financial institutions.  The interest rates paid to depositors and charged to borrowers, while affected by marketplace competition, are generally a function of broader-based macro-economic and financial factors, including the level of U.S. Gross Domestic Product, the supply of, and demand for, loanable funds, and the impact of global trade and international financial markets.  Within this environment, the Federal Open Market Committee's monetary policy and governance of short-term rates also significantly influence the interest rates paid and charged by financial institutions.

The Bank's success is additionally impacted by the overall condition of the economy, especially the local economy.  As home to many national companies in the financial and business services, and as a popular destination for domestic travelers, the New York City economy is particularly sensitive to the economic health of the U.S.  Success in banking is more easily achieved when local income levels increase due to economic strength.  The Bank has shown that even in periods of economic weakness and intense competition it can succeed by effectively implementing its business strategies.  However, if economic conditions in the New York City metropolitan area deteriorate, or the market for multi-family residential and commercial real estate declines, it may experience greater delinquencies or be unable to originate the volume of loans or achi eve the level of deposits that it otherwise anticipates.

Lending Activities

Loan Portfolio Composition.   The Bank's loan portfolio consists primarily of mortgage loans secured by multi-family residential apartment buildings, including buildings organized under cooperative form of ownership ("Underlying Cooperatives"), mortgage loans secured by commercial properties and conventional first mortgage loans secured primarily by one- to four-family residences, including condominiums and cooperative apartments.  At June 30, 2002, the Bank's loan portfolio totaled $2.1 billion. Within the loan portfolio, $1.69 billion, or 79.9%, were multi-family residential loans, $243.7 million, or 11.5%, were loans to finance commercial real estate properties, $172.8 million, or 8.2%, were loans to finance one- to four-family properties and cooperative apartments, and $5.6 million, or 0.3%, were loans to finance mult i-family residential and one- to four-family residential properties with full or partial credit guarantees provided by either the Federal Housing Administration (''FHA'') or the Veterans Administration (''VA''). Of the total mortgage loan portfolio outstanding at that date, $1.52 billion, or 71.6%, were adjustable-rate loans (''ARMs'') and $600.2 million, or 28.4%, were fixed-rate loans.  Of the Bank’s multi-family residential and commercial real estate loans, $1.45 billion, or 75.1%, were ARMs at June 30, 2002, the majority of which reprice no longer than 7 years from their origination date and carry a total amortization period of no longer than 30 years.  At June 30, 2002, the Bank's loan portfolio additionally included $3.7 million in consumer loans, composed of passbook loans, student loans, consumer installment loans, overdraft loans and mortgagor advances.  

The types of loans the Bank may originate are subject to federal laws and regulations  (See "Market Area, Competition and Factors That May Affect Future Results" for a discussion of lending competition faced by the Bank).

The following table sets forth the composition of the Bank's real estate and other loan portfolios (including loans held for sale) in dollar amounts and percentages at the dates indicated:

(1)

Includes acquisition of $192.3 million in loans as a result of the FIBC Acquisition on January 21, 1999, which were composed primarily of one- to four-family loans.

Loan Originations, Purchases, Sales and Servicing.  The Bank originates both ARMs and fixed-rate loans, which activity is dependent upon customer demand and market rates of interest, and generally does not purchase whole mortgage loans or loan participations.  For the fiscal year ended June 30, 2002, total loan originations were $555.9 million.  Originations of ARMs totaled $441.8 million, or 79.5%, of all loan originations, and originations of fixed-rate loans totaled $114.1 million, or 20.5% of all loan originations.  The majority of both ARM and fixed-rate originations were composed of multi-family residential and commercial real estate loans.  Multi-family residential and commercial real estate loans are retained for the Bank’s portfolio, along with one- to four-family adjustable rate and fixed-rate mortgage loan s with maturities up to 15 years.  Generally, the Bank sells its newly originated one- to four-family fixed-rate mortgage loans with maturities greater than fifteen years in the secondary market to the Federal National Mortgage Association (''FNMA''), the Federal Home Loan Mortgage Corporation (''FHLMC'') or the State of New York Mortgage Agency (''SONYMA'').  During the fiscal year ended June 30, 2002, sales of fixed-rate one- to four-family mortgage and student loans totaled $4.3 million. The Bank generally sells loans without recourse and retains the servicing rights. As of June 30, 2002, the Bank was servicing $35.8 million of loans for non-related institutions. The Bank generally receives a loan servicing fee equal to 0.25% of the outstanding principal balance for servicing loans sold.  At June 30, 2002, the Bank had recorded mortgage servicing rights of $130,000.

The following table sets forth the Bank's loan originations, loan sales and principal repayments for the periods indicated:

(1)

Includes Home Equity and Home Improvement Loans.

(2)

Includes fixed-rate one- to four-family mortgage loans and student loans.

Loan Maturity and Repricing.   The following table shows the earlier of the maturity or the repricing period of the Bank's loan portfolio at June 30, 2002.  ARMs are shown as being due in the period during which the interest rates are next scheduled to change. The table does not include prepayments or scheduled principal amortization. Prepayments and scheduled principal amortization on the Bank's loan portfolio totaled $392.5 million for the year ended June 30, 2002.

- # -

The following table sets forth the outstanding principal balances in each loan category at June 30, 2002 that are due to mature or reprice after June 30, 2003, and whether such loans have fixed or adjustable interest rates:

Multi-family Residential Lending and Commercial Real Estate Lending.   The Bank originates adjustable-rate and fixed-rate multi-family residential (five or more residential units) and commercial real estate loans.  The real estate properties underlying these loans are generally located in the Bank's primary lending area. At June 30, 2002, the Bank had multi-family residential loans totaling $1.69 billion in its portfolio comprising 79.9% of the gross loan portfolio.  Of the Bank’s multi-family residential loans, $1.46 billion, or 86.1%, were secured by apartment buildings and $235.8 million, or 13.9%, were secured by Underlying Cooperatives at June 30, 2002.  The Bank also had $243.7 million of commercial real estate loans in its portfolio at June 30, 2002, representing 11.5% of its total loan portfolio.

Multi-family residential and commercial real estate loans originated by the Bank were secured by three distinct property types: 1) fully residential apartment buildings; 2) "mixed-use" properties that feature a combination of residential units and commercial units within the same building; and 3) fully commercial real estate buildings.  The underwriting procedures for each of these property types are substantially similar.  Loans secured by fully residential apartment buildings are classified by the Bank as multi-family residential loans in all instances.  Loans secured by fully commercial real estate buildings are similarly classified as commercial real estate loans in all instances.  Loans secured by mixed-use properties may be classified as either multi-family residential loans or commercial real estate loans.  The classification of loans secured by mixed-use properties is determined based upon the percentage of the property's rental income that is received from its residential tenants compared to the percentage of the property's rental income that is received from its commercial tenants.  If more than 50% of the rental income earned on a mixed-use property is received from residential tenants, the full balance of the loan is classified as a multi-family residential loan.  Conversely, if less than 50% of the rental income earned on a mixed-use property is received from residential tenants, the full balance of the loan is classified as a commercial real estate loan.  In the infrequent event that the rental income earned on a mixed-use property is divided evenly between residential and commercial tenants (50% each), the whole loan balance may be classified as either a multi-family residential or commercial real estate loan.  Under the Bank's policy, management is authorized to utilize a second criter ion in order to determine the classification of the loan, typically a comparison of the physical space within the property allocated to residential tenants and commercial tenants.

The Bank originated multi-family residential and commercial real estate loans totaling $504.8 million during the fiscal year ended June 30, 2002, versus $355.8 million during the year ended June 30, 2001.  

Multi-family residential loans are generally viewed as exposing the Bank to a greater risk of loss than one- to four-family residential loans and typically involve higher loan principal amounts.  Multi-family residential and commercial real estate loans in the Bank's portfolio generally range in amount from $250,000 to $4.0 million, and have an average loan size of approximately $1.0 million.  Loans in this range are generally secured by buildings that possess between 5 and 100 apartments. The Bank had a total of $1.56 billion of multi-family residential loans in its portfolio on buildings with under 100 units as of June 30, 2002.  Principally as a result of rent control and rent stabilization laws that limit the amount of rent that may be charged to tenants, the associated rent rolls for buildings of this type indicate a rent range that would be considered affordable for low- to moderate-income households.

At June 30, 2002, the Bank had 197 multi-family residential and commercial real estate loans with principal balances greater than $2.0 million, totaling $659.0 million.  These loans, while underwritten to the same standards as all other multi-family residential and commercial real estate loans, tend to expose the Bank to a higher degree of risk due to the potential impact of losses from any one loan relative to the size of the Bank's capital position.  

The typical adjustable-rate multi-family residential and commercial real estate loan carries a maturity of 10 or 12 years, and an amortization period not exceeding 30 years. These loans generally have an interest rate that adjusts once after the fifth or seventh year indexed to the 5-year FHLBNY advance rate, but may not adjust below the initial interest rate of the loan. Prepayment fees are assessed throughout the life of the loans.  The Bank also offers fixed-rate, self-amortizing, multi-family residential and commercial real estate loans with maturities of up to fifteen years.

The underwriting standards for new multi-family residential loans generally require (1) a maximum loan-to-value ratio of 75% based upon an appraisal performed by an independent, state licensed appraiser and (2) sufficient cash flow from the underlying property to adequately service the debt, represented by a minimum debt service ratio of 120%.  In certain cases, the Bank may additionally require environmental hazard reports on multi-family residential properties.  As part of the underwriting process for multi-family residential and commercial real estate loans, the Bank considers the borrower's experience in owning or managing similar properties, the market value of the property and the Bank's lending experience with the borrower.  The Bank utilizes, where appropriate, rent or lease income, the borrower's credit history and business exper ience, and comparable appraisal values when underwriting commercial real estate applications.  

It is the Bank's policy to require appropriate insurance protection, including title and hazard insurance, on all real estate mortgage loans prior to closing.  Borrowers generally are required to advance funds for certain expenses such as real estate taxes, hazard insurance, flood insurance and private mortgage insurance when applicable.

Repayment of multi-family residential loans is dependent, in large part, on cash flow from the collateral property sufficient to satisfy operating expenses and debt service. Economic events and government regulations, such as rent control and rent stabilization laws, which are outside the control of the borrower or the Bank, could impair the future cash flow of such properties. As a result, rental income might not rise sufficiently over time to satisfy increases in the loan rate at repricing, or increases in overhead expenses (e.g., utilities, taxes).

During the last five fiscal years, the Bank's charge-offs related to its multi-family residential loan portfolio totaled $260,000. As of June 30, 2002, the Bank had $878,000 of non-performing multi-family residential loans. (See "Asset Quality" and "Allowance for Loan Losses."  See "Lending Activities - Loan Approval Authority and Underwriting" for discussions of the Bank's underwriting procedures utilized in originating multi-family residential loans).

The Bank's three largest multi-family residential loans at June 30, 2002 were a $12.6 million loan originated in April 2001 secured by a 400 unit cooperative apartment complex located in Glen Oaks, New York; an $8.5 million loan originated in May 1997 secured by an 18-story building containing 265 apartments and 11 stores located in Manhattan, New York; and an $8.0 million loan originated in June 1997 secured by seven Underlying Cooperatives containing 604 apartments and 24 commercial spaces located in Manhattan, New York.

Commercial real estate loans are also generally viewed as exposing the Bank to a greater risk of loss than one- to four-family residential mortgage loans.  Because payment of loans secured by commercial real estate often is dependent upon successful operation and management of the collateral properties, repayment of such loans may be subject, to a greater extent, to adverse conditions in the real estate market or the economy.  The Bank seeks to minimize these risks by limiting the number of such loans, lending only to established customers and borrowers otherwise known or recommended, generally restricting such loans to the New York metropolitan area, and obtaining personal guarantees, if possible.  The Bank utilizes, where appropriate, rent or lease income, the borrower's credit history and business experience, and comparable appraisal v alues when underwriting commercial real estate applications.  The underwriting standards for new commercial real estate loans generally do not exceed a 65% loan-to-value ratio and sufficient cash flow from the underlying property to adequately service the debt, represented by a minimum debt service ratio of 120%.  To originate commercial real estate loans, the Bank requires a security interest in personal property and standby assignments of rents and leases.   The maximum dollar amount of any individual commercial real estate loan conforms to the Bank's general policies on lending limits.

During the last five fiscal years, the Bank's charge-offs related to its commercial real estate loan portfolio totaled $6,000. As of June 30, 2002, the Bank had no non-performing commercial real estate loans (See "Asset Quality" and "Allowance for Loan Losses."  See "Lending Activities - Loan Approval Authority and Underwriting" for a discussion of the Bank's underwriting procedures utilized in originating commercial real estate loans).

