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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission file number 0-27782

Dime Community Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Delaware

         11-3297463

(State or other jurisdiction of

      (I.R.S. Employer

incorporation or organization)

   Identification Number)

209 Havemeyer Street, Brooklyn, New York

  11211

(Address of principal executive offices)

(Zip Code)

(718) 782-6200

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  X    NO ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  

YES

 X  

NO

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Classes of Common Stock

Number of Shares Outstanding at October 31, 2004

$.01 Par Value

37,285,443

#

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands except share amounts)

See notes to the consolidated financial statements.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except per share amounts)

See notes to the consolidated financial statements.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

AND COMPREHENSIVE INCOME

(Dollars in thousands)

See notes to the consolidated financial statements.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

See notes to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   NATURE OF OPERATIONS

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's direct subsidiaries are the Bank and 842 Manhattan Avenue Corp.  The Bank's direct subsidiaries are Havemeyer Equities Corp. (''HEC''), Boulevard Funding Corp., Havemeyer Investments, Inc. and DSBW Residential Preferred Funding Corp.  HEC has one direct subsidiary, DSBW Preferred Funding Corporation.

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.  

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial condition as of September 30, 2004, and the results of operations, changes in stockholders' equity, comprehensive income and cash flows for the three-month and nine-month periods ended September 30, 2004 and 2003.  The results of operations for the three-month and nine-month periods ended September 30, 2004 are not necessarily indicative of the results of operations for the remainder of the year ending December 31, 2004.  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to the rules and regulations of the Securities an d Exchange Commission ("SEC").  

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas in the accompanying financial statements where estimates are significant include the allowance for loan losses, the valuation of mortgage servicing rights ("MSR"), asset impairment adjustments, the valuation of debt and equity securities, loan income recognition and the realization of deferred tax assets.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2003 and notes thereto.

3.   TREASURY STOCK

During the nine months ended September 30, 2004, the Holding Company repurchased 1,680,025 shares of its common stock into treasury.  All shares repurchased were recorded at the acquisition cost, which totaled $32.8 million during the nine months ended September 30, 2004.

On April 22, 2004, 86,827 shares of the Company's common stock were released from treasury in order to fulfill benefit obligations calculated under the Benefit Maintenance Plan of the Company.  The closing price of the Company's common stock on that date was $18.38.  The shares were released utilizing the average historical cost method.

4.   STOCK DIVIDEND

On March 16, 2004, the Holding Company paid a 50% stock dividend to all shareholders of record as of March 1, 2004.  Capital accounts, share and per share data have been adjusted to reflect this dividend, which had the effect of a three-for-two stock split.  

5.   ACCOUNTING FOR GOODWILL

Prior to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" on July 1, 2001, goodwill generated from the Holding Company's acquisition of Conestoga Bancorp, Inc. in 1999 was amortized on a straight line basis based upon a twelve year amortization period, and goodwill generated from the Holding Company's 1999 acquisition of Financial Bancorp, Inc. was amortized on a straight line basis based upon a twenty year amortization period.  

SFAS No. 142 established new standards for goodwill acquired in a business combination.  SFAS No. 142 eliminated amortization of goodwill and instead required that transitional goodwill impairment tests be performed six months from the date of adoption and annually thereafter.  As of the date of adoption of SFAS No. 142, the Company had goodwill totaling $55.6 million.  Prior to adoption of SFAS No. 142, annual goodwill amortization expense totaled $4.6 million.

The Company completed the transitional impairment test for goodwill as of July 1, 2001, and concluded that no potential impairment existed.  The Company subsequently designated the last day of its fiscal year as its annual date for impairment testing.  The Company performed an impairment test as of December 31, 2003 and concluded that no potential impairment of goodwill existed.  No events have occurred nor have circumstances changed subsequent to December 31, 2003 that would reduce the fair value of the Company's reporting unit below its carrying value.  Such events or changes in circumstances would require an immediate impairment test to be performed in accordance with SFAS No. 142.  

The following table reflects the carrying amount and accrued amortization of the Company’s goodwill and core deposit intangible:

In conjunction with the adoption of SFAS No. 142, the Company has also, as of September 30, 2004, re-assessed the useful lives and classifications of its identifiable intangible assets and determined that they remained appropriate.  Aggregate amortization expense related to the core deposit intangible was $206,000 for both the three months ended September 30, 2004 and 2003, and was $618,000 for both the nine months ended September 30, 2004 and 2003.  Estimated future amortization expense related to the core deposit intangible is as follows:

6.   EARNINGS PER SHARE ("EPS")

EPS is calculated and reported in accordance with SFAS No. 128, "Earnings Per Share.''  SFAS No. 128 requires disclosure of basic EPS and diluted EPS for entities with complex capital structures on the face of the income statement, along with a reconciliation of the numerator and denominator of basic and diluted EPS.

Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during the period [weighted average common shares are adjusted to include vested RRP shares and allocated ESOP shares].  Diluted EPS is computed using the same method as basic EPS, however, the computation reflects the potential dilution that would occur if unvested RRP shares became vested and stock options were exercised and converted into common stock.

The following is a reconciliation of the numerator and denominator of basic EPS and diluted EPS for the periods presented:

Common stock equivalents resulting from the dilutive effect of "in-the-money" stock options are calculated based upon the excess of the average market value of the Company's common stock over the exercise price of outstanding options.  

7.   ACCOUNTING FOR STOCK BASED COMPENSATION

The Company maintains the RRP, the Dime Community Bancshares, Inc. 1996 Stock Option Plan for Outside Directors, Officers and Employees and the Dime Community Bancshares, Inc. 2001 Stock Option Plan for Outside Directors, Officers and Employees (collectively the "Stock Option Plans"); which are discussed more fully in Note 15 to the Company's consolidated audited financial statements for the year ended December 31, 2003, and which are subject to the accounting requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148 "Accounting for Stock-Based Compensation – Transition and Disclosures, an Amendment of FASB Statement No. 123" (collectively "SFAS 123").  SFAS 123 encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value.  The Company accounts for stock-based compen sation under the Stock Option Plans using the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations.  Accordingly, no stock-based compensation cost has been reflected in net income for stock options, since, for all options granted under the Stock Option Plans, the market value of the underlying common stock on the date of grant equals the exercise price of the common stock.

In accordance with APB 25, compensation expense related to the RRP is recorded for all shares earned by participants during the period at the average historical acquisition cost of all allocated RRP shares.

The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.   See Note 15 to the Company's consolidated audited financial statements for the year ended December 31, 2003.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the Stock Option Plans and RRP shares:

8.   PROPOSED ACCOUNTING STANDARD

On March 31, 2004, the Financial Accounting Standards Board ("FASB") issued a proposed statement, "Share-Based Payment," that addresses the accounting for share-based payment transactions (e.g., stock options and awards of restricted stock) in which an employer receives employee services in exchange for equity securities of the company or liabilities that are based on the fair value of the company’s equity securities. The proposed statement, if adopted as proposed, would eliminate APB 25 and would generally require that such transactions be accounted for using a fair-value-based method and the recording of compensation expense rather than optional pro forma disclosure. The proposed statement, if approved as proposed, would substantially amend SFAS 123.  It is presently uncertain whether the proposed statement will be adopted substantially as proposed, and management is thus curre ntly unable to assess its potential impact on the Company's financial condition or results of operations.  In October 2004, the FASB delayed the proposed implementation date for the proposed standard to quarterly periods beginning after June 15, 2005.

In March 2004, the Emerging Issues Task Force reached a consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("EITF 03-1").  EITF 03-1 provides guidance for determining when an investment is other-than-temporarily impaired—including, whether an investor has the ability and intent to hold an investment until recovery.  In addition, EITF 03-1 contains disclosure requirements regarding impairments that have not been recognized as other than temporary.  Except as discussed in the following paragraph, the guidance for evaluating whether an investment is other-than-temporarily impaired was to be applied in other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004.  The disclosures were effective in annual financial statements for fiscal years ending after December 15, 2003, for inves tments accounted for under Statement of Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." For all other investments within the scope of this Issue, the disclosures are effective in annual financial statements for fiscal years ending after June 15, 2004.  The additional disclosures for cost method investments are effective for fiscal years ending after June 15, 2004.  Comparative information for periods prior to initial application is not required.  

