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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, 2002
| |  | -------------------------------------------------




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 0-28886





ROSLYN BANCORP, INC.


(Exact name of registrant as specified in its charter)





Delaware

11-3333218(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification
No.)





One Jericho Plaza, Jericho, New York

11753-8905(Address of Principal Executive Offices)

(Zip Code)





(516) 942-6000


---

(Registrants telephone number, including area code)





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


Yes  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, October 28, 2002$.01 Par Value

82,952,698





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FORM 10-Q





ROSLYN BANCORP, INC.





INDEX





Page NumberPART IFINANCIAL INFORMATIONITEM 1.

Financial Statements (Unaudited):Consolidated Statements of Financial Condition at September 30, 2002 and December 31, 2001

1Consolidated Statements of Income for the three and nine months ended September 30, 2002 and 2001

2Consolidated Statement of Changes in Stockholders Equity for the nine months ended September 30, 2002

3Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001

4Notes to Consolidated Financial Statements

5ITEM 2.

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

12ITEM 3.

Quantitative and Qualitative Disclosure About Market Risk

29ITEM 4.

Disclosures and Controls

29PART IIOTHER INFORMATIONITEM 1.

Legal Proceedings

30ITEM 2.

Changes in Securities and Use of Proceeds

30ITEM 3.

Defaults Upon Senior Securities

30ITEM 4.

Submission of Matters to a Vote of Security Holders

30ITEM 5.

Other Information

30ITEM 6.

Exhibits and Reports on Form 8-K

30Signatures Page

32Certifications

33






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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT





This report, as well as other written communications made from time to time by Roslyn Bancorp, Inc. and its subsidiaries (the Company), including,
without limitation, the Companys 2001 Annual Report to Stockholders, and oral communications made from time to time by authorized officers of the Company, may contain statements relating to the future results of the Company (including certain
projections and business trends) that are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 (the PSLRA). Such forward-looking statements may be identified by the use of such words as
believe, expect, anticipate, should, planned, estimated, intend and potential. Examples of forward-looking statements include, but are not limited to,
possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and business of the Company, including with respect to earnings growth; revenue growth in retail banking, lending and
other areas; origination volume in the Companys consumer, commercial and other lending businesses; asset quality and levels of non-performing assets; resolution of non-performing assets; results of operations from real estate joint ventures;
current and future capital management programs; non-interest income, including fees from services and product sales; tangible capital generation; market share; expenses; and other business operations and strategies. For these statements, the Company
claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.





The Company cautions you that a number
of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic conditions; changes in interest rates, loan
demand, real estate values and competition, which can materially affect, among other things, retail banking revenues, revenues from sales of non-deposit investment products, origination levels in the Companys mortgage lending businesses and
real estate joint venture activities; the level of defaults, losses and prepayments on loans made by the Company, whether held in portfolio or sold in the secondary markets; changes in accounting principles, policies, and guidelines; changes in any
applicable law, rule, regulation or practice with respect to tax or other legal issues; risks and uncertainties related to acquisitions and related integration and restructuring activities; and other economic, competitive, governmental, regulatory
and technological factors affecting the Companys operations, pricing, products and services. The forward-looking statements are made as of the date of this report, and the Company assumes no obligation to update the forward-looking statements
or to update the reasons why actual results could differ from those projected in the forward-looking statements.









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ROSLYN BANCORP, INC.





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Unaudited)


(In thousands, except share amounts)





September 30, 2002


December 31, 2001ASSETSCash and cash equivalents:Cash and cash items

$
11,062


$
10,815Due from banks


64,744



64,810Money market investments


14,800



27,200Total cash and cash equivalent


90,606



102,825Debt and equity securities available-for-sale, net (securities pledged of $117,942 and $114,426 at September 30, 2002 and December 31, 2001, respectively)


1,319,299



1,004,728Mortgage-backed and mortgage related securities available-for-sale, net (securities pledged of $3,138,881 and $1,754,733
at September 30, 2002 and December 31, 2001, respectively)