The Bank's three largest commercial real estate loans at June 30, 2002 were an $11.4 million loan that was originated in December 2001 and secured by a building in Manhattan, New York, containing 10 commercial stores and 34 loft apartments; a $6.9 million loan originated in May 2000 and secured by a 17-story loft building in Manhattan, New York containing 63 commercial tenants; and a $6.8 million loan originated in May 1999 and secured by three commercial buildings containing 15 commercial tenants and 19 offices located in Manhattan, New York.

At June 30, 2002, the Bank had $57.2 million of commitments accepted by borrowers to originate multi-family residential and commercial real estate loans, compared to $64.2 million outstanding at June 30, 2001.  

One- to Four-Family Mortgage and Cooperative Apartment Lending.   The Bank offers residential first and second mortgage loans secured primarily by owner-occupied, one- to four-family residences, including condominiums and cooperative apartments.  The majority of one- to four-family loans in the Bank's loan portfolio were obtained through the Conestoga Acquisition and the FIBC Acquisition.  New one- to four-family loans are made primarily to existing customers.  The Bank originated $19.8 million of one- to four-family mortgages during the year ended June 30, 2002, the majority of which were home equity and home improvement loans.  At June 30, 2002, $172.8 million, or 8.2%, of the Bank's loans consisted of one- to four-family mortgage loans.  The Bank is a participating seller/servicer with several government-spon sored mortgage agencies: FNMA, FHLMC, and SONYMA, and generally underwrites its one- to four-family residential mortgage loans to conform with standards required by these agencies.  

Although the collateral for cooperative apartment loans is composed of shares in a cooperative corporation (i.e., a corporation whose primary asset is the underlying real estate), cooperative apartment loans are treated as one- to four-family loans.  The Bank's portfolio of cooperative apartment loans was $17.8 million, or 0.8% of total loans, as of June 30, 2002.  Adjustable-rate cooperative apartment loans continue to be originated for portfolio.  

For all one- to four-family loans originated by the Bank, upon receipt of a completed loan application from a prospective borrower, a credit report is reviewed, income, assets and certain other information are verified by an independent credit agency, and if necessary, additional financial information is required to be submitted by the borrower. An appraisal of the real estate intended to secure the proposed loan is required, which currently is performed by an independent appraiser designated and approved by the Board of Directors.

During the last five fiscal years, the Bank's charge-offs related to its one- to four-family loan portfolio totaled $1.1 million.  As of June 30, 2002, the Bank had non-performing one- to four-family loans totaling $1.1 million  (See "Asset Quality" and "Allowance for Loan Losses").

The Bank generally sells its newly originated conforming fixed-rate one- to four-family mortgage loans in the secondary market to FNMA, FHLMC and SONYMA, and its non-conforming fixed-rate one- to four-family mortgage loans to various private sector secondary market purchasers. With few exceptions, such as SONYMA, the Bank retains the servicing rights on all such loans sold. For the year ended June 30, 2002, the Bank sold one- to four-family mortgage loans totaling $3.7 million to non-affiliates.  As of June 30, 2002, the Bank's portfolio of one- to four-family fixed-rate mortgage loans serviced for others totaled $35.8 million.

Home Equity and Home Improvement Loans.  Home equity loans and home improvement loans, the majority of which are included in one- to four-family loans, currently are originated to a maximum of $250,000. The combined balance of the first mortgage loan and the home equity or home improvement lien may not exceed 89% of the appraised value of the collateral property at origination.  On home equity and home improvement loans, the borrower pays an initial interest rate that may be as low as 200 basis points below the prime rate of interest in effect at origination.  After six months, the interest rate adjusts and ranges from the prime interest rate in effect at the time to 100 basis points above the prime interest rate in effect at the time.  The combined outstanding balance of the Bank's home equity and home improvement loans was $ 13.8 million at June 30, 2002.

Equity credit is also available on multi-family residential and commercial real estate loans.  These loans are underwritten in the same manner as first mortgage loans on these properties, except that the combined loan-to-value ratio of the first mortgage and the equity line generally cannot exceed 75%.  On equity loans, the borrower pays an interest rate ranging from 100 to 200 basis points above the prime rate of interest in effect at the time of origination.  The outstanding balance of these equity loans was less than $3.0 million at June 30, 2002.

Loan Approval Authority and Underwriting.   The Board of Directors establishes lending authorities for individual officers as to its various types of loan products.  In addition, the Bank maintains a Loan Operating Committee that has collective loan approval authority.  The Loan Operating Committee is composed of, at a minimum, the Chief Executive Officer, the President, the Chief Financial Officer, and a credit officer overseeing the underwriting function for the respective type of loan being originated.  The Loan Operating Committee has the authority to approve loan originations in amounts up to $3.0 million.  Both the Loan Operating Committee and the Board of Directors must approve all loan originations exceeding $3.0 million.  All loans approved by the Loan Operating Committee are presented to the Board of D irectors for its review.  In addition, regulatory restrictions imposed on the Bank's lending activities limit the amount of credit that can be extended to any one borrower to 15% of total capital (See  ''Regulation - Regulation of Federal Savings Associations - Loans to One Borrower.'')

Asset Quality

Non-performing loans (i.e., delinquent loans for which interest accruals have ceased in accordance with the Bank's policy - typically loans over 90 days past due) totaled $2.1 million at June 30, 2002, compared to $3.1 million at June 30, 2001.  The decline reflects the removal from non-performing status of 13 loans totaling $1.9 million during the fiscal year ended June 30, 2002 due to remedies or full satisfaction by the respective borrowers, and the addition to non-performing status of 7 new loans totaling $1.3 million.  The remaining decline resulted from a total reduction of $346,000 of non-performing one- to four-family loans serviced by third-party institutions and non-performing consumer loans.  

The Bank had 38 loans totaling $271,000 delinquent 60-89 days at June 30, 2002, as compared to 34 such delinquent loans totaling $1.6 million at June 30, 2001.  The decline in this delinquency level resulted from net reductions of 6 loans and $1.4 million of real estate loans delinquent 60-89 days during the year ended June 30, 2002.  The 60-89 day delinquency levels fluctuate monthly, and are generally a less accurate indicator of credit quality trends than non-performing loans.  

The majority of the count of both non-performing loans and loans delinquent 60-89 days was composed of consumer loans (composed primarily of depositor loans and student loans) and FHA/VA guaranteed mortgages, which possess small individual balances.  

Under accounting principles generally accepted in the United States of America ("GAAP"), the Bank is required to account for certain loan modifications or restructurings as ''troubled-debt restructurings.'' In general, the modification or restructuring of a loan constitutes a troubled-debt restructuring if the Bank, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.  Current regulations of the OTS require that troubled-debt restructurings remain classified as such until either the loan is repaid or returns to its original terms.  The Bank had no loans classified as troubled-debt restructurings at June 30, 2002, compared to one such loan of $2.9 million at June 30, 2001.  During the year ended June 30, 2002, the one troubled-debt restructuring of $2.9 million was paid in full and no new loans were added to troubled-debt restructurings.  

Statement of Financial Accounting Standards ("SFAS") No. 114 provides guidelines for determining and measuring impairment in loans. For each loan that the Bank determines to be impaired, impairment is measured by the amount that the carrying balance of the loan, including all accrued interest, exceeds the estimate of its fair value.  A specific reserve is established on all impaired loans to the extent of impairment and comprises a portion of the allowance for loan losses.  Generally, the Bank considers non-performing multi-family residential and commercial real estate loans, along with non-performing one- to four-family loans exceeding $300,000, to be impaired. The recorded investment in loans deemed impaired was approximately $878,000 as of June 30, 2002, consisting of 2 loans, compared with $4.1 million at June 30, 2001, consisting of four loans.  The average total balance of impaired loans was $3.2 million during the year ended June 30, 2002 compared to $3.7 million during the year ended June 30, 2001.  The decrease in both the current and average balance of impaired loans resulted primarily from the repayment in June 2002 of the impaired $2.9 million troubled-debt restructured loan as of June 30, 2001.  The average balance of impaired loans was $1.5 million during the year ended June 30, 2000.  At June 30, 2002 and 2001, respectively, reserves totaling $88,000 and $775,000 were allocated within the allowance for loan losses for impaired loans.  The decline resulted from the removal of the allocated reserve related to the $2.9 million troubled-debt restructuring that was satisfied during the year ended June 30, 2002.  At June 30, 2002, non-performing loans exceeded impaired loans by $1.2 million, due to $1.2 million of one- to four-family and consumer loans, which, while on non-performing status, were not deemed impaired.  This $1.2 million in one- to four-family and consumer loans were not deemed impaired since they had individual outstanding balances less than $300,000, and were considered homogeneous loan pools that were not required to be evaluated for impairment.

The following table sets forth information regarding non-performing loans, non-performing assets, impaired loans and troubled-debt restructurings at the dates indicated:

Monitoring of Delinquent Loans.  Management of the Bank reviews delinquent loans on a periodic basis and reports monthly to its Board of Directors regarding the status of all delinquent and non-performing loans in the Bank's portfolio.  

The Bank's loan servicing policies and procedures require that it initiate contact with a delinquent borrower as soon as possible after a payment is ten days late in the case of a multi-family residential or commercial real estate loan, or fifteen days late in the event of a one- to four-family or consumer loan.  The policy calls for an automated late notice to be sent as the initial form of contact regarding the delinquency. If payment has not been received within 30 days of the due date, a second letter is sent to the borrower.  Thereafter, periodic letters are mailed and phone calls are placed to the borrower until payment is received.  When contact is made with the borrower at any time prior to foreclosure, the Bank will attempt to obtain the full payment due or negotiate a repayment schedule with the borrower to avoid foreclosure.

Generally, the Bank initiates foreclosure proceedings when a loan is 90 days past due. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the property securing the loan is generally either sold at foreclosure or as soon thereafter as practicable.  The Bank retains outside counsel experienced in foreclosure and bankruptcy procedures to institute foreclosure and other actions on non-performing loans.  As soon as practicable after initiating foreclosure proceedings on a loan, the Bank hires an independent appraiser to prepare an estimate of the fair value of the underlying collateral. It is also the Bank's general policy to dispose of properties acquired through foreclosure or deeds in lieu thereof as quickly and prudently as possible in consideration of market conditi ons, the physical condition of the property and any other mitigating conditions.

Other Real Estate Owned (“OREO”). Property acquired by the Bank as a result of a foreclosure on a mortgage loan or a deed in lieu of foreclosure is classified as OREO and is recorded at the lower of the recorded investment in the related loan or the fair value of the property at the date of acquisition, with any resulting write down charged to the allowance for loan losses. The Bank obtains an appraisal on an OREO property as soon as practicable after it takes possession of the real property. The Bank will generally reassess the value of OREO at least annually thereafter.  The balance of OREO was $114,000, consisting of 1 property, at June 30, 2002, compared to $370,000, consisting of 5 OREO properties, at June 30, 2001.  During the year ended June 30, 2002, five properties with an aggregate recorded balance of $370,000 were di sposed of and one new property with a balance of $114,000 was added to OREO.

Classified Assets.  Federal regulations and Bank policy require that loans and other assets possessing certain characteristics be classified 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 have a well-defined weakness or weaknesses and are characterized by the distinct possibility that the Bank will sustain ''some loss'' if 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 current 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 which do not expose the Bank to sufficient risk to warrant classification in one of the aforementioned categories but possess potential weaknesses that deserve management's attention are designated ''Special Mention.''

The Bank's Loan Loss Reserve Committee reviews all loans in the Bank's portfolio quarterly, with particular emphasis on problem loans, in order to determine whether any loans require reclassification in accordance with applicable regulatory guidelines.  The Loan Loss Reserve Committee reports recommendations to the Bank's Board of Directors on a quarterly basis. The Loan Loss Reserve Committee, subject to approval of the Bank's Board of Directors, establishes policies relating to the internal classification of loans and believes that its classification policies are consistent with regulatory policies. All non-performing loans and OREO are considered to be classified assets. In addition, the Bank maintains a "watch list," composed of loans that, while performing, are characterized by weaknesses requiring special attention from management a nd are considered to be potential problem loans. All loans on the watch list are considered to be classified assets or are otherwise categorized as "Special Mention."  As a result of its review of the loan portfolio, the Loan Loss Reserve Committee may decide to reclassify one or more of the loans on the watch list.  The watch list contained 27 loans totaling $4.1 million at June 30, 2002, compared to 32 loans totaling $5.5 million at June 30, 2001.

At June 30, 2002, the Bank had 21 loans totaling $3.6 million designated Special Mention, compared to 35 loans totaling $9.9 million at June 30, 2001.  During the fiscal year ended June 30, 2002, four multi-family residential loans totaling $2.7 million were classified Special Mention due to varying concerns including, but not limited to, irregular payment history or concerns over the maintenance of the property serving as the underlying collateral.