In October 2004, the FASB issued a proposed staff position EITF Issue 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.'"  This proposed staff position is expected to provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for other-than-temporary impairment under paragraph 16 of EITF 03-1.  As a result of this proposed position statement, the FASB has indefinitely delayed the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF 03-1.  Management will evaluate the impact of adopting the application of the guidance for evaluating an other-than-temporary impairment upon issuance of the guidance.  

9.   UNREALIZED LOSSES ON INVESTMENT AND MORTGAGE-BACKED SECURITIES

The following table summarizes the gross unrealized losses and fair value of investment securities available for sale as of September 30, 2004, aggregated by investment category and the length of time the securities have been in a continuous unrealized loss position:

Management does not believe that any of the unrealized losses were other-than temporary losses at September 30, 2004.  In making this determination, management considered the severity and duration of the loss, as well as management's intent to hold the security until the loss is recovered.  As of September 30, 2004, no other investment or mortgage-backed securities ("MBS") possessed unrealized losses for twelve consecutive months or more.

The aggregate amount of investment securities and MBS carried at historical cost was $1.2 million as of September 30, 2004.  No individual security that was carried at historical cost possessed an unrealized loss as of September 30, 2004.

10.   EXCHANGE OFFER OF CAPITAL SECURITIES

On September 9, 2004, the Company commenced an exchange offer which expired on October 22, 2004 (the "Exchange Offer").  The Exchange Offer provided for the exchange of any and all of the 7.0% Capital Securities due April 14, 2034, Series A,  (the "Series A Capital Securities"), for $70.0 million aggregate liquidation amount of the 7.0% Capital Securities due April 14, 2034, Series B (the "Series B Capital Securities").  The terms of the Series B Capital Securities are identical in all material respects to the Series A Capital Securities, except that the Series B Capital Securities have been registered pursuant to the Securities Act of 1933, as amended.  At the conclusion of the Exchange Offer, $60 million aggregate liquidation amount of the Series A Capital Securities were exchanged for the Series B Capital Securities and $10 million aggregate liquidation amount of the Series A Capital Securities remained outstanding.

Item 2.  

Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").  These statements may be identified by 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 statements are based upon various assumptions and analyses made by the Company in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company's control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following:

*

the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company's control;  

*

there may be increases in competitive pressure among financial institutions or from non-financial institutions;

*

changes in the interest rate environment may reduce interest margins;

*

changes in deposit flows, loan demand or real estate values may adversely affect the business of the Bank;

*

changes in accounting principles, policies or guidelines may cause the Company's financial condition to be perceived differently;

*

general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, or conditions in the securities markets or the banking industry, may be less favorable than the Company currently anticipates;

*

legislation or regulatory changes may adversely affect the Company's business;

*

technological changes may be more difficult or expensive than the Company  anticipates;

*

success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or

*

litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates.

The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

General

The Holding Company is a Delaware corporation and parent holding company of the Bank, a federally chartered stock savings bank.   The Bank's principal business has been, and continues to be, gathering deposits from customers within its market area and investing them primarily in multifamily residential, commercial and one- to four-family residential real estate loans, construction loans, consumer loans, MBS, obligations of the U.S. Government and Government Sponsored Entities and corporate debt and equity securities.  Virtually all of these business activities are transacted through the Bank.

Executive Summary

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, other fees, income associated with its purchase of Bank Owned Life Insurance for its officers, and income from sales of securities and loans.  Non-interest expenses consist primarily of employee compensation and benefits, data processing fees, marketing expenses and other operating expenses.  The Company’s consolidated results of operations are also significantly affected by general economic and competitive conditions (particularly fluctuations i n market interest rates), government policies, and changes in accounting standards and actions of regulatory agencies.

The Bank’s primary strategy is to increase its household and deposit market shares in the communities that it serves, through either 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 multifamily residential and commercial real estate loans.  Multifamily residential lending is a significant business of the Bank, reflecting the fact that much of the housing in its primary lending area is multifamily.  Recently, the Bank has increased its portfolio of loans secured by mixed-use properties, which it classifies as commercial real estate loans, typified by buildings with commercial units on ground level and residential apartment units on upper floors.  

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

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 and asset/liability management techniques in an effort to manage the effects of interest rate volatility on its profitability and capital.  

Prior to January 2004, the overall low interest rate environment resulted in a greater decline in the average cost of interest bearing liabilities than the average yield on interest earning assets.  During the three-month and nine-month periods ended September 30, 2004, the continued low interest rate environment had the opposite effect, resulting in a greater decline in the average yield on interest earning assets than in the average cost of interest bearing liabilities.  Additionally, both an increase in short-term interest rates during the nine months ended September 30, 2004 and the 7.0% coupon trust preferred borrowing issued by the Company in March 2004 added to interest expense on borrowed funds during the three months and nine months ended September 30, 2004.  As a result, both the net interest spread and the net interest margin, which had increased during most of 2002 and 2003, declined during the three-mo nth and nine-month periods ended September 30, 2004, when compared to the three-month and nine-month periods ended September 30, 2003.  These declines resulted in a decrease of $1.4 million in net interest income during the quarter ended September 30, 2004 compared to the quarter ended September 30, 2003.  Also contributing to the decline in net income of $3.9 million during the three months ended September 30, 2004 compared to the three months ended September 30, 2003 was a marked drop in multifamily residential and commercial real estate loan prepayment fees of $3.7 million.

The Company has positioned itself for a potential increase in interest rates by not fully deploying its strong capital position in the historically low interest rate environment of 2003 and the initial three quarters of 2004, and by maintaining a short-duration securities portfolio that is expected to provide a steady source of liquidity during the remainder 2004 and into 2005.  The Company expects a controlled deployment of its capital and liquidity as market interest rates return to historically steeper levels.  However, in the event that short-term rates rise rapidly or disproportionately in relation to longer-term interest rates, the Company would likely experience some adverse impact on its net interest income.  

Selected Financial Highlights and Other Data

(Dollars in thousands except per share amounts)

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2003 contains a summary of the significant accounting policies adopted by the Company. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. The Company’s policies with respect to the methodologies it uses to determine the allowance for loan losses, the valuation of MSR, asset impairment judgments (including the valuation of goodwill and intangible assets and other than temporary declines in the value of its securities), and loan income recognition are the Company’s most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a significant degree of complexity and require management to make difficu lt and subjective judgments which often necessitate assumptions or estimates regarding highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in the Company's results of operations or financial condition.

The following is a description of the Company's critical accounting policies and an explanation of the methods and assumptions underlying their application. These critical policies and their application are reviewed at least annually with the Audit Committee of the Company's Board of Directors.

Allowance for Loan Losses. The loan loss reserve methodology consists of several significant components, including a review of the two elements of the Bank's loan portfolio: performing loans and classified loans [i.e., non-performing loans, troubled-debt restructurings and impaired loans under SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures an Amendment of FASB Statement No. 114," ("Amended SFAS 114"), as well as loans otherwise internally classified as "Special Mention," "Substandard," or "Doubtful"].  At September 30, 2004, 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 at least quarterly, based upon the premise that there are losses inherent within the loan portfolio that have not been identified as of the balance sheet date.  As a result, the Bank calculates an allowance for loan losses related to its performing loans by deriving an expected loan loss percentage and applying it to its performing loans.  In determining 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, multifamily residential, commercial real estate, cooperative apartment or consumer); the underwriting history of the loan (i.e., whether it was underwritten by the Bank or a predecessor institution acquired subsequently by the Bank and, therefore, originally subjec ted to different underwriting criteria); both the current condition 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 properties located in the New York City metropolitan area) or specific industry conditions within the portfolio segments.  Since the criteria impact 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 applied the process of determining the allowance for loan losses consistently throughout the three-month and nine-month periods ended September 30, 2004 and 2003.