5,620,287



3,560,854Total securities available-for-sale, net


6,939,586



4,565,582Federal Home Loan Bank of New York stock, at cost


119,890



109,870Loans held-for-sale


7,156



9,364Loans receivable held for investment, net:Real estate loans, net


3,043,572



3,412,148Consumer and other loans, net


293,374



285,012Total loans receivable held for investment, net


3,336,946



3,697,160Allowance for loan losses


(42,710
)


(40,634
)Total loans receivable held for investment, net of allowance for loan losses


3,294,236



3,656,526Banking house and equipment, net


37,125



32,589Accrued interest receivable


61,178



50,550Deferred tax asset, net


4,211



40,213Intangible assets


891



986Other assets


201,628



168,275Total assets

$
10,756,507


$
8,736,780LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits:Savings accounts

$
1,085,021


$
920,507Certificates of deposit


3,092,844



2,756,737Money market accounts


718,569



371,007Interest-bearing demand deposit accounts


297,809



256,145Demand deposit accounts


206,258



182,371Total deposits


5,400,501



4,486,767Official checks outstanding


27,054



40,349Borrowed funds:Reverse-repurchase agreements


2,847,398



1,757,489Senior notes


75,000



75,000Other borrowings


1,607,803



1,687,806Total borrowed funds


4,530,201



3,520,295Accrued interest and dividends


30,866



27,475Mortgagors escrow and security deposits


34,335



30,615Accrued taxes payable


15,505



21,837Accrued expenses and other liabilities


40,103



40,474Total liabilities


10,078,565



8,167,812Guaranteed preferred beneficial interest in junior subordinated debentures


63,000



Stockholders equity:Preferred stock, $0.01 par value, 10,000,000 shares authorized; none issued






Common stock, $0.01 par value, 200,000,000 shares authorized; 118,811,472 shares issued; 83,482,698 and 87,116,397
shares outstanding at September 30, 2002 and December 31, 2001, respectively


1,188



1,188Additional paid-in-capital


508,762



507,413Retained earningspartially restricted


655,178



592,865Accumulated other comprehensive income (loss):Net unrealized gain (loss) on securities available-for-sale, net of tax


24,402



(26,573
)Unallocated common stock held by Employee Stock Ownership Plan (ESOP)


(43,492
)


(44,838
)Unearned common stock held by Stock-Based Incentive Plan (SBIP)


(4,128
)


(9,132
)Common stock held by Supplemental Executive Retirement Plan and Trust (SERP), at cost (626,142 and 553,080 shares at September 30, 2002 and December 31, 2001, respectively)


(6,230
)


(4,535
)Treasury stock, at cost (35,328,774 and 31,695,075 shares at September 30, 2002 and December 31, 2001,
respectively)


(520,738
)


(447,420
)Total stockholders equity


614,942



568,968Total liabilities and stockholders equity

$
10,756,507


$
8,736,780





See accompanying notes to consolidated financial statements.






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ROSLYN BANCORP, INC.





CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


(In thousands, except per share amounts)





For the Three Months Ended September 30,


For the Nine Months Ended September 30,2002

2001


2002


2001Interest income:Federal funds sold and short-term deposits

$
326

$
412


$
1,123


$
1,270Debt and equity securities


22,696


18,131



69,648



60,171Mortgage-backed and mortgage related securities


73,045


53,367



196,813



140,959Real estate loans


53,132


66,227



165,593



207,328Consumer and other loans


3,951


5,328



12,418



16,826Total interest income


153,150


143,465



445,595



426,554Interest expense:Deposits


33,802


43,016



97,781



135,367Borrowed funds


50,076


43,606



144,040



129,281Total interest expense


83,878


86,622



241,821



264,648Net interest income before provision for loan losses


69,272


56,843



203,774



161,906Provision for loan losses


750


250



2,250



350Net interest income after provision for loan losses


68,522


56,593



201,524



161,556Non-interest income:Fees and service charges


4,167


2,928



12,431



8,480Net gains on securities


52


2,051



117



3,738Income from bank owned life insurance


1,813


1,971



5,667



5,739Joint venture income


3,661


1,274



13,858



1,274Other non-interest income


496


553



1,091



1,566Total non-interest income


10,189


8,777



33,164



20,797Non-interest expense:General and administrative expenses:Compensation and employee benefits