At June 30, 2002, the Bank had $3.6 million of assets classified Substandard, consisting of nineteen loans, one OREO property, and one investment security.  At June 30, 2001, the Bank had $7.1 million of assets classified Substandard, consisting of thirty-two loans and five OREO properties.  The investment security classified as Substandard at June 30, 2002 was subsequently sold by the Bank in August 2002 with an immaterial loss recognized on the sale.

At June 30, 2002 and June 30, 2001, the Bank had no assets classified as either Doubtful or Loss.  

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The following table sets forth at June 30, 2002 the Bank's aggregate carrying value of the assets classified as Substandard, Doubtful or Loss or designated as Special Mention:

Allowance for Loan Losses

The allowance for loan losses was determined in accordance with GAAP, under which the Bank is required to maintain an appropriate allowance for loan losses.  The Loan Loss Reserve Committee is charged with, among other functions, specific responsibility for monitoring the appropriateness of the loan loss reserve. The Loan Loss Reserve Committee's findings, along with recommendations for changes to loan loss reserve provisions, if any, are reported directly to senior management of the Bank and the Bank's Board of Directors.

The loan loss methodology consists of several key components, including a review of the two elements of the Bank's loan portfolio, classified loans (which include non-performing loans and impaired loans under SFAS 114, "Accounting by Creditors for Impairment of a Loan,") and performing loans.  At June 30, 2002, the majority of the allowance for loan losses was allocated to performing loans, which represented the overwhelming majority of the Bank's loan portfolio.

Performing loans are reviewed based upon the premise that there are losses inherent within the loan portfolio that have been incurred as of the balance sheet date, however,  have not been identified.  As a result, the Bank calculates an allowance for loan losses related to its performing loans by deriving an expected loan loss percentage based upon its historical loss experience and applying it to its performing loans.  In deriving the expected loan loss percentage, the Bank considers the following criteria: the Bank's historical loss experience; the age and payment history of the loans (commonly referred to as their "seasoned quality"); the type of loan (i.e., one- to four-family, multi-family residential, commercial real estate, cooperative apartment or consumer); the underwriting history of the loan (i.e., whether it was unde rwritten by the Bank or a predecessor institution acquired subsequently by the Bank and, therefore, originally subjected to different underwriting criteria); both the current condition of and recent history of the overall local real estate market (in order to determine the accuracy of utilizing recent historical charge-off data in order to derive the expected loan loss percentages); the level of and trend in non-performing loans; the level and composition of new loan activity; and the existence of geographic loan concentrations (as the overwhelming majority of the Bank's loans are secured by real estate properties located in the New York City metropolitan area) or specific industry conditions within the portfolio segments.  Since these criteria effect the expected loan loss percentages that are applied to performing loans, changes in any one or more of these criteria will effect the amount of the allowance and the provision for loan losses.  The Bank has applied the process of determining the allow ance for loan losses consistently throughout the fiscal years ended June 30, 2002 and 2001.

Classified loans, as defined above, are reviewed individually on a quarterly basis by the Loan Loss Reserve Committee to determine if specific reserves are appropriate.  Loans determined to be impaired, under the guidance established by SFAS 114 are evaluated in order to establish whether  the estimated value of the underlying collateral is sufficient to satisfy the existing debt.  Should the Loan Loss Reserve Committee determine that a shortfall exists between the estimated value of the underlying collateral and the outstanding balance due on the impaired loan, a specific reserve is established for the amount of the deficit.  The Bank will then increase its valuation allowance in an amount established by the Loan Loss Reserve Committee to appropriately reflect the anticipated loss from any other loss classification category.  T ypically, the Bank's policy is to charge-off immediately all balances classified ''Loss'' and all charge-offs are recorded as a reduction of the allowance for loan losses.  The Bank has applied this process consistently throughout the fiscal years ended June 30, 2002 and 2001.  

The Bank has maintained its allowance for loan losses at a level which management believes is appropriate to absorb losses inherent within the Bank's loan portfolio as of the balance sheet dates.  The allowance for loan losses remained relatively constant during the year ended June 30, 2002, approximating $15.4 million at June 30, 2002 and 2001.  During the fiscal year ended June 30, 2002, the Bank recorded a provision of $240,000 to the allowance for loan losses to provide for growth in its loan portfolio balances.  Offsetting this increase were net charge-offs of $329,000 recorded during the fiscal year ended June 30, 2002, virtually all of which related to the resolution of four classified loans.  Despite the increase in net charge-offs from the previous year, the overall credit quality of the Bank's loan portfolio remains favorab le, as evidenced by a continued low level of non-performing loans and OREO during the fiscal year ended June 30, 2002 and a continued low level of overall loan delinquencies.

Although management of the Bank believes that the Bank has maintained its allowance for loan losses at appropriate levels, subsequent additions may be necessary if economic or other conditions in the future differ from the current operating environment.  Although the Bank utilizes the most reliable information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses, its valuation of OREO, and the level of loans both in, and pending, foreclosure. Based on their judgments about information available to them at the time of their examination, the regulators may require the Bank to recognize adjustments to the allowance.< /P>

The following table sets forth activity in the Bank's allowance for loan losses at or for the dates indicated:

                                                                                                                             At or for the Year Ended June 30,

_______________________________________

(1)

Total loans represents gross loans, net of deferred loan fees and discounts.  

(2)

During the fiscal year ended June 30, 1999, the Bank acquired $192.3 million of loans as a result of  the FIBC Acquisition, which added  $84.4 million to the average balance of loans during the fiscal year ended June 30, 1999.

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The following table sets forth the Bank's allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated:

                                                                                                                                    At June 30,

(1)

Total loans represent gross loans less FHA and VA guaranteed loans.

Investment Activities

Investment Strategies of the Holding Company – The Holding Company's principal asset is its investment in the Bank's common stock, which amounted to $248.4 million at June 30, 2002.  The Holding Company's other investments at that date totaled $21.1 million.  The largest components of these investments were Government National Mortgage Association ("GNMA") adjustable rate mortgage-backed securities ("ARM MBS") totaling $12.1 million.  All of the other investments are intended primarily to provide future liquidity which may be utilized for general business activities, which may include, but are not limited to: (1) purchases of common stock into treasury; (2) repayment of interest on the Holding Company's $25.0 million subordinated note obligation; (3) subject to applicable limitations, the payment of dividen ds on the Holding Company's common stock; and/or (4) investments in the equity securities of other financial institutions and other investments not permissible by the Bank.  The Holding Company cannot assure that it will engage in any of these activities in the future.

The Holding Company's investment policy calls for investments in relatively short-term, liquid securities similar to the securities defined in the securities investment policy of the Bank.

Investment Policy of the Bank.   The securities investment policy of the Bank, which is established by its Board of Directors, is designed to help the Bank achieve its overall asset/liability management objectives.  Generally, the policy calls for management to emphasize principal preservation, liquidity, diversification, short maturities and/or repricing terms, and a favorable return on investment when selecting new investments for the Bank's portfolio. The Bank's current securities investment policy permits investments in various types of liquid assets, including obligations of the U.S. Treasury and federal agencies, investment grade corporate obligations, various types of mortgage-backed securities, commercial paper, certificates of deposit ("CDs") and overnight federal funds sold to financial institutions which are pe riodically approved by the Board of Directors.  

Investment strategies are implemented by the Asset and Liability Management Committee ("ALCO"), composed of the Chief Executive Officer, President and Chief Operating Officer, Executive Vice President and Chief Financial Officer, and other senior management officers.  The strategies take into account the overall composition of the Bank's balance sheet, including loans and deposits, and are intended to protect and enhance the Bank's earnings and market value.  The strategies are reviewed monthly by the ALCO and reported regularly to the Board of Directors.  

During the fiscal years ended June 30, 2002, 2001 and 2000, neither the Holding Company nor the Bank held any derivative instruments or any embedded derivative instruments that require bifurcation.  The Holding Company or the Bank may, with respective Board approval, engage in hedging transactions utilizing derivative instruments.

Mortgage-Backed Securities.  Mortgage-backed securities provide the portfolio with investments consisting of desirable repricing, cash flow and credit quality characteristics. Mortgage-backed securities yield less than the loans that underlie the securities because of the cost of payment guarantees and credit enhancements that reduce credit risk to the investor.  Although mortgage-backed securities guaranteed by federally sponsored agencies carry a reduced credit risk compared to whole loans, such securities remain subject to the risk that fluctuating interest rates, along with other factors such as the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and thus affect both the prepayment speed and value of such securities.  However, mortgage-backed securities are more liq uid than individual mortgage loans and may readily be used to collateralize borrowings.  In addition to its superior credit quality as a result of the agency guarantees, the mortgage-backed securities portfolio also provides the Holding Company and the Bank with important interest rate risk management features, as the majority of the portfolio is adjustable rate, and the entire portfolio provides monthly cash flows for re-investment at current market interest rates.

The Company's consolidated investment in mortgage-backed securities totaled $291.5 million, or 10.4% of total assets, at June 30, 2002, the majority of which was owned by the Bank.  Approximately 55.8% of the mortgage-backed securities portfolio was composed of securities guaranteed by GNMA, FHLMC or FNMA.  At June 30, 2002, the Bank had $213.6 million in Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs"), which comprised the largest component of its mortgage-backed securities portfolio.  All of these CMOs and REMICs were either U.S agency obligations or issued by highly reputable financial institutions.  In addition, all of the non-agency backed obligations were rated in the highest ratings category by at least one nationally recognized rating agency at the time of purchase.  Further, none of these securities had stripped principal and interest components and all occupied priority tranches within their respective issues.  As of June 30, 2002, the fair value of these securities was approximately $4.1 million above their cost basis.

The remaining mortgage-backed securities portfolio was composed of a $57.5 million investment in ARM MBS pass-through securities with a weighted average term to next rate adjustment of less than one year, a $17.9 million investment in seasoned fixed-rate GNMA, FNMA and FHLMC pass-through securities with an estimated remaining life of less than three years, and a $2.5 million investment in balloon mortgage-backed securities, which provide a return of principal and interest on a monthly basis, and have original maturities of between five and seven years, at which point the entire remaining principal balance is repaid (the ''Balloon Payment Securities").

GAAP requires investments in equity securities that have readily determinable fair values and all investments in debt securities to be classified in one of the following three categories and accounted for accordingly:  trading securities, securities available for sale or securities held to maturity.  Neither the Company nor the Bank had any securities classified as trading securities during the year ended June 30, 2002, nor do they intend to trade securities.  Unrealized gains and losses on available for sale securities are reported as a separate component of stockholders' equity referred to as accumulated other comprehensive income, net of deferred taxes.  At June 30, 2002, the Holding Company and the Bank had, on a combined basis, $426.8 million of securities classified as available for sale, which represented 1 5.2% of total assets at June 30, 2002. Given the size of the available for sale portfolio, future variations in market values of these securities could result in fluctuations in the Company's consolidated stockholders' equity.

The maturities on the Bank's fixed-rate mortgage-backed securities (Balloon Payment Securities, seasoned GNMAs, FNMAs and FHLMCs) are relatively short compared to the final maturities on its ARM MBS and CMO portfolios.  The Bank typically classifies purchased MBS and CMOs as available for sale, in recognition of the greater prepayment uncertainty associated with these securities, and carries these securities at fair market value.

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The following table sets forth activity in the mortgage-backed securities portfolio for the periods indicated:

                                                                                       For the Year Ended June 30,

The following table sets forth the amortized cost and fair value of investment and mortgage-backed securities at the dates indicated:

                                                                                                               At June 30,

(1)

The net unrealized gain (loss) at June 30, 2002, 2001 and 2000 relates to available for sale securities in accordance with SFAS 115 "Accounting for Investments in Debt and Equity Securities."  The net unrealized gain (loss) is presented in order to reconcile the ''Amortized Cost'' of the securities portfolio to the recorded value reflected in the Company's Consolidated Statements of Condition.

Corporate Debt Obligations.   Both the Holding Company and the Bank invest in the short-term investment-grade debt obligations of various corporations. Corporate debt obligations generally carry both a higher rate of return and a higher degree of credit risk than U.S. Treasury securities with comparable maturities. In addition, corporate securities are generally less liquid than comparable U.S. Treasury securities. In recognition of the additional risks associated with investing in these securities, the Bank's investment policy limits new investments in corporate obligations to those companies which are rated single ''A'' or better by one of the nationally recognized rating agencies, and limits investments in any one corporate entity to the lesser of 1% of total assets or 15% of the Bank's equity. At June 30, 2002, the Company's consoli dated portfolio of corporate debt obligations totaled $46.8 million, or 1.7% of total assets.  The majority of these investments are held by the Bank.

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The following table sets forth the amortized cost and fair value of investment and mortgage-backed securities, by accounting classification and type of security, at the dates indicated:

                                                                                                        At June 30,

(1)

Mortgage-backed securities include both pass-through securities and investments in CMOs and REMICs.