Regarding classified loans, generally, the Bank considers non-performing and troubled-debt restructured multifamily residential and commercial real estate loans, along with non-performing one- to four-family loans exceeding $333,700, to be impaired. Non-performing one-to four-family loans of $333,700 or less are considered homogeneous loan pools and are not required to be evaluated individually for impairment.  Pursuant to Amended SFAS 114, loans determined to be impaired are evaluated in order to establish whether the estimated value of the underlying collateral determined from independent appraisals is sufficient to satisfy the existing debt.  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.  The determination of the estimated fair value of the underlying collateral is subject to assumptions and judgments.  A specific reserve for loan losses could differ materially as a result of changes in these assumptions and judgments.  

Loans otherwise internally classified as Special Mention, Substandard or Doubtful are reviewed individually on a quarterly basis by the Bank's Loan Loss Reserve Committee to determine if specific reserves are appropriate.  

If approved by the Board of Directors, the Bank will increase the allowance for loan losses in an amount recommended by the Loan Loss Reserve Committee to appropriately reflect an assumed inherent loss from any other loss classification category.  Typically, 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 applied this process consistently throughout the three months ended September 30, 2004 and 2003.

Management believes that the Bank maintains its allowance for loan losses at appropriate levels, however, subsequent adjustments may be necessary if economic or other conditions in the future differ from the current operating environment.  Although the Bank believes that it utilizes the most reliable information available, the level of the allowance for loan losses remains an estimate subject to significant judgment and short-term change.  These evaluations are inherently subjective because, even though they are based upon objective data, it is management's interpretation of that data that determines the amount of the appropriate allowance.  Therefore, the Company periodically compares the actual performance and charge-off of its portfolio to the previously determined allowance coverage percentages.  In doing so, the Company evaluates the impact that the previously mentioned variables may have on the portfol io to determine whether changes to the assumptions and analyses are appropriate.  In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Bank's allowance for loan losses, its valuation of Other Real Estate Owned ("OREO"), and the level of loans both in, and pending, foreclosure. Based on their judgments, the regulators may require the Bank to recognize adjustments to the allowance.

Valuation of MSR.  The estimated origination and servicing cost of mortgage loans sold with servicing rights retained is allocated between the loans and the servicing rights based on their estimated fair values at the time of the loan sale. Servicing assets are carried at the lower of cost or fair value and are amortized in proportion to, and over the period of, net servicing income. The estimated fair value of loan servicing assets is determined by calculating the present value of projected future net servicing cash flows, using assumptions of prepayments, defaults, servicing costs and discount rates that the Company believes market participants would use for similar assets. Capitalized loan servicing assets are stratified based on predominant risk characteristics of the underlying loans for the purpose of evaluating impairment. A valuation allowance is then established in the event the recorded value of an individua l stratum exceeds fair value.  All estimates and assumptions utilized in the valuation of MSR are derived based upon actual historical results for either the Bank or its industry peers.  In addition, a review of the MSR calculated and recorded is performed quarterly by an independent company.

The fair value of MSR is sensitive to changes in assumptions.  Fluctuations in prepayment speed assumptions have the most significant impact on the fair value of MSR.  In the event that loan prepayment activities increase due to increased loan refinancing, the fair value of MSR would likely decline.  In the event that loan prepayment activities decrease due to a decline in loan refinancing, the fair value of MSR would likely increase.  Any measurement of MSR is limited by the existing conditions and assumptions utilized at a particular point in time, and would not necessarily be appropriate if they were applied at a different point in time.

Asset Impairment Adjustments.  Certain of the Company’s assets are carried in its consolidated statements of financial condition at fair value or at the lower of cost or fair value. Valuation allowances are established when necessary to recognize impairment of such assets. Management of the Company periodically performs analyses to test for impairment of these assets. In addition to the impairment analyses related to loans and MSR discussed above, two other significant impairment analyses relate to the value of goodwill and intangible assets and other than temporary declines in the value of the Company's securities.  To date, no impairment has been recognized on any of the intangible assets.

Goodwill is accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," which was adopted by the Company on July 1, 2001.  SFAS No. 142 eliminated amortization of goodwill and instead requires that an impairment test be performed annually at the reporting unit level.  As of the date of adoption of SFAS No. 142, and as of September 30, 2004, the Company had goodwill totaling $55.6 million.  Prior to adoption of SFAS No. 142, annual goodwill amortization expense totaled $4.6 million.

For purposes of its goodwill impairment testing, the Company is identified as a single reporting unit.  The impairment test is therefore performed on a consolidated basis and compares the Company's market capitalization (reporting unit fair value) to its outstanding equity (reporting unit carrying value).  In accordance with the recommended provisions of SFAS No. 142, the Company utilizes its closing stock price as reported on the Nasdaq National Market on the date of the impairment test in order to compute market capitalization.  The Company has designated the last day of its fiscal year as the annual date for impairment testing. The Company performed its annual impairment test as of December 31, 2003 and concluded that no potential impairment of goodwill existed since the fair value of the Company's reporting unit exceeded its carrying value.  No events have occurred, nor circumstances changed, subsequent to December 31, 2003 that would reduce the fair value of the Company's reporting unit below its carrying value.  Such events or changes in circumstances would require an immediate impairment test to be performed in accordance with SFAS No. 142.  Differences in the identification of reporting units and the use of valuation techniques can result in materially different evaluations of impairment.

Debt and equity securities that have readily determinable fair values are carried at fair value unless they are held to maturity. Estimated fair values for securities are based on published or securities dealers' market values.  Debt securities are classified as held to maturity and carried at amortized cost only if the Company has a positive intent and ability to hold them to maturity.  If not classified as held to maturity, such securities are classified as securities available for sale or as trading securities. Unrealized holding gains or losses on securities available for sale are excluded from net income and reported net of income taxes as other comprehensive income.  The Company conducts a periodic review and evaluation of its securities portfolio to determine if the value of any security has declined below its carrying value and whether such decline is other than temporary.  If such decline is deemed ot her than temporary, the carrying amount of the security is adjusted through a charge to earnings.  For the three-month and nine-month periods ended September 30, 2004 and 2003, there were no other-than temporary impairments in the securities portfolio.

Loan Income Recognition.  Interest income on loans is recorded using the level yield method.  Pursuant to this method, discount accretion and premium amortization are included in interest income.  Loan origination fees and certain direct loan origination costs are deferred and amortized as a yield adjustment over the contractual loan terms.  Accrual of interest is discontinued when its receipt is in doubt, which typically occurs when a loan becomes 90 days past due as to principal or interest.  When interest accruals are discontinued, any interest accrued to income during the year of discontinuance is reversed. Payments on nonaccrual loans are generally applied to principal.  Management may elect to continue the accrual of interest when a loan is in the process of collection and the estimated fair value of the collateral is sufficient to satisfy the principal balance and accrued interest. &nbs p;Loans are returned to accrual status if the doubt concerning collectibility has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions.

Liquidity and Capital Resources

The Bank's primary sources of funds are deposits; proceeds from principal and interest payments on loans, MBS and investments; borrowings; and proceeds from the sale of multifamily residential loans to the Federal National Mortgage Association ("FNMA"), and 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 MBS are influenced by interest rates, economic conditions and competition.

The Bank gathers deposits in direct competition with commercial banks, savings banks and brokerage firms, 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 equity markets.  The Bank's deposit flows are affected primarily by the pricing and marketing of its deposit products compared to its competitors, as well as the market performance of depositor investment alternatives (such as the U.S. bond or equity markets).  To the extent that the Bank is responsive to general increases or declines in interest rates, its deposit flows should not be materially impacted.  However, successful performance of the equity markets could adversely impact the Company’s deposit flows.  

Deposits increased $191.6 million during the nine months ended September 30, 2004 and $103.8 million during the nine months ended September 30, 2003.  The increase in deposits during each of these periods reflected increased marketing efforts that helped generate additional deposit balances in certificates of deposit ("CDs") and core (i.e., non-CD) deposit accounts.  Successful CD promotional campaigns implemented during the nine months ended September 30, 2004 resulted in growth in CDs of $122.7 million during the nine months ended September 30, 2004. Additionally, during the nine months ended September 30, 2004 and 2003, money market accounts increased $67.6 million and $127.9 million, respectively, as a result of successful promotional activities.  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 nine months ended September 30, 2004, principal payments received on real estate loans totaled $481.2 million and principal payments received on MBS totaled $162.4 million.  During the nine months ended September 30, 2003, principal payments received on real estate loans totaled $751.5 million and principal payments received on MBS totaled $316.0 million.  The decrease in principal payments received on loans and MBS resulted from a reduction in customer refinance activities associated with mortgage-backed assets.  The majority of this decline resulted from the large amount of loans that were satisfied or refinanced during 2002 and 2003 as a result of historically low interest rates, which substantially reduced the level of loans likely to prepay or refinance during 2004.  