13,669


12,782



41,448



34,195Occupancy and equipment


3,280


2,672



9,642



8,374Deposit insurance premiums


225


213



646



626Advertising and promotion


983


876



2,724



2,883Other non-interest expenses


3,710


3,509



13,792



11,218Total general and administrative expenses


21,867


20,052



68,252



57,296Amortization of intangible assets


32


31



95



94Real estate operations, net


8


3



(75
)


(16
)Capital securities costs


954






2,021



Total non-interest expense


22,861


20,086



70,293



57,374Income before provision for income taxes and extraordinary item


55,850


45,284



164,395



124,979Provision for income taxes


19,858


14,898



58,078



39,862Income before extraordinary item


35,992


30,386



106,317



85,117Extraordinary item, net of taxprepayment penalty on debt extinguishments





(1,892
)






(4,311
)Net income

$
35,992

$
28,494


$
106,317


$
80,806Basic earnings per share:Income before extraordinary item

$
0.46

$
0.35


$
1.34


$
0.98Extraordinary item, net of tax





(0.02
)






(0.05
)Net income per share

$
0.46

$
0.33


$
1.34


$
0.93Diluted earnings per share:Income before extraordinary item

$
0.45

$
0.35


$
1.31


$
0.97Extraordinary item, net of tax





(0.02
)






(0.05
)Net income per share

$
0.45

$
0.33


$
1.31


$
0.92





See accompanying notes to consolidated financial statements.







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ROSLYN BANCORP, INC.





CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY


(Unaudited)


(In thousands)





Common stock

Additional paid-in-  capital

Retained earnings- partially
restricted


Accumulated other comprehensive (loss) income


Unallocated common stock held by ESOP


Unearned common stock held by SBIP


Common stock held by SERP, at cost


Treasury stock, at cost


Total stockholders equityBalance at December 31, 2001

$
1,188

$
507,413

$
592,865


$
(26,573
)

$
(44,838
)

$
(9,132
)

$
(4,535
)

$
(447,420
)

$
568,968Comprehensive income:Net income








106,317























106,317Other comprehensive income, net of tax:Net unrealized gain on securities, net of reclassification adjustment(1)(2)












50,975



















50,975Total comprehensive income
































157,292Exercise of stock options and related tax benefit








(12,881
)






















(12,881
)Allocation of ESOP stock





1,349










1,346















2,695Amortization of SBIP stock awards








26











5,004











5,030Cash dividends declared on common stock








(31,149
)






















(31,149
)Common stock acquired, at cost
























(1,695
)


(73,318
)


(75,013
)Balance at September 30, 2002

$
1,188

$
508,762

$
655,178


$
24,402


$
(43,492
)

$
(4,128
)

$
(6,230
)

$
(520,738
)

$
614,942


---

|(1) |  | Disclosure of reclassification amount, net of tax, for the nine months ended September 30, 2002:
|--- |  | ------------------------------------------------------------------------------------------------




Net unrealized appreciation arising during the period, net of tax

$
51,043Less: Reclassification adjustment for net gains included in net income, net of tax


68Net unrealized gain on securities, net of tax

$
50,975





|(2) |  | The net deferred tax expense relating to the net unrealized appreciation arising during the nine months ended September 30, 2002 was $36.5 million.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------




Disclosure of total comprehensive income for the nine months ended September 30, 2001:





Net income for the nine months ended September 30, 2001

$
80,806Other comprehensive income, net of tax:Net unrealized gains on securities, net of reclassification adjustment


56,869Total comprehensive income for the nine months ended September 30, 2001

$
137,675





See accompanying notes to consolidated financial statements.