(2)

Includes corporate debt obligations.

(3)

The net unrealized gain (loss) at June 30, 2002, 2001 and 2000 relates to available for sale securities in accordance with SFAS No. 115. The net unrealized gain (loss) is presented in order to reconcile the ''Amortized Cost'' of the securities portfolio to the recorded value reflected in the Company's Consolidated Statements of Condition.

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The following table sets forth certain information regarding the amortized cost, fair value and weighted average yield of investment and mortgage-backed securities at June 30, 2002, by remaining period to contractual maturity. With respect to mortgage-backed securities, the entire amount is reflected in the maturity period that includes the final security payment date and, accordingly, no effect has been given to periodic repayments or possible prepayments.  The weighted average duration of mortgage-backed securities, when giving consideration to repayments or possible prepayments, is far less than their stated maturity, approximating 1.4 years as of June 30, 2002.  Other than obligations of federal agencies and GSEs, neither the Holding Company nor the Bank had a combined investment in securities issued by any one entity in excess of 10% of s tockholders' equity at June 30, 2002.

                                                                                                                      At June 30, 2002

Sources of Funds

General.   The Bank's primary sources of funding for its lending and investment activities include: deposits, repayments of loans and mortgage-backed securities, investment security maturities and redemptions, and short- to medium-term borrowings from the FHLBNY, which include both Advances and repurchase agreements treated as financings.  In addition, the Holding Company acquired $25.0 million of funding through the issuance of subordinated notes in April 2000, with a stated coupon of 9.25% and a maturity of May 1, 2010.  The Bank, to a lesser extent, also sells substantially all of its new long-term, fixed-rate residential mortgage product to either FNMA, FHLMC, or SONYMA.

Deposits.   The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank, at June 30, 2002, and presently, offers savings accounts, money market accounts, checking accounts, NOW and Super NOW accounts, and CDs. The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, and competition from other financial institutions and investment products. Traditionally, the Bank has relied upon direct marketing, customer service, convenience and long-standing relationships with customers to generate deposits.  The communities in which the Bank maintains branch offices have historically provided the Bank with nearly all of its deposits. At June 30, 2002, the Bank had deposit liabilities of $1.78 billion, up $351.6 million from June 30, 2001 (See &qu ot;Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources").  Within total deposits, $132.5 million, or 7.4%, consisted of CDs with balances of $100,000 or greater.  Individual Retirement Accounts  totaled $116.4 million, or 6.5% of total deposits.

In June 2000, the Bank's Board of Directors approved acceptance of brokered CDs up to an aggregate limit of $120.0 million.  As of June 30, 2002, the Bank had accepted brokered CDs totaling $2.0 million.  Brokered CDs are utilized by the Bank solely as a funding alternative to borrowings.

The following table presents the deposit activity of the Bank for the periods indicated:

                                                                                                                 For the Year Ended June 30,

At June 30, 2002 the Bank had $132.5 million in CDs over $100,000 maturing as follows:

The following table sets forth the distribution of the Bank's deposit accounts and the related weighted average interest rates at the dates indicated:

                                                                                                                                       At June 30,

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The following table presents, by interest rate ranges, the amount of CDs outstanding at the dates indicated and the period to maturity of the CDs outstanding at June 30, 2002:

                                                          Period to Maturity at June 30, 2002                                             Total at June 30,

Borrowings.   The Bank has been a member and shareholder of the FHLBNY since 1980. One of the privileges given to FHLBNY shareholders is the ability to secure Advances under various lending programs at competitive interest rates.  The Bank, as a member of the FHLBNY, is provided with a borrowing line that equaled $836.6 million at June 30, 2002.  

The Bank had Advances from the FHLBNY totaling $575.0 million and $542.5 million at June 30, 2002 and 2001, respectively. The average cost of FHLBNY Advances was 6.94% and 6.13%, respectively, during the years ended June 30, 2002 and 2001, and the weighted average interest rate on outstanding FHLBNY Advances was 5.07% and 5.98%, respectively, at June 30, 2002 and 2001.  At June 30, 2002, the Bank maintained sufficient collateral, as defined by the FHLBNY (principally in the form of real estate loans), to secure such Advances.  

Securities sold under agreement to repurchase ("REPOS") totaled $97.7 million at June 30, 2002.  Borrowings under the REPOS involve the delivery of securities to broker-dealers who finance the borrowing transactions. The securities remain registered in the name of the Bank, and are returned upon the maturities of the agreements. Funds to repay the Bank's REPOS at maturity will be provided primarily by cash received from the maturing securities.

Excluding combined prepayment expenses paid on FHLBNY Advances and REPOS totaling $6.2 million during the fiscal year ended June 30, 2002 and $766,000 during the fiscal year ended June 30, 2001, the average cost on FHLBNY borrowings was 5.90% during the fiscal year ended June 30, 2002 and 5.99% during the fiscal year ended June 30, 2001, and the average cost of REPOS was 4.34% during the fiscal year ended June 30, 2002 and 6.26% during the fiscal year ended June 30, 2001.  The prepayments on borrowings were made in order to take advantage of reductions in interest rates.  During the fiscal year ended June 30, 2002, the Bank prepaid a total of $254.0 million in FHLBNY Advances and REPOS.  The prepaid FHLBNY Advances and REPOS possessed a combined average interest rate of 5.43% and an average remaining term to maturity of approximately one year on the date of prepayment.  The majority of these prepaid FHLBNY Advances and REPOS were replaced with new FHLBNY Advances.  During the fiscal year ended June 30, 2002, the average rate on new FHLBNY Advances was 3.90%.  These FHLBNY Advances possessed an average remaining term to maturity of approximately 5 years at June 30, 2002.  The remainder of the prepaid FHLBNY Advances and REPOS were not replaced with borrowed funds as liquidity generated from deposit inflows and loan and MBS amortization replaced their need as a source of funding.  

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Presented below is information concerning REPOS and FHLBNY Advances for the years ended June 30, 2002, 2001, and 2000:

REPOS:

                                                                                                              At or For the Year Ended June 30,

FHLBNY Advances:

                                                                                                              At or For the Year Ended June 30,

(1) Including prepayment expenses paid on FHLBNY Advances of $5.9 million during the fiscal year ended June 30, 2002 and $766,000 during the fiscal year ended June 30, 2001, the average interest cost on FHLBNY Advances was 6.94% during the fiscal year ended June 30, 2002 and 6.13% during the fiscal year ended June 30, 2001.  There were no prepayments of FHLBNY Advances during the fiscal year ended June 30, 2000.  Excluding prepayment expenses of $322,000, the average cost on REPOS was 4.34% during the fiscal year ended June 30, 2002.  There were no prepayments of REPOS during the fiscal years ended June 30, 2001 and 2000.

Subsidiary Activities

In addition to the Bank, the Holding Company's direct and indirect subsidiaries consist of six wholly-owned corporations, one of which is directly owned by the Holding Company and five of which are directly or indirectly owned by the Bank.  DSBW Preferred Funding Corp. is a direct subsidiary of Havemeyer Equities Inc., which is a direct subsidiary of the Bank.  The following table presents an overview of the Holding Company's subsidiaries as of June 30, 2002:

Personnel

As of June 30, 2002, the Company had 294 full-time employees and 92 part-time employees.  The employees are not represented by a collective bargaining unit, and both the Holding Company and all of its subsidiaries consider their relationships with their employees to be good.

Federal, State and Local Taxation

Federal Taxation

General.  The following is a discussion of material tax matters and does not purport to be a comprehensive description of the tax rules applicable to the Company. The Bank was last audited by the Internal Revenue Service ("IRS") for its taxable year ended December 31, 1988.  For federal income tax purposes, the Company files consolidated income tax returns on a June 30 fiscal year basis using the accrual method of accounting and will be subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's tax reserve for bad debts, discussed below.

Tax Bad Debt Reserves.  The Bank, as a "large bank" under IRS classifications (i.e., one with assets having an adjusted basis of more than $500 million), is unable to make additions to its tax bad debt reserve, is permitted to deduct bad debts only as they occur and is required to recapture (i.e., take into income), over a multi-year period, a portion of the balance of its bad debt reserves as of June 30, 1997.  Since the Bank has already provided a deferred income tax liability for this tax for financial reporting purposes, there was no adverse impact to the Bank's financial condition or results of operations from the enactment of the federal legislation that imposed such recapture.  The recapture was suspended during the tax years ended June 30, 1997 and 1998, based upon the Bank's origination levels for certain residenti al loans which satisfied the minimum levels required by the Small Business Job Protection Act of 1996 to suspend recapture for those tax years.

Distributions. To the extent that the Bank makes "non-dividend distributions" to shareholders, such distributions are considered distributions from the Bank's "base year reserve" (i.e., its reserve as of December 31, 1987, to the extent thereof), and then from its supplemental reserve for losses on loans.  An amount based on the amount distributed will be included in the Bank's taxable income in the year of distribution.  Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of the Bank's current or accumulated earnings and profits will not be so included in the Bank's income.

The amount of additional taxable income created from a non-dividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, approximately one and one-half times the amount of such distribution (but not in excess of the amount of such reserves) would be includable in income for federal income tax purposes, assuming a 35% federal corporate income tax rate. (See "Regulation - Regulation of Federal Savings Associations - Limitation on Capital Distributions") for limits on the payment of dividends by the Bank. The Bank does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserves.

Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended (the "Code") imposes a tax ("AMT") on alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is adjusted by determining the tax treatment of certain items in a manner that negates the deferral of income resulting from the customary tax treatment of those items. Thus, the Bank's AMTI is increased by 75% of the amount by which the Bank's adjusted current earnings exceed its AMTI (determined without regard to this adjustment and prior to reduction for net operating losses).

State and Local Taxation

State of New York. The Company is subject to New York State ("NYS") franchise tax on one of several alternative bases, whichever results in the highest tax, and files combined returns for purposes of this tax. The basic tax is measured by "entire net income," which is federal taxable income with adjustments. For NYS tax purposes, as long as the Bank continues to satisfy certain definitional tests relating to its assets and the nature of its business, it will be permitted deductions, within specified formula limits, for additions to its bad debt reserves for purposes of computing its entire net income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, may be computed using an amount based on the Bank's actual loss experience (the "Exper ience Method") or 32% of the Bank's entire net income, computed without regard to this deduction and reduced by the amount of any permitted addition to the Bank's reserve for non-qualifying loans.

NYS enacted legislation which enables the Bank to avoid the recapture into income of NYS tax bad debt reserves unless one of the following events occurs: 1) the Bank's retained earnings represented by the reserve are used for purposes other than to absorb losses from bad debts, including dividends in excess of the Bank's earnings and profits or distributions in liquidation or in redemption of stock; 2) the Bank fails to qualify as a thrift as provided by NYS tax law, or 3) there is a change in NYS tax law.

The Bank's deduction with respect to non-qualifying loans must be computed pursuant to the Experience Method which is based on the Bank's actual charge-offs.  Each year the Bank will review the most favorable method of calculating the deduction attributable to an addition to the tax bad debt reserves.

The NYS tax rate for the fiscal year ended June 30, 2002 was 9.53% (including a commuter transportation surcharge) of net income. In general, the Holding Company is not required to pay NYS tax on dividends and interest received from the Bank.

City of New York.  The Holding Company and the Bank are also both subject to a New York City banking corporation tax of 9% on taxable income allocated to New York City.

New York City additionally enacted legislation which conformed its tax law regarding bad debt deductions to NYS tax law.

State of Delaware. As a Delaware holding company not earning income in Delaware, the Holding Company is exempted from Delaware corporate income tax, but is required to file an annual report and pay an annual franchise tax to the State of Delaware.

Regulation

General

The Bank is subject to extensive regulation, examination, and supervision by the OTS, as its chartering agency, and the Federal Deposit Insurance Corporation ("FDIC"), as its deposit insurer. The Bank's deposit accounts are insured up to applicable limits by the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"), which are administered by the FDIC.  The Bank must file reports with the OTS concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions. The OTS conducts periodic examinations to assess the Bank's safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings association may engage and is intended primarily for the protection of the insurance fund and depositors.  As a publicly-held unitary savings and loan holding company, the Holding Company is required to file certain reports, and otherwise comply, with the rules and regulations of the Securities and Exchange Commission (the ''SEC'') under the federal securities laws and of the OTS.

The OTS and the FDIC have significant discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the OTS, the FDIC or the United States Congress, could have a material adverse impact on the operations of the Company.

The following discussion is intended to be a summary of the material statutes and regulations applicable to savings associations and savings and loan holding companies, and it does not purport to be a comprehensive description of all such statutes and regulations.