Maturities of investment securities totaled $5.1 million during the nine months ended September 30, 2004 and $55.8 million during the nine months ended September 30, 2003, providing additional liquidity to the Company during these periods.  During the years ended December 31, 2002 and 2003, the Company experienced calls on a large portion of its investment securities as a result of the low level of interest rates that prevailed during that period.  The balance of callable securities during 2004 was greatly diminished due to the extensive call activity during 2003.

During the nine months ended September 30, 2004, the Company received proceeds of $127.1 million from the sale of MBS and $3.0 million from the sale of available for sale investment securities.  These sales were made for various business purposes that included, but were not limited to, desired added liquidity and asset/liability management.  

The Bank implemented a program in December 2002 to originate and sell multifamily residential mortgage loans in the secondary market to FNMA while retaining servicing. The Bank underwrites these loans using its customary underwriting standards, funds the loans, and sells them to FNMA at agreed upon pricing.  Typically, the Bank seeks to sell loans to FNMA with terms to maturity or repricing in excess of seven years from the origination date, since the Bank does not wish to hold such loans in its portfolio due to the heightened interest rate risk that such loans present.  Under the terms of the sales program, the Bank retains a portion of the associated credit risk.  Once established, such amount would continue to increase as long as the Bank continues to sell loans under this program to FNMA. The Bank retains this level of exposure until the portfolio of loans are paid in entirety or the Bank funds claims by FNMA f or the maximum loss exposure.  During the nine months ended September 30, 2004 and 2003, respectively, the Bank sold $143.9 million and $77.8 million of loans to FNMA.  

During the nine months ended September 30, 2004, securities sold under agreement to repurchase ("REPOS") increased $193.0 million compared to a net decline of $19.0 million during the nine months ended September 30, 2003.  During the nine months ended September 30, 2004, management elected to utilize REPOS as the primary source of funding for growth in MBS.  During the nine months ended September 30, 2004, the Company added REPOS with an average maturity of 1.9 years and a weighted average interest cost of 2.29% in order to fund securities purchases.  

During the nine months ended September 30, 2004, Federal Home Loan Bank of New York ("FHLBNY") advances declined $27.5 million, as management utilized REPOS and deposits as the primary sources for funding asset growth.  During the nine months ended September 30, 2003, FHLBNY advances increased $19.0 million, as management elected to add some long-term FHLBNY advances to partially mitigate the interest rate risk resulting from the historically low interest rates on its multifamily portfolio loan originations.  The average term to maturity on FHLBNY advances added during the nine months ended September 30, 2003 was 8.2 years.  There were no new FHLBNY advances added during the nine months ended September 30, 2004.

In March 2004, the Company received net proceeds of $70.0 million from the issuance of debt in the form of Trust Preferred securities.  These borrowings bear interest at a rate of 7.0% for 30 years and are callable at any time after 5 years.  During both the three months and nine months ended September 30, 2004, the Company utilized a portion of the funds received from this issuance to repurchase its common stock, and invested the remaining balance in medium-term securities.

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 nine months ended September 30, 2004 and 2003, real estate loan originations totaled $905.3 million and $869.5 million, respectively.  A continued level of low, long-term interest rates during the period January 2003 through September 2004 contributed to the strong level of real estate loan originations during the nine months ended September 30, 2004 and 2003.  Purchases of investment securities and MBS, which were $531.3 million during the nine months ended September 30, 2003, totaled $423.2 million for the nine months ended September 30, 2004.  The heightened purchase activity during the nine months ended September 30, 2003 reflected both the replenishment of the MBS portfolio in response to high levels of amortization during the period and the acquisition of a greater volume of short-term securities earmarked for re-investment in real estate loans.  

During the nine months ended September 30, 2004, the Holding Company repurchased 1,680,025 shares of its common stock into treasury.  All shares were recorded at the acquisition cost, which totaled $32.8 million during the nine months ended September 30, 2004. As of September 30, 2004, up to 1,725,060 shares remained available for purchase under authorized share purchase programs.  Based upon the closing price of its common stock of $16.80 per share as of September 30, 2004, the Holding Company would utilize $29.0 million in order to purchase all of the 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.  In the event that the Bank should require funds beyond its ability to generate them internally, an additional source of funds is available through use of its borrowing line at the FHLBNY.  At September 30, 2004, the Bank had an additional potential borrowing capacity of $519.4 million available should it purchase the minimum required level of FHLBNY common stock (i.e., 1/20^th of its outstanding FHLBNY borrowings).

The Bank is subject to minimum regulatory capital requirements imposed by the Office of Thrift Supervision ("OTS"), which, as a general matter, are based on the amount and composition of an institution's assets. At September 30, 2004, the Bank was in compliance with all applicable regulatory capital requirements.  In addition, at September 30, 2004, the Bank was considered "well-capitalized" for all regulatory purposes.

Contractual Obligations

The Bank has outstanding at any time, a significant number of borrowings in the form of FHLBNY advances or REPOS.  The Holding Company also has an outstanding non-callable subordinated note payable of $25.0 million due to mature in 2010 and $70.0 million of trust preferred borrowings from third parties due to mature in April 2034, which is callable at any time after April 2009.

The Bank is obligated under leases for certain rental payments due on its branches and equipment.  A summary of borrowings and lease obligations at September 30, 2004 is as follows:

(1) Under the terms of the Bank's seller/servicer program with FNMA, the Bank retains a portion of the associated credit risk.  The Bank retains this level of exposure until the portfolio of loans are paid in entirety or the Bank funds claims by FNMA for the maximum loss exposure.  As of September 30, 2004, the Bank had not realized any losses related to these loans.  Reserves of $1.2 million were established as of September 30, 2004 related to this exposure.  

Off-Balance Sheet Arrangements

The Bank has outstanding commitments to extend credit to third parties which are subject to strict credit control assessments.  Since many of these loan commitments expire without being funded in whole or part, the contract amounts are not estimates of future cash flows.  In addition, the Holding Company guarantees the Bank's recourse obligations under the FNMA agreement discussed previously herein.

Asset Quality

Non-performing loans (i.e., delinquent loans for which interest accruals have ceased in accordance with the Bank's policy - typically loans 90 days or more past due) totaled $851,000 at September 30, 2004 and $525,000 at December 31, 2003.  During the nine months ended September 30, 2004, three loans totaling $450,000 were added to non-performing status.  Partially offsetting this increase was the removal of one loan totaling $99,000 from non-performing status during the same period.

The Bank had 26 real estate and consumer loans, totaling $593,000, delinquent 60-89 days at September 30, 2004, compared to 30 such delinquent loans, totaling $1.4 million, at December 31, 2003.   

The majority of the dollar amount of both non-performing loans and loans delinquent 60-89 days were real estate loans.  The majority of the count of both non-performing loans and loans delinquent 60-89 days were consumer loans (primarily depositor loans).  The decline in the amount delinquent 60-89 days from December 31, 2003 to September 30, 2004 resulted from a net decrease of four real estate loans totaling $898,000 during the period, that was partially offset by the addition of two home equity loans totaling $91,000.  Sixty to eight-nine day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of credit quality trends than non-performing loans.  

GAAP requires the Bank 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 OTS regulations require that troubled-debt restructurings remain classified as such until the loan is either repaid or returns to its original terms.  The Bank had no loans classified as troubled-debt restructurings at September 30, 2004 or December 31, 2003.  