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ROSLYN BANCORP, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In thousands)





For the Nine Months Ended September 30,2002


2001Cash flows from operating activities:Net income

$
106,317


$
80,806Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses


2,250



350Amortization of intangible assets


95



94Depreciation and amortization


2,914



2,432Accretion of discounts greater than amortization of premiums


(27,469
)


(15,455
)ESOP and SBIP expense, net


7,725



6,459Originations of loans held-for-sale, net of sales


2,812



(1,246
)Net gains on sales of loans


(604
)


(491
)Net gains on securities


(117
)


(3,738
)Net gains on sales of real estate owned


(93
)


(40
)Net gains on sales of fixed assets


(6
)


(35
)Income from bank owned life insurance


(5,667
)


(5,739
)Income taxes deferred and tax benefits attributable to stock plans


7,525



1,978Changes in assets and liabilities:Increase in accrued interest receivable


(10,628
)


(9,357
)Increase in other assets


(22,948
)


(4,668
)(Decrease) increase in official checks outstanding


(13,295
)


9,818Increase (decrease) in accrued interest and dividends


3,391



(982
)Decrease in accrued taxes payable


(6,332
)


(4,594
)Decrease in accrued expenses and other liabilities


(371
)


(2,765
)Net decrease (increase) in deferred costs and fees


1,719



(891
)Increase in other, net






24Net cash provided by operating activities


47,218



51,960Cash flows from investing activities:Net purchase of Federal Home Loan Bank stock


(10,020
)


(33,774
)Proceeds from sales and repayments of securities available-for-sale


3,327,514



2,550,227Purchases of securities available-for-sale


(5,586,955
)


(3,532,552
)Loan repayments, net of originations and purchases


357,573



241,041Investment in real estate joint venture


(25,000
)


Principal repayments on real estate joint venture


21,071



3,929Purchases of banking house and equipment, net


(7,444
)


(4,009
)Proceeds from sales of real estate owned


697



435Net cash used in investing activities


(1,922,564
)


(774,703
)Cash flows from financing activities:Increase in demand deposit, money market and savings accounts


577,627



223,473Increase in certificates of deposit


336,107



99,467Increase in short-term reverse-repurchase agreements and other borrowings


299,610



103,670Increase in long-term reverse-repurchase agreements and other borrowings


710,296



370,258Net proceeds from issuance of guaranteed preferred beneficial interest in junior subordinated debentures


62,335



Increase in mortgagors escrow and security deposits


3,720



6,039Net cash used in exercise of stock options


(20,406
)


(5,455
)Cash dividends paid on common stock


(31,149
)


(29,950
)Cost to repurchase treasury stock


(73,318
)


(55,726
)Cost to repurchase SERP stock


(1,695
)


Net cash provided by financing activities


1,863,127



711,776Net decrease in cash and cash equivalents


(12,219
)


(10,967
)Cash and cash equivalents at beginning of period


102,825



82,949Cash and cash equivalents at end of period

$
90,606


$
71,982Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowed funds

$
238,430


$
265,630Income taxes

$
56,754


$
32,779Non-cash investing activities:Additions to real estate owned

$
748


$
464





See accompanying notes to consolidated financial statements.







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ROSLYN BANCORP, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.    BASIS OF PRESENTATION





The accompanying consolidated financial statements include the accounts of Roslyn Bancorp, Inc. (on a stand alone basis, the Holding
Company) and with its wholly-owned subsidiaries (collectively, the Company). Roslyn Bancorp, Inc. is the holding company for The Roslyn Savings Bank and its subsidiaries (collectively, the Bank).





When necessary, certain reclassifications have been made to prior period amounts to conform to the current period presentation.





The consolidated financial statements included herein reflect all normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results
for the interim periods presented. Such adjustments are the only adjustments made to the consolidated financial statements contained herein. The results of operations for the three and nine months ended September 30, 2002 are not necessarily
indicative of the results of operations that may be expected for the entire year. 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 condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC).





The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys 2001 Annual Report on Form 10-K.