Regulation of Federal Savings Associations

Business Activities.   The Bank derives its lending and investment powers from the Home Owner's Loan Act, as amended (''HOLA''), and the regulations of the OTS enacted thereunder. Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities, and certain other assets. The Bank may also establish service corporations that may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage. These investment powers are subject to various limitations, including (a) a prohibition against the acquisition of any corporate debt security not rated in one of the four highest rating categories; (b) a limit of 400% of capital on the aggregate amount of loans secured by commercial property; (c) a limit of 20% of assets on commercial loans, with the amount of commercial loans in excess of 10% of assets being limited to small business loans; (d) a limit of 35% of assets on the aggregate amount of consumer loans and acquisitions of certain debt securities; (e) a limit of 5% of assets on non-conforming loans (i.e., loans in excess of the specific limitations of HOLA); and (f) a limit of the greater of 5% of assets or capital on certain construction loans made for the purpose of financing property which is, or is expected to become, residential.

Loans to One Borrower.   Under HOLA, savings associations are generally subject to the same limits on loans to one borrower as are imposed on national banks. Generally, under these limits, a savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the association's unimpaired capital and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are fully secured by readily-marketable collateral. Such collateral is defined to include certain debt and equity securities and bullion, but generally does not include real estate. At June 30, 2002, the Bank's limit on loans to one borrower was $51.0 million. At June 30, 2002, the Bank's largest aggregate amount of loans to one borrower was $15.4 mi llion and the second largest borrower had an aggregate balance of $15.2 million.

QTL Test.  HOLA requires a savings association to satisfy a QTL test.  A savings association may satisfy the QTL test by maintaining at least 65% of its ''portfolio assets'' in certain ''qualified thrift investments'' during at least nine months of the most recent twelve-month period. ''Portfolio assets'' means, in general, an association's total assets less the sum of (a) specified liquid assets up to 20% of total assets, (b) certain intangibles, including goodwill, credit card relationships and purchased mortgage servicing rights, and (c) the value of property used to conduct the association's business. ''Qualified thrift investments'' include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, small business loans, education loans, and credit card loans.  A savings association may additionally satisfy the QTL test by qualifying as a "domestic building and loan association" as defined in the Code.  At June 30, 2002, the Bank maintained 84.8% of its portfolio assets in qualified thrift investments. The Bank also satisfied the QTL test in each of the prior 12 months and, therefore, was a QTL.  

A savings association that fails the QTL test must either operate under certain restrictions on its activities or convert to a bank charter. The initial restrictions include prohibitions against (a) engaging in any new activity not permissible for a national bank, (b) paying dividends not permissible under national bank regulations, (c) obtaining new Advances from the FHLBNY, and (d) establishing any new branch office in a location not permissible for a national bank in the association's home state. In addition, within one year of the date a savings association ceases to satisfy the QTL test, any company controlling the association must register under, and become subject to the requirements of, the Bank Holding Company Act of 1956, as amended.  A savings association that has failed the QTL test may requalify under the QTL test and be free of such l imitations, however, may do so only once.  If the savings association does not requalify under the QTL test within three-years after failing the QTL test, it would be required to terminate any activity and dispose of any investment not permissible for a national bank and repay as promptly as possible any outstanding Advances from the FHLBNY.

Capital Requirements.  OTS regulations require savings associations to satisfy three minimum capital standards: (1) a tangible capital ratio of 1.5% of total assets as adjusted under OTS regulations; (2) a risk-based capital ratio of 8% of risk-based capital (as defined under OTS regulations) to total risk-based assets (also as defined under OTS regulations); and (3) a leverage capital ratio (as defined under OTS regulations).  For a depository institution that has been assigned the highest composite rating of 1 under the Uniform Financial Institutions Rating, the minimum leverage capital required ratio is 3%.  For any other depository institution, the minimum leverage capital required ratio is 4%, unless a higher leverage capital ratio is warranted by the particular circumstances or risk profile of the depository institution. &nbs p;

In determining the amount of risk-based assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk-weights, which range from 0% for cash and obligations issued by the United States government or its agencies, to 100% for consumer and commercial loans, as assigned by the OTS capital regulations based on the risks the OTS believes are inherent in the type of asset.

Tangible capital is defined, generally, as common stockholders' equity (including retained earnings), certain non-cumulative perpetual preferred stock and related earnings, and minority interests in equity accounts of fully consolidated subsidiaries, less intangibles other than certain purchased mortgage servicing rights and investments in, and loans to, subsidiaries engaged in activities not permissible for a national bank. Core capital is defined similarly to tangible capital, however, additionally includes, among other items, certain qualifying supervisory goodwill and certain purchased credit card relationships.

Supplementary capital includes cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, and the allowance for possible loan losses.  The OTS and other federal banking regulators adopted, effective October 1, 1998, an amendment to their risk-based capital guidelines that permits insured depository institutions to include in supplementary capital up to 45% of the pretax net unrealized holding gains on certain available-for-sale equity securities, as such gains are computed under the guidelines.  The allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-based assets, and the amount of supplementary capital that may be included as total capital cannot exceed the amount of core capital.

On May 10, 2002, the OTS adopted amendments to its capital regulations which, among other matters, eliminated the interest rate risk component of the risk-based capital requirement.  Pursuant to the amendment, the OTS will continue to monitor the interest rate risk management of individual institutions through the OTS requirements for interest rate risk management, the ability of the OTS to impose an individual minimum capital requirement on institutions that exhibit a high degree of interest rate risk, and the requirements of Thrift Bulletin 13a, which provides guidance regarding the management of interest rate risk and the responsibility of boards of directors in that area.  

The table below presents the Bank's regulatory capital as compared to the OTS regulatory capital requirements at June 30, 2002:

                                                                           As of June 30, 2002

                                                                                         Minimum Capital

                                                           Actual                        Requirement

The following is a reconciliation of GAAP capital to regulatory capital for the Bank:

                                                                                                         At June 30, 2002

Limitation on Capital Distributions.   OTS regulations currently impose limitations upon capital distributions by savings associations, such as cash dividends, payments to purchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger, and other distributions charged against capital.  

As the subsidiary of a savings and loan holding company, the Bank is required to file a notice with the OTS at least 30 days prior to each capital distribution.  However, if the total amount of all capital distributions (including each proposed capital distribution) for the applicable calendar year exceeds net income for that year plus the retained net income for the preceding two years, then the Bank must file an application for OTS approval of a proposed capital distribution.  In addition, the OTS can prohibit a proposed capital distribution otherwise permissible under the regulation, if it has determined that the association is in need of more than customary supervision or that a proposed distribution by an association would constitute an unsafe or unsound practice. Furthermore, under the OTS prompt corrective action regulations, the Bank w ould be prohibited from making any capital distribution if, after the distribution, the Bank failed to satisfy its minimum capital requirements, as described above  (See ''Regulation - Regulation of Federal Savings Associations - Prompt Corrective Regulatory Action'').

In addition, pursuant to the Federal Deposit Insurance Act ("FDIA"), an insured depository institution such as the Bank is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become "undercapitalized" as defined in the FDIA.

Liquidity.   Pursuant to OTS regulations, the Bank is required to maintain sufficient liquidity to ensure its safe and sound operation (See "Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," for further discussion).

Assessments.   Savings associations are required by OTS regulation to pay semi-annual assessments to the OTS to fund its operations.  The regulations base the assessment for individual savings associations, other than those with total assets never exceeding $100.0 million, on three components: the size of the association on which the basic assessment is based; the association's supervisory condition, which results in percentage increases for any savings institution with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and the complexity of the association's operations, which results in percentage increases for a savings association that managed over $1 billion in trust assets, serviced loans for other institutions aggregating more than $1 billion, or had certain off-balance sheet assets aggregati ng more than $1 billion.  

Branching.   Subject to certain limitations, HOLA and OTS regulations permit federally chartered savings associations to establish branches in any state of the United States. The authority to establish such a branch is available (a) in states that expressly authorize branches of savings associations located in another state and (b) to an association that either satisfies the QTL test or qualifies as a ''domestic building and loan association'' under the Code, which imposes qualification requirements similar to those for a QTL under HOLA (See ''Regulation - Regulation of Federal Savings Associations - QTL Test'').  This authority under HOLA and the OTS regulations preempts any state law purporting to regulate branching by federal savings associations.

Community Reinvestment.   Under the Community Reinvestment Act ("CRA"), as implemented by OTS regulations, a savings association possess a continuing and affirmative obligation, consistent with its safe and sound operation, to help satisfy the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services it believes are best suited to its particular community. The CRA requires the OTS, in connection with its examination of a savings association, to assess the association's record of meeting the credit needs of its community and consider such record in its evaluation of certain applications by such association.  T he assessment focuses on three tests: (a) a lending test, to evaluate the institution's record of making loans in its service areas; (b) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (c) a service test, to evaluate the institution's delivery of services through its branches, automated teller machines ("ATMs") and other offices.  The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received an "Outstanding" CRA performance rating and an ''Outstanding'' CRA compliance rating in its most recent examination.  

Regulations implementing the requirements under the Gramm-Leach-Bliley Act of 1999 ("Gramm-Leach") that insured depository institutions publicly disclose certain agreements that are in fulfillment of the CRA became effective April 1, 2001.  The Bank has no such agreements in place at this time.

Transactions with Related Parties.   The Bank's authority to engage in transactions with its ''affiliates'' is limited by OTS regulations and Sections 23A and 23B of the Federal Reserve Act (''FRA''). In general, an affiliate of the Bank is any company that controls the Bank or any other company that is controlled by a company that controls the Bank, excluding the Bank's subsidiaries other than those that are insured depository institutions.  A subsidiary of a bank that is not also a depository institution is generally not treated as an affiliate of the bank for purposes of Sections 23A and 23B, however the Federal Reserve Bank has proposed treating any subsidiary of a bank that is engaged in activities not permissible for bank holding companies under the Bank Holding Company Act ("BHC Act") as an affiliate for purposes o f Sections 23A and 23B.  OTS regulations prohibit a savings association (a) from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies under Section 4(c) of the BHC Act and (b) from purchasing the securities of any affiliate other than a subsidiary. Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of the savings association and also limits the aggregate amount of transactions with all affiliates to 20% of the savings association's capital and surplus. Extensions of credit to affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited. Section 23B provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as fa vorable to the association as those prevailing at the time for comparable transactions with nonaffiliated companies. In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards, that in good faith would be offered, or would apply, to nonaffiliated companies.

Section 402 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") prohibits the extension of personal loans to directors and executive officers of issuers (as defined in Sarbanes-Oxley).  The prohibition, however, does not apply to mortgages advanced by an insured depository institution, such as the Bank, that are subject to the insider lending restrictions of Section 22(h) of the FRA.

The Bank's authority to extend credit to its directors, executive officers, and shareholders owning 10% or more of the Holding Company's outstanding common stock, as well as to entities controlled by such persons, is additionally governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board (''FRB'') thereunder. Among other matters, these provisions require that extensions of credit to insiders (a) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations on the amount of credit extended to such persons, individually and in t he aggregate, which limits are based, in part, on the amount of the association's capital. In addition, extensions of credit in excess of certain limits must be approved by the association's board of directors.

Enforcement.   Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the OTS possesses primary enforcement responsibility over federally-chartered savings associations and has the authority to bring enforcement action against all ''institution-affiliated parties,'' including any controlling stockholder or any shareholder, attorney, appraiser or accountant who knowingly or recklessly participates in any violation of applicable law or regulation, breach of fiduciary duty or certain other wrongful actions that cause, or are likely to cause, more than minimal loss or other significant adverse effect on an insured savings association. Civil penalties cover a wide series of violations and actions and range from $5,000 for each day during which violations of law, regulations, orders, and certain written agreements and conditions continue, up to $1 million per day for such violations if the person obtained a substantial pecuniary gain as a result of such violation or knowingly or recklessly caused a substantial loss to the institution. Criminal penalties for certain financial institution crimes include fines of up to $1 million and imprisonment for up to 30 years. In addition, regulators possess substantial discretion to take enforcement action against an institution that fails to comply with regulatory structure, particularly with respect to capital requirements. Possible enforcement actions range from the imposition of a capital plan and capital directive to receivership, conservatorship, or the termination of deposit insurance. Under FDICIA, the FDIC has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings association. If action is not taken by the Director, the FDIC possesses authority to take such action under certain circumstances.

Standards for Safety and Soundness.   Pursuant to FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the OTS, together with the other federal bank regulatory agencies, have adopted a set of guidelines prescribing safety and soundness standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other features, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or dispro portionate to the services performed by an executive officer, employee, director or principal shareholder.  In addition, the OTS adopted regulations pursuant to FDICIA that authorize, but do not require, the OTS to order an institution that has been given notice by the OTS that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the OTS must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized association is subject under the ''prompt corrective action'' provisions of FDICIA (See "Regulation - Regulation of Savings Associations – Prompt Corrective Regulatory Action").  If an institution fails to comply with such an order, the OTS may seek enforcement in judicial proceedings and the imposit ion of civil money penalties.