Amended SFAS 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 all non-performing or troubled-debt restructured multifamily residential and commercial real estate loans, along with non-performing one- to four-family loans that exceed $333,700, to be impaired. The recorded investment in loans deemed impaired was approximately $384,000, consisting of one loan, at September 30, 2004.  There were no loans deemed impaired at December 31, 2003.  The average total balance of impaired loans was approximately $553,000 and $2 20,000 during the nine months ended September 30, 2004 and 2003, respectively.  The increase resulted from the addition of the three impaired loans during the nine months ended September 30, 2004, two of which were removed from impaired status during the three months ended September 30, 2004.  At September 30, 2004, there were $38,000 of reserves allocated within the allowance for loan losses for impaired loans.  At December 31, 2003, there were no reserves allocated within the allowance for loan losses for impaired loans.  At September 30, 2004, non-performing loans exceeded impaired loans by $467,000, due to $467,000 of one- to four-family and consumer loans, which, while on non-performing status, were not deemed impaired, since they had individual outstanding balances less than $333,700, and were thus considered homogeneous loan pools that were not required to be evaluated for impairment.

As of September 30, 2004, the Bank had eleven loans totaling $1.3 million that, due to previous payment difficulties, were past their original maturity date, however, continued to possess outstanding principal balance.  All of these loans continued to make timely monthly payments of both principal and interest.  As of September 30, 2004, the Bank did not expect to incur any losses on these loans, and therefore did not consider them to be either troubled-debt restructurings or impaired loans.

The following table sets forth information regarding non-performing loans, non-performing assets, impaired loans and troubled-

debt restructurings at the dates indicated:

Allowance for Loan Losses

The Bank complies with the GAAP requirement to maintain an appropriate allowance for loan losses.  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 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 the Bank's senior management and the Board of Directors.

The allowance for loan losses was $15.4 million at September 30, 2004, compared to $15.0 million at December 31, 2003.  During the nine months ended September 30, 2004, the Bank recorded a provision of $180,000 to the allowance for loan losses to provide for additional inherent losses in the portfolio.  The Bank also recorded net charge-offs of approximately $73,000 during the same period, virtually all of which related to consumer loans, and reclassified $257,000 of its existing allowance for loan losses to other liabilities in order to separately account for reserves related to loan origination commitments.   

Factors considered in determining the appropriateness of the allowance for loan losses include the Bank's past loan loss experience, known and inherent risks in the portfolio, existing adverse situations which may affect the ability of borrowers to repay, estimated value of underlying collateral and current economic conditions in the Bank's lending area. While management uses available information to estimate losses on loans, future additions to, or reductions in, the allowance may be necessary based on changes in economic conditions beyond management's control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to, or reductions in, the allowance based on judgments different from those of management. Management believes, based upon all relevant and av ailable information, that the allowance for loan losses is appropriate to absorb losses in the portfolio.  See "Critical Accounting Policies – Allowance for Loan Losses."

Comparison of Financial Condition at September 30, 2004 and December 31, 2003

Assets.  Assets totaled $3.42 billion at September 30, 2004, an increase of $443.5 million from total assets of $2.97 billion at December 31, 2003.  The growth in assets was experienced primarily in MBS available for sale and real estate loans, which increased $102.8 million and $339.2 million, respectively.  During the nine months ended September 30, 2004, the Bank purchased $398.2 million of MBS available for sale.  These purchases were intended to provide additional yield over other short-term investments, while providing liquidity to the Bank in future quarters when it may seek to deploy funds into higher yielding investments.  Partially offsetting these purchases were principal payments received of $162.1 million and net sales proceeds of $127.1 million on MBS available for sale during the nine months ended September 30, 2004.  During the nine months ended September 30, 2004, the Bank exp erienced a reduction in the historically high levels of principal repayments on MBS available for sale that occurred during 2003.  This decline in repayments reflected a reduction in mortgage refinancing activity during the period as a result of the historically high levels of prepayments during both 2002 and 2003 that significantly reduced the total population of mortgage-backed assets likely to refinance in future years.  

In addition to growth in MBS available for sale, real estate loans (including loans held for sale) increased $339.2 million during the nine months ended September 30, 2004.  During the nine months ended September 30, 2004, real estate loan originations totaled $905.3 million, of which $876.8 million were multifamily residential and commercial real estate loans.  Real estate loan origination levels were driven by the continuation of the low interest rate environment during the period January 2004 through September 2004.  Offsetting the growth in real estate loans from originations were principal repayments totaling $481.2 million during the nine months ended September 30, 2004.  Principal repayments, which include both regular amortization and prepayments, totaled $751.5 million during the nine months ended September 30, 2003.  The decline reflected a reduction in overall loan refinancing activity during t he period as the record level of loan refinancing during 2002 and 2003 significantly reduced the total population of loans likely to refinance in future years.  

Investment securities available for sale increased $17.2 million during the nine months ended September 30, 2004, due primarily to purchases of $25.0 million during the period that were partially offset by maturities and sales totaling $7.7 million.

Liabilities.  Total liabilities increased $446.9 million during the nine months ended September 30, 2004.  Deposits grew $191.6 million due to the success of various sales and marketing activities during the period.  CDs increased $122.7 million and money market accounts increased $67.6 million during the nine months ended September 30, 2004 due to separate successful promotional campaigns.  In addition, escrow and other deposits increased $22.9 million during the period due to increased funding for real estate taxes.

During the nine months ended September 30, 2004, REPOS increased $193.0 million, and FHLBNY advances decreased $27.5 million.  (See "Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources").

In March 2004, the Company completed an offering of trust preferred securities in an aggregate amount of $70.0 million.  The trust preferred securities, which bear a fixed interest rate of 7.0%, mature on April 14, 2034, and are callable without penalty at any time on or after April 15, 2009.  These borrowings were undertaken in order to obtain funding for general business activities including, but not limited to, repurchases of common stock and payment of cash dividends.

Stockholders' Equity.  Stockholders' equity decreased $3.4 million during the nine months ended September 30, 2004, due to the repurchase of $32.8 million of treasury stock, a net decrease in accumulated other comprehensive income or loss of $2.1 million, and the payment of cash dividends of $14.8 million during the period.  These reductions in stockholders' equity were partially offset by net income of $36.0 million, an increase to stockholders' equity of $8.5 million related to the issuance of common stock for the exercise of stock options and tax benefits associated with the Stock Option Plans and RRP, and an increase to equity of $2.0 million related to amortization of the ESOP and 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 expen se is recognized on the ESOP and RRP, the Contra Equity Balances are reduced, resulting in an increase to their respective equity balances.  This increase to equity offsets the decline in the Company's retained earnings related to the periodic ESOP and RRP expenses that are recorded.  The stockholders' equity component of other comprehensive income decreased $2.1 million during the nine months ended September 30, 2004 as a result of a decline in the net unrealized gain on investment and mortgage-backed securities available for sale that was attributable to increases in short-term interest rates during 2004.

Comparison of the Operating Results for the Three Months Ended September 30, 2004 and 2003

General. Net income was $11.2 million during the three months ended September 30, 2004, a decrease of $4.0 million from net income of $15.2 million during the three months ended September 30, 2003.  During this comparative period, net interest income decreased $1.4 million, non-interest income decreased $4.9 million and non-interest expense increased $721,000, resulting in a decline in pre-tax income of $7.0 million.  Income tax expense decreased $3.1 million as a result of the decline in pre-tax income.  

Net Interest Income.  The discussion of net interest income for the three months ended September 30, 2004 and 2003 presented below should be read in conjunction with the following tables, which set forth certain information related to the consolidated statements of operations for the three months ended September 30, 2004 and 2003, and which also present the average yield on assets and average cost of liabilities for the periods indicated.  These yields and costs were derived by dividing income or expense by the average balance of their related assets or liabilities during the periods represented. Average balances were derived from average daily balances. The yields and costs include fees that are considered adjustments to yields.

Analysis of Net Interest Income (Unaudited)

Rate/Volume Analysis (Unaudited)

Net interest income for the three months ended September 30, 2004 decreased $1.4 million to $24.1 million from $25.5 million during the three months ended September 30, 2003.  This decrease was attributable to a decline of $305,000 in interest income and an increase of $1.1 million in interest expense during the three months ended September 30, 2004 compared to the three months ended September 30, 2003.  The net interest spread decreased 51 basis points from 3.23% for the three months ended September 30, 2003 to 2.72% for the three months ended September 30, 2004, and the net interest margin decreased 54 basis points from 3.46% to 2.92% during the same period.