2.    NEW ACCOUNTING PRONOUNCEMENTS





In October 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 147, Acquisitions of Certain Financial Institutions. SFAS No. 147 amends SFAS No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and FASB Interpretation No. 9, Applying APB Opinions Nos. 16 and 17
When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method. This Statement removes acquisitions of financial institutions, other than transactions between two or more
mutual enterprises, from the scope of SFAS No. 72 and FASB Interpretation No. 9. SFAS No. 147 also amends SFAS No. 144 to include long-term customer-relationship intangible assets such as depositor- and borrower-relationship intangible assets and
credit cardholder intangible assets. The provisions of SFAS No. 147 are effective October 1, 2002. There was no material impact on the Companys consolidated statements of financial condition or consolidated statements of income upon adoption
of SFAS No. 147.





In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. The Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 replaces EITF Issue No.
94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.





In April 2002, the
FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The Statement updates, clarifies and simplifies existing accounting pronouncements. SFAS No. 145
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income
tax effect. As a result, the criteria in Accounting Principles Board Opinion




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(APB) No. 30, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions, will now be used to classify those gains and losses. SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been
rescinded. SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASBs goal of requiring similar accounting treatment for transactions that have similar economic effects. SFAS No. 145 also makes technical corrections to existing pronouncements. While those
corrections are not substantive in nature, in some instances, they may change accounting practice. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. Early application of SFAS No. 145 is encouraged. There
will be no material impact on the Companys consolidated statements of financial condition or consolidated statements of income upon adoption of SFAS No. 145.





In October 2001, the FASB issued SFAS No. 144, which replaced SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144
established a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 also resolved significant implementation issues related to SFAS No. 121. The provisions of SFAS
No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. There was no material impact on the Companys consolidated statements of financial condition or consolidated statements of income upon
adoption of SFAS No. 144 on January 1, 2002.





In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provision of SFAS No. 142. SFAS No. 142 also requires
that other intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values. Amortizing intangible assets must also be reviewed for impairment. SFAS No. 142 is applicable to
fiscal years beginning after December 15, 2001 and is required to be applied at the beginning of an entitys fiscal year. As a result of the Companys adoption of SFAS No. 142 on January 1, 2002, other amortizing intangible assets
(consisting of deposit intangibles) is presented in the accompanying consolidated statements of financial condition and consolidated statements of income as Intangible Assets. There was no material impact on the Companys
consolidated statements of financial condition or consolidated statements of income upon adoption of SFAS No. 142.





In September 2000,
the FASB issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement replaced SFAS No. 125. SFAS No. 140 became effective for transfers occurring after March 31, 2001
and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000, which disclosures have been incorporated into the Companys consolidated financial statements. The implementation of the
remaining provisions on January 1, 2002 had no material impact on the Companys financial condition or results of operations.





3.    RECENT DEVELOPMENTS





On August 13, 2002, the Company announced that the Companys
Board of Directors declared a quarterly dividend of $0.135 per common share. The dividend was paid on September 12, 2002 to shareholders of record as of August 30, 2002.




6




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##### Table of Contents




4.    DEBT, EQUITY, MORTGAGE-BACKED AND MORTGAGE RELATED SECURITIES, NET





The following table sets forth certain information regarding amortized cost and estimated fair values of debt, equity,
mortgage-backed and mortgage related securities, net, at September 30, 2002 and December31, 2001:





September 30, 2002

December 31, 2001Amortized Cost

Estimated Fair Value

Amortized Cost

Estimated Fair
Value(In thousands)Available-for-sale:Debt securities, net:United States Governmentdirect and guaranteed, net

$


$


$
1,000

$
1,020United States Government agencies, net


647,882


653,085


355,255


349,725State, county and municipal


4,476


5,214


4,470


4,950Other


1,000


1,000





Total debt securities, net


653,358


659,299


360,725


355,695Equity securities, net:Preferred and common stock


128,707


120,166


135,998


120,153Trust preferreds, net


529,279


527,793


533,823


514,813Other


14,552


12,041


14,556


14,067Total equity securities, net


672,538


660,000


684,377


649,033Total debt and equity securities, net


1,325,896


1,319,299


1,045,102


1,004,728Mortgage-backed and mortgage related securities, net:GNMA pass-through securities, net