Real Estate Lending Standards.   The OTS and the other federal banking agencies adopted regulations to prescribe standards for extensions of credit that are (a) secured by real estate or (b) made for the purpose of financing the construction of improvements on real estate.  The regulations require each savings association to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the association and the nature and scope of its real estate lending activities. The standards must additionally conform to accompanying OTS guidelines, which include loan-to-value ratios for the different types of real estate loans. Associations are also permitted to make a limited amount of loans that do not conform to the loan-to-value limitations provi ded such exceptions are reviewed and justified appropriately. The guidelines additionally list a number of lending situations in which exceptions to the loan-to-value standards are permitted.

Prompt Corrective Regulatory Action.   Under the OTS prompt corrective action regulations, the OTS is required to take certain, and authorized to take other, supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of five categories based on the association's capital. Generally, a savings association is considered ''well capitalized'' if it maintains all of the following capital ratios:  1) Total capital to risk-based assets of at least 10.0%; 2) Core capital to risk-based assets of at least 6.0%; and 3) Core capital to adjusted total assets of at least 5.0%.  In addition, in order to be considered "well capitalized," the savings association cannot be subject to any order or directive of the OTS to satisfy or maintain specific capital levels.  A savings association is considered ''adequately capitalized'' if it maintains all of the following capital ratios:  1) Total capital to risk-based assets of at least 8.0%; 2) Core capital to risk-based assets of at least 4.0%; and 3) Core capital to adjusted total assets of at least 4.0% (or at least 3.0% if the association receives the highest possible overall rating on its most recent safety and soundness examination by the OTS).  A savings association is considered "undercapitalized" if it maintains any of the following capital ratios:  1) Total capital to total risk-based assets of less than 8.0%; 2) Core capital to risk-based assets of less than 4.0%; or 3) Core capital to adjusted total assets of less than 4.0% (or of less than 3.0% if the association receives the highest possible overall rating on its most recent safety and soundness examination by the OTS).   A savings association is considered "significantly undercapitalized" if it maintains any of the fo llowing capital ratios:  1) Total capital to risk-based assets of less than 6.0%; 2) Core capital to risk-based assets of less than 3.0%; or 3) Core capital to adjusted total assets of less than 3.0%.  A savings association that has a tangible capital to assets ratio equal to or less than 2% is deemed to be ''critically undercapitalized.'' The elements of an association's capital for purposes of the prompt corrective action regulations are defined generally as they are under the regulations for minimum capital requirements  (See ''Regulation - Regulation of Savings Associations - Capital Requirements'').  As of June 30, 2002, the Bank satisfied all criteria necessary to be categorized as "well capitalized" under the regulatory framework for prompt corrective action.  

The severity of the action authorized or required to be taken under the prompt corrective action regulations increases as an association's capital deteriorates within the three undercapitalized categories. All associations are prohibited from paying dividends, other capital distributions or management fees to any controlling person if, following such distribution, the association would be undercapitalized. An undercapitalized association is required to file a capital restoration plan within 45 days of the date the association receives notice that it is within any of the three undercapitalized categories. The OTS is required to monitor closely the condition of an undercapitalized association and to restrict the asset growth, acquisitions, branching, and new lines of business of such an association. Significantly undercapitalized associations are subject to restrictions on compensation of senior executive officers.  Such an association may not, without OTS consent, pay any bonus or provide compensation to any senior executive officer at a rate exceeding the officer's average rate of compensation (excluding bonuses, stock options and profit-sharing) during the 12 months preceding the month the association became undercapitalized. A significantly undercapitalized association may also be subject, among other actions, to forced changes in the composition of its board of directors or senior management, additional restrictions on transactions with affiliates, restrictions on acceptance of deposits from correspondent associations, further restrictions on asset growth, restrictions on rates paid on deposits, forced termination or reduction of activities deemed risky, and any further operational restrictions deemed necessary by the OTS.

If one or more grounds exist for appointing a conservator or receiver for an association, the OTS may require the association to issue additional debt or stock, sell assets, be acquired by a depository association holding company or combine with another depository association. The OTS and FDIC possess a broad range of justifications pursuant to which they may appoint a receiver or conservator for an insured depository association. Under FDICIA, the OTS is required to appoint a receiver (or with the concurrence of the FDIC, a conservator) for a critically undercapitalized association within 90 days after the association becomes critically undercapitalized or, with the concurrence of the FDIC, to take such other action that would better achieve the purposes of the prompt corrective action provisions. Such alternative action can be renewed for successive 9 0-day periods. However, if the association continues to be critically undercapitalized on average during the quarter that begins 270 days after it initially became critically undercapitalized, a receiver must be appointed, unless the OTS makes certain findings with which the FDIC concurs and the Director of the OTS and the Chairman of the FDIC certify that the association is viable. In addition, an association that is critically undercapitalized is subject to more severe restrictions on its activities, and is prohibited, without prior approval of the FDIC from, among other actions, entering into certain material transactions or paying interest on new or renewed liabilities at a rate that would significantly increase the association's weighted average cost of funds.

When appropriate, the OTS can require corrective action by a savings association holding company under the ''prompt corrective action'' provisions of FDICIA.

Insurance of Deposit Accounts.  Savings associations are subject to a risk-based assessment system for determining the amount of deposit insurance premium they will be required to pay.  Under the risk-based assessment system, which began in 1993, the FDIC assigns an institution to one of three capital categories based on the institution's financial information as of its most recent quarterly financial report filed with the applicable bank regulatory agency prior to the commencement of the assessment period.  The three capital categories consist of (a) well capitalized, (b) adequately capitalized, or (c) undercapitalized.  The FDIC also assigns an institution to one of the three supervisory subcategories within each capital group.  The supervisory subgroup to which an institution is assigned is based upon an evaluation pro vided to the FDIC by the institution's primary federal regulator and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds.  An institution's assessment rate depends on the capital category and supervisory sub-category to which it is assigned.  Under the regulations, there are nine assessment risk classifications (i.e., combinations of capital groups and supervisory subgroups) to which different assessment rates are applied.  Assessment rates currently range from 0.0% of deposits for an institution in the highest category (i.e., well-capitalized and financially sound, with no more than a few minor weaknesses) to 0.27% of deposits for an institution in the lowest category (i.e., undercapitalized and substantial supervisory concern).  The FDIC is authorized to raise the assessment rates as necessary to maintain the required reserve ratio of 1.25% of assessable deposits.  Both the BIF and SAIF curre ntly satisfy the reserve ratio requirement.  If the FDIC determines that assessment rates should be increased, institutions in all risk categories could be affected.  The FDIC has exercised this authority several times in the past and could raise insurance assessment rates in the future.  The FDIC has recently alerted institutions to the possibility of higher deposit insurance premiums in early 2003. The FDIC stated that, if necessary, the increased premiums would likely affect only institutions with BIF-insured deposits and would not exceed 5 basis points.  While increases in deposit insurance premiums could have an adverse effect on the Company's earnings, the recent advisory statement from the FDIC, if enacted, is not expected to have a material adverse effect on the Company's earnings.

The Deposit Insurance Funds Act of 1996 amended the FDIA to recapitalize the SAIF and expand the assessment base for the payments of Financing Corporation ("FICO") bonds.  FICO bonds were sold by the federal government in order to finance the recapitalization of SAIF and BIF insurance funds.  The recapitalization of the SAIF and BIF insurance funds was necessitated following payments made from these insurance funds to compensate depositors of federally-insured depository institutions that experienced bankruptcy and dissolution during the 1980's and 1990's.  The quarterly adjusted rate of assessment for FICO bonds is 0.0172% for both BIF-and SAIF-insured institutions.  

Privacy and Security Protection.  The OTS has adopted regulations implementing the privacy protection provisions of Gramm-Leach.  The regulations, which require financial institutions to adopt procedures to protect customers and customers' "non-public personal information," became effective November 13, 2000.  The regulations require the Bank to disclose its privacy policy, including identifying with whom it shares "non-public personal information," to customers at the time of establishing the customer relationship and annually thereafter.  In addition, the Bank is required to provide its customers the ability to "opt-out" of the sharing of their personal information with unaffiliated third parties.  The Bank's existing privacy protection policy complies with the regulations.  Implementa tion of the regulations did not have a material impact on the business, financial condition or results of operations of the Company.

Effective July 1, 2001, the OTS and other federal banking agencies adopted guidelines establishing standards for safeguarding customer information to implement certain provisions of Gramm-Leach.  The guidelines describe the agencies' expectations for the creation, implementation and maintenance of an information security program, including administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities.  The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial customer harm or in convenience.  The Bank has implemented these guidelines.  Such implementation did not have a material impact on the business, financial condition or results of operations of the Company.

Gramm-Leach additionally permits each state to enact legislation that is more protective of consumers' personal information.  Currently there are a number of privacy bills pending in the New York legislature.  No action has been taken on any of these bills, and management of the Company cannot predict the impact, if any, these bills will have, if enacted.

Internet Banking.  Technological developments are dramatically altering the methods by which most companies, including financial institutions, conduct their business.  The growth of the Internet is prompting banks to reconsider business strategies and adopt alternative distribution and marketing systems.  The federal bank regulatory agencies have conducted seminars and published materials targeted at various aspects of Internet Banking and have indicated their intention to re-evaluate their regulations to ensure they encourage bank efficiency and competitiveness consistent with safe and sound banking practices.  The Company cannot assure that federal bank regulatory agencies will not adopt new regulations that will not materially affect or restrict the Bank's Internet operations.

Insurance Activities.  As a federal savings bank, the Bank is generally permitted to engage in certain insurance activities through subsidiaries.  Effective October 1, 2001, OTS regulations promulgated pursuant to Gramm-Leach prohibited depository institutions from conditioning the extension of credit to individuals upon either the purchase of an insurance product or annuity or an agreement by the consumer not to purchase an insurance product or annuity from an entity not affiliated with the depository institution.  The regulations additionally require prior disclosure of this prohibition to potential insurance product or annuity customers. Implementation of these regulations did not have a material impact upon the financial condition or results of operations of the Company.

Federal Home Loan Bank System.   The Bank is a member of the FHLBNY, which is one of the regional Federal Home Loan Banks ("FHLB") composing the FHLB System. Each FHLB provides a central credit facility primarily for its member institutions. The Bank, as a member of the FHLBNY, is required to acquire and hold shares of capital stock in the FHLBNY in an amount at least equal to the greater of: (i) 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, (ii) 0.3% of assets, or (iii) one-twentieth of its Advances from the FHLBNY.  At June 30, 2002, the Bank was in compliance with this requirement with an investment in FHLBNY stock of $34.4 million.  The FHLBNY paid dividends on its capital stock to the Bank of $2.1 million during the fiscal year ended June 30, 2002, $3.0 million during the fiscal year ended June 30, 2001, and $2.6 million during the fiscal year ended June 30, 2000.  If such dividends were reduced, or interest on future FHLBNY Advances increased, it is probable that the Bank's net interest income would also be reduced.

Any Advances from the FHLBNY must be secured by specified types of collateral, and long-term Advances may be obtained only for the purpose of providing funds for residential housing finance.  

Federal Reserve System.   The Bank is subject to provisions of the FRA and FRB regulations pursuant to which depository institutions may be required to maintain non-interest-earning reserves against their deposit accounts and certain other liabilities. Currently, reserves must be maintained against transaction accounts (primarily NOW and regular checking accounts).  FRB regulations generally require that reserves be maintained in the amount of 3% of the aggregate of transaction accounts up to $41.3 million.  Aggregate transaction accounts in excess of $41.3 million are currently subject to a reserve ratio of 10%, which the FRB may adjust between 8% and 14%. The FRB regulations currently exempt the first $5.7 million of otherwise reservable balances from the reserve requirements, which exemption is adjusted by the FRB at the en d of each year.  The Bank is in compliance with the foregoing reserve requirements.

Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a FRB, or a pass-through account as defined by the FRB, the effect of this reserve requirement is to reduce the Bank's interest-earning assets. The balances maintained to satisfy the FRB reserve requirements may be used to satisfy liquidity requirements imposed by the OTS.

FHLB members are additionally authorized to borrow from the Federal Reserve ''discount window,'' however FRB regulations require such institutions to exhaust all FHLB sources prior to borrowing from a FRB.

Anti-Terrorism Regulation.   The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot Act") was signed into law on October 26, 2001, providing the federal government with new powers to address terrorist threats.  By way of amendments to the Bank Secrecy Act, Title III of the USA Patriot Act enacts measures intended to encourage information sharing among bank regulatory and law enforcement agencies.  In addition, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks and thrifts.  Title III imposes the following requirements, among others,  with respect to financial institutions:

1)

Pursuant to Section 352, financial institutions must establish anti-money laundering programs that include, at a minimum, internal policies, procedures and controls as well as an independent audit function to test the programs.  