The decrease in both the net interest spread and net interest margin reflected a 63 basis point decline in the average yield on interest earning assets as a result of the continued repricing of assets during the historically low interest rate environment that has persisted over the past three years.  In addition, prior to January 2004, the overall low interest rate environment resulted in a greater decline in the average cost of interest bearing liabilities than the average yield on interest earning assets.  During the three months and nine months ended September 30, 2004, the continued low interest rate environment created the opposite effect, resulting in a greater decline in the average yield on interest earning assets than the average cost of interest bearing liabilities (See "Interest Expense").  As a result, both the net interest spread and the net interest margin, which had increased during most of 2002 and 2003, declined during both the three months and nine months ended September 30, 2004.

During the three months ended September 30, 2004 compared to the three months ended September 30, 2003, the average yield on real estate loans, the largest of the Company's interest earning assets, declined by 94 basis points (See the discussion entitled "Interest Income" below for a further examination of these declines).

Partially offsetting the decline in average yield on interest earning assets was a reduction of 12 basis points in the average cost of interest bearing liabilities that resulted primarily from declines in the average cost of borrowings of 30 basis points and the average cost of CDs of 25 basis points, coupled with the movement of the overall composition of funding from higher-cost borrowings into deposits with a lower average cost (See the discussion entitled "Interest Expense" below for a further examination of these declines).

Interest Income.  Interest income was $41.7 million during the three months ended September 30, 2004, a decrease of $305,000 from $42.0 million during the three months ended September 30, 2003.  Interest income on real estate loans, investment securities and other short term investments declined by $562,000, $76,000 and $287,000, respectively, during the three months ended September 30, 2004 compared to the three months ended September 30, 2003.  Partially offsetting these declines was an increase of $625,000 in interest income on MBS during the comparable period.

The decline in interest income resulted from the historically low interest rate environment that existed during the period January 1, 2002 through September 30, 2004.  That low interest rate environment stimulated the refinancing and prepayment of higher rate loans in the Bank's portfolio, while also resulting in reduced rates on existing portfolio loans that repriced during the period July 1, 2003 to September 30, 2004 (although the levels of refinancing and prepayment did experience a slight decline during the nine months ended September 30, 2004 as a result of an increase in interest rates).  The combination of these two factors resulted in a decline of 94 basis points in average yield on real estate loans (the Bank's largest interest earning investment) during the quarter ended September 30, 2004 compared to the quarter ended September 30, 2003.  In addition, the average yield on MBS increased 28 basis points d uring the same period as a result of a reduction in the high level of prepayments on these securities that occurred during 2002 and 2003.  Further, as a result of the low interest rate environment, the average yields on investment securities and other short-term investments declined by 46 basis points and 124 basis points, respectively, during the three months ended September 30, 2004 compared to the three months ended September 30, 2003.

The Bank's general policy has been to emphasize growth in real estate loans as its primary interest-earning asset, and de-emphasize its investment and MBS portfolios, while loan origination demand is strong.  However, as part of a specific investment strategy to achieve a desirable balance of yield and liquidity on short-term investments, the Bank purchased $398.2 million of MBS during the nine months ended September 30, 2004.  This purchase level exceeded the level of MBS principal repayments of $162.4 million during the same period, and contributed to an overall increase of $23.5 million in the average balance of MBS during the three months ended September 30, 2004 compared to the three months ended September 30, 2003.  As a result, the dollar amount of interest income on MBS increased by $625,000 during the three months ended September 30, 2004 compared to the three months ended September 30, 2003.

Interest Expense.  Interest expense increased $1.1 million, to $17.6 million during the three months ended September 30, 2004, from $16.5 million during the three months ended September 30, 2003.  The growth in interest expense resulted substantially from increases of $746,000 and $279,000 in interest expense on borrowings and money market deposits, respectively.  

During the three months ended September 30, 2004 compared to the three months ended September 30, 2003, the average cost of CDs, the largest component of interest expense during the 2004 period, declined by 25 basis points, while their average balance increased by $96.3 million. The net impact of these two events resulted in a slight increase in interest expense of $57,000 during the three months ended September 30, 2004 compared to the three months ended September 30, 2003.  The decline in the average cost of CD's reflected a reduction in interest rates offered on deposits as a result of the continued low level of interest rates during the period January 1, 2002 through September 30, 2004, which was not materially impacted by the recent increase in short-term interest rates.  The increase in the average balance of CDs during the three months ended September 30, 2004 compared to the three months ended September 30, 2003 resulted from a runoff of CDs from July 2003 to December 2003 as customers sought higher rates in other investment products, combined with growth in the balances of CDs during the nine months ended September 30, 2004 resulting from successful promotional offerings.

Interest expense on money market accounts increased $279,000 during the three months ended September 30, 2004 compared to the three months ended September 30, 2003, due to an increase in average balance of $95.5 million during the period.  The increase in average balance reflected successful deposit gathering promotions of the Bank during the period July 1, 2003 to September 30, 2004.  Partially offsetting this increase was a decline in the average cost of money market accounts of 4 basis points, reflecting reductions in interest rates paid by the Bank as a result of the overall low interest rate environment in effect during the period July 2003 through September 2004, which was also not materially impacted by the recent increase in short-term interest rates.

Interest expense on borrowed funds increased $746,000 during the three months ended September 30, 2004 compared to the three months ended September 30, 2003, reflecting increased borrowings as described below, that was partially offset by a 30 basis point decline in their average cost during the period.  During the twelve months ended December 31, 2003, the Company reduced its total borrowings by $103.9 million by either not replacing borrowings that matured or prepaying outstanding debt.  During the nine months ended September 30, 2004, the Company added $193.0 million of REPOS, and a $70 million trust preferred borrowing.  The new REPOS assumed during the nine months ended September 30, 2004 were added during a period of historically low interest rates, and therefore had a lower average cost than the existing average cost within the Company's total portfolio of borrowings.  The trust preferred borrowings add ed 26 basis points to the average cost of borrowings during the three months ended September 30, 2004.  The combination of activity in these two periods resulted in an overall increase of $122.5 million in the average balance of borrowings during the three months ended September 30, 2004 compared to the three months ended September 30, 2003, but a decline in their average cost.  

Provision for Loan Losses.  The provision for loan losses was $60,000 during both the three months ended September 30, 2004 and 2003 (See "Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses").

Non-Interest Income.  Non-interest income decreased $4.9 million, to $4.5 million, during the three months ended September 30, 2004, from $9.4 million during the three months ended September 30, 2003.  The decline resulted primarily from decreased prepayment fee income (included in other non-interest income) of $3.7 million resulting from a decline in refinancings driven by the increases in interest rates during 2004, and a decrease of $1.2 million in the net gain on the sale of loans, investment securities and MBS.  

The Company recorded a net loss of $288,000 on the sale of $58.3 million in loans to FNMA during the quarter ended September 30, 2004 and a gain of $646,000 on sales of $49.3 million in loans during the quarter ended September 30, 2003.  The significant decline in gain recorded on the sale of loans to FNMA resulted from the increase in interest rates that occurred in August 2004, which reduced the market value of the loans that were originated and sold to FNMA during the quarter ended September 30, 2004.  The Company recorded a loss of $139,000 on the sale of securities of $109.1 million during the quarter ended September 30, 2004. There were no gains or losses on the sale of securities recorded during either the quarter ended June 30, 2004 or September 30, 2003.  

Non-Interest Expense.  Non-interest expense was $10.5 million during the quarter ended September 30, 2004, an increase of $721,000 over the three months ended September 30, 2003.

The benefit costs associated with the ESOP and RRP increased $256,000 during the comparative period due primarily to the recording of expenses related to additional ESOP shares.  

Data processing costs increased $345,000 during the comparative period due to non-recurring charges associated with a data system conversion planned in November 2004.

Occupancy and equipment expenses increased $140,000 due to increased maintenance and utility costs and increased depreciation expense associated with furniture and fixtures that were recently acquired.

Income Tax Expense.  Income tax expense decreased $3.1 million during the quarter ended September 30, 2004 compared to the quarter ended September 30, 2003, due primarily to a decline of $7.0 million in pre-tax net income.  