2)

Section 326 authorizes the Department of Treasury, in conjunction with the other bank regulators, to issue regulations by October 26, 2002 that provide for minimum standards with respect to customer identification upon the opening of new accounts.

3)

Bank regulators are directed to consider the effectiveness of a holding company in combating money laundering when ruling upon Federal Reserve Act and Bank Merger Act applications.

The federal banking agencies have begun to propose and implement regulations requiring financial institutions to adopt the policies and procedures contemplated by the USA Patriot Act.  Implementation of the USA Patriot Act did not have a material impact upon the financial condition or results of operations of the Company.

Regulation of Holding Company

The Holding Company is a non-diversified unitary savings and loan holding company within the meaning of HOLA. As such, it is required to register with the OTS and is subject to OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over the Holding Company's non-savings association subsidiaries.  Among other effects, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness, or stability of a subsidiary savings association.

HOLA prohibits a savings association holding company, directly or indirectly, or through one or more subsidiaries, from acquiring another savings association or holding company thereof, without prior written approval of the OTS; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings association, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by HOLA; or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating an application by a holding company to acquire a savings association, the OTS must consider the financial and managerial resources and future prospects of the company and savings association involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the comm unity, and competitive factors.

As a unitary savings and loan holding company, the Holding Company generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that the Bank continues to satisfy the QTL test  (See ''Regulation - Regulation of Federal Savings Associations - QTL Test'' for a discussion of the QTL requirements).  Upon any non-supervisory acquisition by the Holding Company of another savings association or a savings bank that satisfies the QTL test and is deemed to be a savings association by the OTS and that will be held as a separate subsidiary, the Holding Company will become a multiple savings association holding company and will be subject to limitations on the types of business activities in which it can engage. HOLA limits the activities of a multiple savings association holding company and its no n-insured association subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the BHC Act, subject to prior approval of the OTS, and to other activities authorized by OTS regulation.

The OTS is prohibited from approving any acquisition that would result in a multiple savings association holding company controlling savings associations in more than one state, subject to two exceptions: an acquisition of a savings association in another state (a) in a supervisory transaction, and (b) pursuant to authority under the laws of the state of the association to be acquired that specifically permit such acquisitions. The conditions imposed upon interstate acquisitions by those states that have enacted authorizing legislation vary.

Gramm-Leach also restricts the powers of new unitary savings and loan association holding companies.  A unitary savings and loan holding company that is "grand-fathered," i.e., became a unitary savings and loan holding company pursuant to an application filed with the OTS prior to May 4, 1999, such as the Holding Company, retains its authority under the prior law.  All other savings and loan holding companies are limited to financially related activities permissible for bank holding companies, as defined under Gramm-Leach.  Gramm-Leach also prohibits non-financial companies from acquiring grandfathered savings and loan association holding companies.

Transactions between the Bank and the remainder of the Company, and any of their affiliates, are subject to various conditions and limitations  (See ''Regulation - Regulation of Federal Savings Associations - Transactions with Related Parties'').  The Bank must file an application with the OTS prior to the declaration or payment of any dividends or other capital distributions to the Holding Company  (See ''Regulation - Regulation of Federal Savings Associations - Limitation on Capital Distributions'').

Federal Securities Laws

The Holding Company's common stock is registered with the SEC under Section 12(g) of the Exchange Act, as amended.  It is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Item 2.  Properties

The headquarters of both the Holding Company and the Bank is located at 209 Havemeyer Street, Brooklyn, New York  11211.  The headquarters building is fully owned by the Bank.  The Bank conducts its business through twenty full-service retail banking offices located throughout Brooklyn, Queens, the Bronx and Nassau County, New York.

Item 3.  Legal Proceedings

The Company is not involved in any pending legal proceedings other than legal actions arising in the ordinary course of business which, in the aggregate, involve amounts which are believed to be immaterial to its financial condition and results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

None

PART II

Item 5: Market for the Holding Company's Common Stock and Related Stockholder Matters

Market for the Holding Company's Common Stock and Related Stockholder Matters

The Holding Company's common stock is traded on the Nasdaq National Market and quoted under the symbol "DCOM."  Prior to June 15, 1998, the Holding Company's common stock was quoted under the symbol "DIME."

The following table shows the high and low sales price for the Holding Company's common stock and dividends declared during the period indicated.  The Holding Company's common stock began trading on June 26, 1996, the date of the initial public offering.  All amounts have been adjusted to reflect the Company's 50% stock dividends paid on August 21, 2001 and April 24, 2002.

On June 28, 2002, the last trading date in the fiscal year, the Holding Company's common stock closed at $22.69. At September 27, 2002, the Holding Company had approximately 2,500 shareholders of record, not including persons or entities holding stock in nominee or street name through various brokers and banks. There were 25,809,486 shares of common stock outstanding at June 30, 2002.

On August 21, 2001, the Holding Company paid a 50% common stock dividend to all shareholders of record as of July 31, 2001.  This dividend had the effect of a three-for-two stock split.  On April 24, 2002, the Holding Company paid a 50% common stock dividend to all shareholders of record as of April 1, 2002.  This dividend also had the effect of a three-for-two stock split.

During the year ended June 30, 2002, the Holding Company paid cash dividends totaling $9.9 million, which represented $0.38 per outstanding common share as adjusted for the stock splits effective August 21, 2001 and April 24, 2002.  During the year ended June 30, 2001, the Holding Company paid cash dividends totaling $8.7 million, which represented $0.34 per outstanding common share.  On July 18, 2002, the Board of Directors declared a cash dividend of $0.12 per common share to all shareholders of record as of July 31, 2002.  This dividend was paid on August 7, 2002.

The Holding Company is subject to the requirements of Delaware law, which generally limit dividends to an amount equal to the excess of net assets (the amount by which total assets exceed total liabilities) over statutory capital, or if no such excess exists, to net profits for the current and/or immediately preceding fiscal year.

As the principal asset of the Holding Company, the Bank could be called upon to provide funds for the Holding Company's payment of dividends  (See "Regulation – Regulation of Federal Savings Associations – Limitation on Capital Distributions").  (See "Note 2 to the Company's Audited Financial Statements" for a discussion of limitations on distributions from the Bank to the Holding Company).

In April 2000, the Holding Company issued $25.0 million in subordinated notes payable, with a stated annual coupon rate of 9.25%. It is required, pursuant to the provisions of the notes, to first satisfy the interest obligation on these notes, which approximates $2.4 million annually, prior to the authorization and payment of common stock cash dividends.  Management of the Holding Company does not believe that this requirement will materially affect its ability to pay dividends to its common shareholders.

Research Reports

As of the date of this report, the following investment firms have issued research reports on the Holding Company:

Advest, Inc.; CL King & Associates; Friedman, Billings, Ramsey & Co., Inc.;

Keefe Bruyette & Woods, Inc.;  Lehman Brothers, Inc.

McConnell Budd & Romano, Inc.;  Merrill Lynch & Co.;

Ryan, Beck & Co.;  Sandler O'Neill & Partners, L.P.

Copies of these research reports are available upon request to:  Dime Community Bancshares, Inc.

Attention: Investor Relations, 209 Havemeyer Street, Brooklyn, NY 11211.

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Item 6. - Selected Financial Data

Financial Highlights

(Dollars in thousands, except per share data)

The consolidated financial and other data of the Company set forth below is derived in part from, and should be read in conjunction with, the Company's Consolidated Financial Statements and Notes thereto.  Certain amounts as of and for the years ended June 30, 2001, 2000, 1999 and 1998 have been reclassified to conform to the June 30, 2002 presentation.  The Holding Company completed the FIBC Acquisition on January 21, 1999.  

(1)

Loans, net represents gross loans (including loans held for sale) less net deferred loan fees and allowance for loan losses.

(2)

Amount includes investment in FHLBNY capital stock.

- # -

(1)

With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods. Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.

(2)

Average interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.  

(3)

The net interest margin represents net interest income as a percentage of average interest-earning assets.  

(4)

In calculating these ratios, amortization expense related to goodwill and the core deposit intangible is excluded from non-interest expense.

(5)

The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income and non-interest income, excluding any gains or losses on sales of assets.

(6)

Total loans represents loans, net, plus the allowance for loan losses.

(7)

For purposes of computing the ratios of earnings to fixed charges, earnings represent income before taxes, extraordinary items and the cumulative effect of accounting changes plus fixed charges.  Fixed charges represent total interest expense, including and excluding interest on deposits.

(8)

  The reconciliation of GAAP earnings and Cash Earnings is as follows:

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The Holding Company's primary business is the operation of the Bank.  The Company's consolidated results of operations are dependent primarily on net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings.  The Bank additionally generates non-interest income such as service charges and other fees and income associated with the Bank's purchase of Bank Owned Life Insurance ("BOLI").  Non-interest expenses primarily consist of employee compensation and benefits, federal deposit insurance premiums, data processing fees, marketing expenses and other operating expenses.  The Company's consolidated results of operations are also significantly affected by genera l economic and competitive conditions (particularly fluctuations in market interest rates), government policies, changes in accounting standards and actions of regulatory agencies.

Management Strategy

The Bank's primary strategy is to increase its household and deposit market shares in the communities that it serves, either through direct marketing, acquisitions or purchases of deposits.  The Bank also seeks to increase its product and service utilization for each individual depositor.  In addition, the Bank's primary strategy includes the origination of, and investment in, mortgage loans, with an emphasis on multi-family residential loans. Multi-family residential lending is a significant business of the Bank, reflecting the fact that much of the housing in its primary lending area is multi-family housing.  The Bank also strives to provide a stable source of liquidity and earnings through the purchase of investment grade securities; seeks to maintain the asset quality of its loans and other investments; and uses appropriate portfolio a nd asset/liability management techniques in an effort to manage the effects of interest rate volatility on its profitability and capital.

Loan Originations with an Emphasis on Multi-family Residential and Commercial Real Estate Lending

Management of the Bank believes that multi-family residential loans provide advantages as investment assets. Initially, they offer a higher yield than single-family loans or investment securities of comparable maturities or terms to repricing.  Origination and processing costs for the Bank's multi-family residential and commercial real estate loans are lower per thousand dollars of originations than comparable one- to four-family loan costs.  In addition, the Bank's market area generally has provided a stable flow of new and refinanced multi-family residential loan originations.  In order to address the higher credit risk associated with multi-family residential lending, the Bank has developed underwriting standards that it believes are reliable in order to maintain consistent credit quality for its new loans.

Liquidity and Capital Resources

The Bank's primary sources of funds are deposits; proceeds from principal and interest payments on loans, mortgage-backed securities and investments; borrowings; and, to a lesser extent, proceeds from the sale of fixed-rate, one- to four-family mortgage loans to the secondary mortgage market. While maturities and scheduled amortization of loans and investments are predictable sources of funds, deposit flows and prepayments on mortgage loans and mortgage-backed securities are influenced by interest rates, economic conditions and competition.

Funding for loan originations and security purchases during the fiscal year ended June 30, 2002 was obtained primarily from principal repayments on loans and mortgage-backed securities, deposit growth, and maturities and calls of investment securities.  During the fiscal year ended June 30, 2002, principal repayments on real estate loans totaled $388.7 million and principal repayments on mortgage-backed securities totaled $184.8 million, compared to principal repayments on real estate loans of $167.1 million and principal repayments on mortgage-backed securities of $99.9 million during the year ended June 30, 2001.  The increase in principal repayments on loans and mortgage-backed securities resulted from added customer refinance activities associated with declines in interest rates during the period January 2001 through June 2002.  Maturit ies and calls of investment securities totaled $35.2 million during the year ended June 30, 2002, and $57.7 million during the year ended June 30, 2001.  During the period January 1, 2001 through June 30, 2001, the Company and Bank experienced an increased level of call activity on their investment securities due to the reduction in market interest rates.

Deposit flows are affected by, among other factors, the general level of interest rates and the products and interest rates offered by competitors.  Deposits increased $351.6 million during the year ended June 30, 2002, compared to an increase of $209.3 million during the year ended June 30, 2001.  The increase in deposits during both years reflected increased marketing efforts that helped generate additional deposit balances in CDs and core deposit accounts.  The increase was also partially attributable to a consumer trend to move monies out of the equity markets and into deposit accounts during the year ended June 30, 2002.  The greatest growth during this period was realized in money market accounts, which increased $260.2 million during the year ended June 30, 2002, and $150.1 million during the year ended June 30, 2001.  The additional level of deposit growth during the year ended June 30, 2002 reflected an extension of the successful promotional deposit activities commenced during the fiscal year ended June 30, 2001, particularly money market deposit promotions.  In addition, the fiscal year ended June 30, 2002 saw the establishment of two de novo branch offices, which gathered approximately $49.2 million in deposits as of June 30, 2002.  CDs scheduled to mature in one year or less from June 30, 2002 totaled $497.6 million.  Based upon the Bank's current pricing strategy and deposit retention experience, management believes that the Bank will retain a significant portion of such deposits.