Comparison of the Operating Results for the Nine Months Ended September 30, 2004 and 2003

General. Net income was $36.0 million during the nine months ended September 30, 2004, a decrease of $5.4 million from net income of $41.4 million during the nine months ended September 30, 2003.  During this comparative period, net interest income decreased $5.3 million, non-interest income decreased $2.7 million and non-interest expense increased $2.3 million, resulting in a decline in pre-tax income of $10.2 million.  Income tax expense decreased $4.8 million as a result of the decreased pre-tax income.  

Net Interest Income.  The discussion of net interest income for the nine months ended September 30, 2004 and 2003 presented below should be read in conjunction with the following tables, which set forth certain information relating to the consolidated statements of operations for the nine months ended September 30, 2004 and 2003, and which also present the average yield on assets and average cost of liabilities for the periods indicated.  These yields and costs were derived by dividing income or expense by the average balance of their related assets or liabilities during the periods represented. Average balances were derived from average daily balances. The yields and costs include fees that are considered adjustments to yields.

Analysis of Net Interest Income (Unaudited)

Rate/Volume Analysis (Unaudited)

Net interest income for the nine months ended September 30, 2004 decreased $5.3 million to $72.0 million from $77.3 million during the nine months ended September 30, 2003.  This decrease was attributable to a decline of $7.4 million in interest income that was partially offset by a decline of $2.1 million in interest expense during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.  The net interest spread decreased 46 basis points from 3.25% for the nine months ended September 30, 2003 to 2.79% for the nine months ended September 30, 2004, and the net interest margin decreased 49 basis points from 3.52% to 3.03% during the same period.

The decrease in both the net interest spread and net interest margin reflected a 77 basis point decline in the average yield on interest earning assets as a result of the continued repricing of assets during the historically low interest rate environment that has persisted over the past three years.  In addition, prior to January 2004, the overall low interest rate environment resulted in a greater decline in the average cost of interest bearing liabilities than the average yield on interest earning assets.  During both the three months and nine months ended September 30, 2004, the continued low interest rate environment created the opposite effect, resulting in a greater decline in the average yield on interest earning assets than in the average cost of interest bearing liabilities.  As a result, both the net interest spread and the net interest margin, which had increased during most of 2002 and 2003, declined du ring the three months and nine months ended September 30, 2004.

During the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, the average yield on real estate loans and MBS, which collectively comprised the great majority of the Company's interest earning assets, declined by 94 basis points and 14 basis points, respectively (See the discussion entitled "Interest Income" below for a further examination of these declines).

Partially offsetting the decline in the average yield on interest earning assets was a reduction of 31 basis points in the average cost of interest bearing liabilities.  This resulted primarily from declines in the average cost of borrowings of 33 basis points and a decline in the average cost of CDs of 33 basis points, coupled with the movement of the overall composition of funding from higher-cost borrowings into deposits with a lower average cost (See the discussion entitled "Interest Expense" below for a further examination of these declines).

Interest Income.  Interest income was $122.2 million during the nine months ended September 30, 2004, a decrease of $7.3 million from $129.5 million during the nine months ended September 30, 2003.  Interest income on real estate loans, investment securities and other short term investments declined by $7.6 million, $891,000 and $1.5 million, respectively, during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.  Partially offsetting these declines was an increase of $2.6 million in interest income on MBS during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.

The decline in interest income resulted from the historically low interest rate environment that existed during the period January 1, 2002 through September 30, 2004.  That low interest rate environment stimulated the refinancing and prepayment of higher rate loans in the Bank's portfolio, while also resulting in reduced rates on existing portfolio loans that repriced during the period July 1, 2003 to September 30, 2004 (although the levels of refinancing and prepayment did experience a slight decline during the nine months ended September 30, 2004 as a result of an increase in interest rates).  The combination of these two factors resulted in a decline of 94 basis points in average yield on real estate loans (the Bank's largest interest earning investment) during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.  In addition, the average yield on MBS declined 14 basis p oints during the same period as a result of the high level of prepayments on existing securities during 2002 and 2003 as well as the purchase of new securities during the period January 1, 2002 through September 30, 2004 while rates were historically low.  Further, as a result of the low interest rate environment, the average yields on investment securities and other short-term investments also declined by 61 basis points and 105 basis points, respectively, during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.

The Bank's general policy has been to emphasize growth in real estate loans as its primary interest-earning asset, and de-emphasize its investment and MBS portfolios, while loan origination demand is strong.  However, as part of a specific investment strategy to achieve a desirable balance of yield and liquidity on short-term investments, the Bank purchased $398.2 million of MBS during the nine months ended September 30, 2004.  This purchase level exceeded the level of MBS principal repayments of $162.4 million during the same period, and contributed to an overall increase of $124.6 million in the average balance of MBS during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.  As a result, the dollar amount of interest income on MBS increased by $2.6 million during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, despite the decline in average yield of 14 basis points during the same period.

Interest Expense.  Interest expense declined $2.1 million, to $50.1 million during the nine months ended September 30, 2004, from $52.2 million during the nine months ended September 30, 2003.  The decrease resulted substantially from a reduction of $893,000 in interest expense on borrowed funds, which resulted from a decline of 33 basis points in the average cost of borrowed funds during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.  

During the twelve months ended December 31, 2003, the Company reduced its total borrowings by $103.9 million by either not replacing borrowings that matured or prepaying outstanding debt.  During the nine months ended September 30, 2004, the Company added $193.0 million of REPOS, and a $70 million trust preferred borrowing.  The new REPOS assumed during the nine months ended September 30, 2004 were added during a period of historically low interest rates, and therefore possessed a lower average cost than the existing average cost within the Company's total portfolio of borrowings which was not materially impacted by the recent increase in short-term interest rates.  The trust preferred borrowings added 14 basis points to the average cost of borrowings during the nine months ended September 30, 2004.  The combination of activity in these two periods resulted in an overall increase of $25.9 million in the averag e balance of borrowings during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, but a decline in their average cost.  

During the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, the average cost of CDs, the next largest component of interest expense during the 2004 period, declined by 33 basis points, while their average balance increased by $42.7 million. The combination of these two events resulted in a reduction in interest expense of $1.4 million during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.  The decline in interest rates offered on CDs reflected the continued low level of interest rates during the period January 1, 2002 through September 30, 2004, which was not materially impacted by the recent increase in short-term interest rates.  The increase in the average balance of CDs during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 resulted from new promotional CDs added during the nine mont hs ended September 30, 2004.  

The average cost of savings accounts declined by 15 basis points during the comparative period, resulting in a reduction in interest expense of $408,000.  The decline in average cost reflected reductions in interest rates paid by the Bank as a result of the overall interest rate environment in effect during the period July 2003 through September 2004, which was not materially impacted by the recent increase in short-term interest rates.  

Interest expense on money market accounts increased $610,000 during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, due to an increase in average balance of $148.6 million during the period.  The increase in average balance reflected successful deposit gathering promotions during the period July 1, 2003 to September 30, 2004.  Partially offsetting the increase was a decline in the average cost of money market accounts of 20 basis points, reflecting reductions in interest rates paid by the Bank as a result of the overall low interest rate environment in effect during the period July 2003 through September 2004, which was not materially impacted by the recent increase in short-term interest rates.

Provision for Loan Losses.  The provision for loan losses was $180,000 during both the nine months ended September 30, 2004 and 2003 (See "Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses").

Non-Interest Income.  Non-interest income decreased $2.7 million, to $16.8 million during the nine months ended September 30, 2004, from $19.5 million during the nine months ended September 30, 2003.  The decline resulted primarily from decreased prepayment fee income (included in other non-interest income) of $1.9 million, resulting from a decline in refinancing driven by the increases in interest rates during 2004, and a decrease of $1.1 million in the net gain recorded on the sale of loans, investment securities and MBS.

During the nine months ended September 30, 2003, the Company recorded a net gain of $1.4 million on the sale of loans (primarily multifamily residential loans) to FNMA.  During the nine months ended September 30, 2004, the net gain or loss on the sale of loans was immaterial.  During the nine months ended September 30, 2004, the Company recorded a net gain of $377,000 on the sale of investment and mortgage-backed securities.

Non-Interest Expense.  Non-interest expense was $31.4 million during the nine months ended September 30, 2004, an increase of $2.3 million over the nine months ended September 30, 2003.