During the year ended June 30, 2002, REPOS declined $330.1 million on a net basis and FHLBNY Advances increased $32.5 million on a net basis.  During the year ended June 30, 2002, management elected not to renew a portion of maturing short-term borrowings of both the Holding Company and the Bank as a result of increased liquidity generated during the period from increased loan and mortgage-backed security amortization and deposit inflows.  In addition, during the year ended June 30, 2002, management elected to prepay $254.0 million of short-and medium-term REPOS and FHLBNY Advances and replace a portion of these borrowings with longer term FHLBNY Advances possessing a lower average interest cost.  As of June 30, 2002, there were $283.5 million in borrowings due to mature or reprice within one year, the majority of which are obligations of t he Bank.

Stockholders' equity increased $22.6 million during the year ended June 30, 2002, due to the addition of net income of $38.7 million, the increase to equity of $9.5 million related to activities of stock benefit plans, and the increase to equity of $3.1 million related to the amortization of the Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Affiliates ("ESOP") and the Recognition and Retention Plan of Outside Directors, Officers and Employees of Dime Community Bancshares, Inc. ("RRP") stock benefit plans.  Both the ESOP and RRP have investments in the Holding Company's common stock that are recorded as reductions in stockholders' equity ("Contra Equity Balances").  As compensation expense is recognized on the ESOP and RRP, the Contra Equity Balances are reduced, resulting in an increase to t otal equity.  

All of the aforementioned increases to equity during the fiscal year ended June 30, 2002 were partially offset by treasury stock purchases of $14.7 million, cash dividends of $9.9 million paid to shareholders, and purchases of stock by both the Benefit Maintenance Plan of Dime Community Bancshares, Inc. ("BMP") of $1.2 million and the RRP of $964,000 during the same period.  

The Bank's primary uses of liquidity and capital resources are the origination of real estate loans and the purchase of mortgage-backed and other securities.  During the year ended June 30, 2002, real estate loan originations totaled $552.5 million, compared to $398.3 million for the year ended June 30, 2001.  Increases in interest rates during the period April 2000 through December 2000 contributed to a decline in loan origination activity during the year ended June 30, 2001.  Declines in interest rates during the period January 2001 through June 2002 contributed to an increase in origination activity during the year ended June 30, 2002.  Purchases of investment and mortgage-backed securities, which were $81.5 million during the year ended June 30, 2001, totaled $129.3 million for the year ended June 30, 2002.  The increase in pu rchase activity during the year ended June 30, 2002 reflects a greater volume of short-term securities acquisitions viewed as temporary investments that would ultimately be invested in real estate loans.  

At June 30, 2002, the Bank had $57.2 million of commitments outstanding to originate mortgage loans, compared to $64.2 million outstanding at June 30, 2001.  

During the year ended June 30, 2002, the Holding Company purchased 750,524 shares (as adjusted for the 50% stock dividend paid on August 21, 2001 and the 50% stock dividend paid on April 24, 2002) of its common stock into treasury.  All shares were recorded at the acquisition cost, which totaled $14.7 million during the year ended June 30, 2002.  As of June 30, 2002, up to 1.4 million shares remain available for purchase under authorized share purchase programs.  Based upon the closing price of its common stock of $22.69 per share as of June 30, 2002, the Holding Company would utilize $31.2 million in funds in order to purchase all of these remaining authorized shares.  For the Holding Company to complete these share purchases, it will likely require dividend distributions from the Bank.

The levels of the Bank's short-term liquid assets are dependent on its operating, financing and investing activities during any given period.  The Bank monitors its liquidity position on a daily basis.  During the year ended June 30, 2002, the Bank experienced increased liquidity resulting from deposit growth, as well as higher levels of real estate loan and mortgage-backed securities prepayments.  As of June 30, 2002, a portion of these funds had not been used to fund loan originations or other investment activities.  

Temporary excess liquidity is invested in overnight federal funds sales and various money market investments.  In the event that the Bank should require funds beyond its ability to generate them internally, additional sources of funds are available through use of its borrowing line at the FHLBNY.  At June 30, 2002, the Bank had the immediate capacity to borrow an additional $29.8 million from the FHLBNY, and an additional potential borrowing capacity of $231.8 million available should it acquire the requisite level of FHLBNY common stock under its current borrowing agreement with the FHLBNY.

The Bank is subject to minimum regulatory capital requirements imposed by the OTS, which requirements are, as a general matter, based on the amount and composition of an institution's assets. At June 30, 2002, the Bank was in compliance with all applicable regulatory capital requirements.  In addition, at June 30, 2002, the Bank was considered "well-capitalized" for all regulatory purposes (See "Item 1 – Business – Regulation – Regulation of Federal Savings Associations – Capital Requirements").

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Analysis of Net Interest Income

The Bank's profitability, like that of most financial institutions, is dependent to a large extent upon net interest income, which is the difference between interest income on interest-earnings assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits or borrowings.  Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rate earned or paid on them.  The following table sets forth certain information relating to the Company's consolidated statements of operations for the years ended June 30, 2002, 2001 and 2000, and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing interest income or expense by th e average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods indicated. Average balances are derived from daily balances. The yields and costs include fees that are considered adjustments to yields.

                                                                                                                         For the Year Ended June 30,

 Footnotes on next page

(1)

In computing the average balance of loans, non-performing loans have been included.  Interest income includes loan servicing fees as defined under SFAS 91.

(2)

Includes interest-bearing deposits in other banks.

(3)

Net interest margin represents net interest income as a percentage of average interest-earning assets.

(4)

Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

Rate/Volume Analysis

Net interest income can also be analyzed in terms of the impact of fluctuating interest rates on interest-earning assets and interest-bearing liabilities and changes in the volume of these assets and liabilities. The following table represents the extent to which variations in interest rates and the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) variances attributable to fluctuations in volume (change in volume multiplied by prior rate), (ii) variances attributable to rate (changes in rate multiplied by prior volume), and (iii) the net change. Variances attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to the volume and the changes due to rate.

                                                       Year Ended                                         Year Ended                                     Year Ended

                                                     June 30, 2002                                      June 30, 2001                                  June 30, 2000

                                                     Compared to                                         Compared to                                    Compared to

                                                      Year Ended                                           Year Ended                                     Year Ended

                                                     June 30, 2001                                       June 30, 2000                                 June 30, 1999

                                                   Increase/(Decrease)                               Increase/(Decrease)                      Increase/(Decrease)

                                                           Due to                                                   Due to                                   & nbsp;          Due to

Comparison of Financial Condition at June 30, 2002 and June 30, 2001

Assets.  Assets totaled $2.81 billion at June 30, 2002, an increase of $88.4 million from total assets of $2.72 billion at June 30, 2001.  The growth in assets was experienced primarily in real estate loans, which increased $160.1 million during the year ended June 30, 2002.  During the year ended June 30, 2002, real estate loan originations totaled $552.5 million, of which $532.7 million were multi-family residential and commercial real estate loans.  Substantially all of the loan originations during the fiscal year ended June 30, 2002, were retained in the Bank's portfolio.  Real estate loan origination levels were driven by a significant decline in interest rates during the period January 2001 through December 2001.  Offsetting the growth in real estate loans from originations were increases in principal repayment l evels during the fiscal year ended June 30, 2002.  Principal repayments totaled $388.7 million during the year ended June 30, 2002, and experienced significant growth during the period January 2001 through June 2002, as a result of declines in interest rates.  Federal funds sold and other short-term investments increased $39.9 million during the year ended June 30, 2002, due to increased liquidity resulting from higher levels of real estate loan and mortgage-backed securities prepayments, as well as deposit growth during the period.  As of June 30, 2002, this increased liquidity had not yet been used to fund loan originations or other investment activities.  Investment securities available for sale increased $47.2 million during the year ended June 30, 2002, due primarily to purchases of $63.4 million in securities during the three months ended June 30, 2002, as excess liquid funds were invested primarily in short- and medium-term obligations of U.S. agencies.  

During the year ended June 30, 2002, mortgage-backed securities available for sale and held to maturity declined $142.1 million and $4.9 million, respectively.  Total principal repayments on mortgage-backed securities were $184.8 million during the period due to lower interest rates, and were partially offset by combined net purchases of $42.2 million.  Encumbered mortgage-backed securities declined $327.8 million during the year ended June 30, 2002 as a result of a reduction in the levels of REPOS during the same period.  Due to consistently strong liquidity levels experienced at the Holding Company and the Bank during the year ended June 30, 2002, management elected not to replace a portion of maturing REPOS.

Liabilities. Total liabilities increased $65.8 million during the year ended June 30, 2002, as deposit growth of  $351.6 million was partially offset by a decline of $297.6 million in borrowings.  The growth in deposits resulted from the success of various sales and marketing activities during the period, as well as an apparent consumer trend to move monies out of the equity markets and into deposit accounts.  The sales and marketing activities targeted growth in core deposit balances (with particular emphasis upon money market and checking accounts) and customer households (with a focus upon relationship development).  As a result of these efforts, core deposits increased as a percentage of total deposits from 51.6% at June 30, 2001 to 58.0% at June 30, 2002.  

The growth in deposits was utilized to fund loan originations during the period and reduce the level of borrowings, with excess deposit flows retained in federal funds sold and other short-term investments.  Borrowings declined $297.6 million during the year ended June 30, 2002, with a decline of $330.1 million experienced in REPOS, partially offset by an increase of $32.5 million in FHLBNY Advances (See "Liquidity and Capital Resources").

Stockholders' Equity.  Stockholders' equity increased $22.6 million during the year ended June 30, 2002  (See "Liquidity and Capital Resources").

Comparison of Financial Condition at June 30, 2001 and June 30, 2000

Assets.  Assets totaled $2.72 billion at June 30, 2001, an increase of $219.6 million from total assets of $2.50 billion at June 30, 2000.  The growth in assets was experienced primarily in real estate loans, which increased $239.5 million during the year ended June 30, 2001.  The increase in real estate loans resulted primarily from real estate loan originations of $398.3 million during the year ended June 30, 2001, of which $355.8 million were multi-family residential loans, and $37.6 million were commercial real estate loans.  Real estate loan origination levels, which had declined from April 2000 through December 2000, increased from January 2001 through June 2001 as a result of declines in interest rates that generated increased loan refinance activity.  Principal repayments on real estate loans, although increasing in total due to growth in the loan portfolio, declined as a percentage of the total loan portfolio during the period April 2000 through December 2000 as a result of increases in interest rates.  These principal repayments subsequently increased as a percentage of the total loan portfolio during the period January 2001 through June 2001, due to reductions in interest rates during this period.

Federal funds sold and short-term investments increased $26.4 million during the year ended June 30, 2001 due to increased deposit inflows resulting from promotional activities.  At June 30, 2001, these funds had not yet been invested in loans or investment securities.

Offsetting the increases in real estate loans, federal funds sold and short-term investments was a decline of $43.5 million in investment securities held to maturity and available for sale during the year ended June 30, 2001.  Calls of $41.2 million were experienced on these securities during the year ended June 30, 2001, as a result of declines in interest rates during the period January 2001 through June 2001.  These funds were utilized primarily to fund loan originations.

Liabilities. Total liabilities increased $199.7 million during the year ended June 30, 2001, due primarily to an increase of $209.3 million in deposits.  The growth in deposits resulted from both the success of various sales and marketing activities during the year, as well as an apparent consumer trend to move monies out of the equity markets, particularly equity mutual funds, and into deposit accounts.  Sales and marketing activities of the Bank targeted growth in core deposit balances (with particular emphasis upon money market and checking accounts) and customer households (with a focus upon relationship development).  CDs increased $73.0 million during the year ended June 30, 2001, primarily from promotional offerings and, to a lesser extent, outflows of mutual fund monies into deposits.  In addition, escrow and other depos its increased $4.8 million during this period as a result of growth in mortgage escrow funds.  The growth in deposits and escrow was utilized to fund the growth in loans during the period, with excess deposit flows retained in federal funds sold.  REPOS declined $6.2 million and FHLBNY Advances declined $12.5 million during the year ended June 30, 2001, as deposit growth provided cost-effective funding for asset growth during the period, resulting in less reliance upon borrowings for funding.

Stockholders' Equity.  Stockholders equity increased $19.9 million during the year ended June 30, 2001  (See "Liquidity and Capital Resources").

Comparison of Operating Results for the Fiscal Years Ended June 30, 2002 and 2001