Salaries and benefits increased $799,000, primarily as a result of an additional bonus expense of $600,000 that became partially warranted from an added level of forecasted reported net income for the year ending December 31, 2004 which resulted from the higher-than-anticipated level of prepayment fees recorded in the June 2004 quarter.

The benefit costs associated with the ESOP and RRP increased $1.0 million during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, due primarily to the recording of expense related to additional ESOP shares.  

Data processing costs increased $224,000 during the comparative period due to non-recurring charges associated with a data system conversion planned in November 2004.

Occupancy and equipment expenses increased $138,000 due to increased maintenance and utility costs and increased depreciation expense associated with furniture and fixtures that were recently acquired.

Income Tax Expense.  Income tax expense decreased $4.8 million during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, due primarily to a decline of $10.2 million in pre-tax net income.  

Item 3.

 Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are presented at December 31, 2003 in Item 7A of the Company's Annual Report on Form 10-K, filed with the SEC on March 11, 2004.  The following is an update of the discussion provided therein.

General.  Virtually all of the Company's market risk continues to reside at the Bank level.  The Bank's largest component of market risk remains interest rate risk.  The Bank is not subject to foreign currency exchange or commodity price risk.  At September 30, 2004, the Company owned no trading assets, nor did it conduct transactions involving derivative instruments requiring bifurcation in order to hedge interest rate or market risk.

Assets, Deposit Liabilities and Wholesale Funds.  There has been no material change in the composition of assets, deposit liabilities or wholesale funds from December 31, 2003 to September 30, 2004.

GAP Analysis.  There was no material change in the computed one-year interest rate gap from December 31, 2003 to September 30, 2004.

Interest Rate Risk Compliance.  The Bank continues to monitor the impact of interest rate volatility upon net interest income and net portfolio value in the same manner as at December 31, 2003.  There were no changes in the Board-approved limits of acceptable variance in net interest income and net portfolio value at September 30, 2004 compared to December 31, 2003.  

The analysis that follows presents the estimated net portfolio value ("NPV") that results from market interest rates prevailing at a given quarter-end ("Pre-Shock Scenario"), and under four other interest rate scenarios ("Rate Shock Scenarios") represented by immediate, permanent, parallel shifts in the term structure of interest rates from the actual term structure observed at September 30, 2004 and December 31, 2003.  The analysis additionally presents a measurement of the percentage by which each of the Rate Shock Scenario NPVs change from the Pre-Shock Scenario NPV at September 30, 2004 and December 31, 2003.  Interest rate sensitivity is measured by the changes in the various Rate Shock Scenario NPV ratios ("NPV Ratios") from the Pre-Shock NPV ratio.  

The NPVs presented above incorporate asset and liability values, some of which were derived from the Bank’s valuation model (i.e., mortgage loans and time deposits), and others of which were provided by reputable independent sources (i.e., MBS and structured borrowings).  In valuing its assets and liabilities, the Bank's valuation model incorporates, at each level of interest rate change, estimates of cash flows from non-contractual sources such as unscheduled principal payments received on loans and passbook deposits balance decay.  The Bank's estimates for loan prepayment levels are influenced by the recent history of prepayment activity in its loan portfolio as well as the interest-rate composition of the existing portfolio, especially vis-à-vis the current interest rate environment.  In addition, the Bank considers the amount of prepayment fee protection inherent in the loan portfolio wh en estimating future prepayment cash flows.

Regarding passbook deposit flows, the Bank tracks and analyzes the decay rate of its passbook deposits over time and over various interest rate scenarios and then estimates its passbook decay rate for use in the valuation model.  Nevertheless, no matter the care and precision with which the estimates are derived, actual cash flows for loans, as well as passbooks, could differ significantly from the Bank's estimates resulting in significantly different NPV calculations.

The Bank also generates a series of spot discount rates that are integral to the valuation of the projected monthly cash flows of its assets and liabilities.  The Bank's valuation model employs discount rates that are representative of prevailing market rates of interest, with appropriate adjustments suited to the heterogeneous characteristics of the Bank’s various asset and liability portfolios.

The NPV Ratio at September 30, 2004 was 11.61% in the Pre-Shock Scenario, 55 basis points higher than the Pre-Shock NPV Ratio of 11.06% at December 31, 2003. The NPV Ratio was 9.05% in the +200 basis point Rate Shock Scenario at September 30, 2004, a decline from the NPV Ratio of 9.49% in the +200 basis point Rate Shock Scenario at December 31, 2003.  At September 30, 2004, the sensitivity measure in the +200 basis point Rate Shock Scenario was negative 256 basis points, compared to a sensitivity measure of negative 157 basis points in the + 200 basis point Rate Shock Scenario at December 31, 2003.  

The increase in the Pre-Shock Scenario NPV resulted from two primary factors.  Initially, the Bank’s capital increased by nearly $26 million of retained earnings accumulated during the nine months ended September 30, 2004.  In addition, the valuation of the Bank’s assets, including its mortgage loan servicing asset, increased due to a significant decrease in medium to longer term interest rates, while the valuation of the Bank’s liabilities, particularly that of its time deposits and fixed FHLBNY advances, decreased substantially as short-term interest rates increased.  This improvement in asset valuations and decrease in liability valuations contributed an additional $36 million to the improvement in NPV in the Pre-Shock Scenario.  The remaining increase in the NPV is attributable to better pricing on the Bank’s outstanding loan commitments and other miscellaneous items.

The decline in the NPV Ratio in the +200 basis point Rate Shock Scenario is a reflection of an increased sensitivity of the Bank’s balance sheet to parallel interest rate increases.  The increase in the Bank’s sensitivity measure is due to several factors.  In particular, the average duration of the Bank’s portfolio of multifamily and commercial real estate loans extended during the nine-month period ended September 30, 2004, due to the high level of refinancing, satisfaction, and origination activity that occurred.  As a result, the portfolio of multifamily and commercial real estate loans is expected to show greater price depreciation in the +200 basis point Rate Shock Scenario than was projected in December 31, 2003.  Further, the expected appreciation in deposit intangible values in the +200 basis point Rate Shock Scenario is less than that projected at December 31, 2003.  In addition, as of September 30, 2004, the Bank’s deposits and borrowings are projected to be slightly less sensitive to an increase in interest rates than they were estimated to be at December 31, 2003.

Item 4.  Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer conducted an evaluation as of September 30, 2004 of the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) or 15(d)-15(e) under the Exchange Act.  Based upon their evaluation, they each found that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  

There was no change in the Company's internal control over financial reporting identified in connection with the evaluation discussed in the previous paragraph that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

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 material to its financial condition and results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c)  During the three months ended September 30, 2004, the Holding Company purchased 374,000 shares of its common stock into treasury.  These repurchases were made under either the Company's Ninth Stock Repurchase Program, which was publicly announced on May 15, 2003, or the Company's Tenth Stock Repurchase Program, which was publicly announced on May 20, 2004.  

A summary of the shares repurchased by month is as follows:

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

Exhibit Number

------------

 (1)

Incorporated by reference to the registrant's Transition Report on Form 10-K for the transition period ended December 31, 2002 filed on March 28, 2003.

(2)

Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 filed on September 28, 1998.

(3)

Incorporated by reference to the registrant's Current Report on Form 8-K dated April 9, 1998 and filed on April 16, 1998.

(4)

Incorporated by reference to Exhibits to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 filed on September 26, 1997.

(5)

Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 filed on September 26, 1997.

(6)

Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 filed on September 28, 2000.

(7)

Incorporated by reference to the registrant's Annual Report on Form 10-Q for the fiscal year ended September 30, 2003 filed on November 14, 2003.

(8)

Incorporated by reference to the registrant's Transition Report on Form 10-K for the transition period ended December 31, 2002 filed on March 31, 2004.

(9)

Incorporated by reference to Exhibits to the registrant’s Registration Statement No. 333-117743 on Form S-4 filed on July 29, 2004.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dime Community Bancshares, Inc.

Dated: November 9, 2004

By: /s/ VINCENT F. PALAGIANO                    

Vincent F. Palagiano

Chairman of the Board and Chief Executive

  Officer

Dated: November 9, 2004

By: /s/ KENNETH J. MAHON                             

Kenneth J. Mahon

Executive Vice President and Chief Financial

  Officer  (Principal Accounting Officer)