248,135


258,867


368,449


376,295FNMA pass-through securities, net


40,108


42,200


57,274


58,948FHLMC pass-through securities, net


75,811


80,863


353,911


359,212GNMA adjustable-rate mortgage pass-through securities, net


87,353


89,180


126,703


128,180Whole loan private collateralized mortgage obligations, net


703,345


708,202


1,065,924


1,067,003Agency collateralized mortgage obligations, net


4,417,509


4,440,975


1,593,767


1,571,216Total mortgage-backed and mortgage related securities, net


5,572,261


5,620,287


3,566,028


3,560,854Total securities available-for-sale, net

$
6,898,157

$
6,939,586

$
4,611,130

$
4,565,582




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5.    LOANS RECEIVABLE, NET





Loans receivable, net, at September 30, 2002 and December 31, 2001 consists of the following:





September 30, 2002


December 31, 2001(In thousands)Loans held-for-sale:One- to four-family loans

$
6,676


$
8,590Student loans


480



774Total loans held-for-sale

$
7,156


$
9,364Loans receivable held for investment, net:Real estate loans:One- to four-family

$
1,579,745


$
2,281,477Multi-family


272,120



173,780Commercial


746,647



629,663Construction and development


433,375



312,630Total real estate loans


3,031,887



3,397,550Net unamortized discount and deferred income


(612
)


(1,081
)Net deferred loan origination costs


12,297



15,679Total real estate loans, net


3,043,572



3,412,148Consumer and other loans, net:Consumer and other


87,124



67,587Home equity and second mortgage


196,244



175,192Automobile leases


8,129



40,481Total consumer and other loans


291,497



283,260Net deferred loan origination costs


1,877



1,752Total consumer and other loans, net


293,374



285,012Total loans receivable held for investment, net


3,336,946



3,697,160Allowance for loan losses


(42,710
)


(40,634
)Total loans receivable held for investment, net of allowance for loan losses

$
3,294,236


$
3,656,526




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6.    ASSET QUALITY





The following table sets forth information regarding non-accrual loans and real estate owned, net, at the dates indicated. It is the Companys policy generally to discontinue accruing
interest on all loans that are more than 90 days past due, or when in the opinion of management such suspension is otherwise warranted. When a loan is placed on non-accrual status, the Company ceases the accrual of interest owed, and previously
accrued interest outstanding is charged against interest income. Loans are generally returned to accrual status when the loan delinquency status is less than 90 days past due and the Company has reasonable assurance that the loan will be fully
collectible.





At September 30, 2002


At December 31, 2001(In thousands)Non-accrual loans:One-  to four-family

$
5,371


$
6,353Commercial real estate


33,658



33,128Home equity


279



111Consumer and other


57



49Total non-accrual loans


39,365



39,641Loans contractually past due 90 days or more and still accruing(1)


4,533



5,865Total non-performing loans


43,898



45,506Real estate owned


622



478Total non-performing assets

$
44,520


$
45,984Allowance for loan losses as a percent of loans(2)


1.28
%


1.10
%Allowance for loan losses as a percent of total non-performing loans


97.29
%


89.29
%Total non-performing loans as a percent of loans (2)


1.32
%


1.23
%Total non-performing assets as a percent of total assets


0.41
%


0.53
%


---

|(1) |  | Amounts shown are comprised of U.S. Government guaranteed one- to four-family loans.
|--- |  | ------------------------------------------------------------------------------------

|(2) |  | Loans consist of loans receivable held for investment, net, excluding the allowance for loan losses.
|--- |  | ----------------------------------------------------------------------------------------------------




Management assesses the level and adequacy of the allowance for loan losses based on an evaluation of known and inherent risks in the loan portfolio and upon
continuing analysis of the factors underlying the quality of the loan portfolio.





Non-accrual loans at September 30, 2002 includes two
large commercial credits added to non-accrual status during the fourth quarter 2001. The first commercial credit consists of loans totaling $13.3 million secured by four commercial properties in the New York Metropolitan area. The Bank has secured
agreements with the debtor, the debtors other creditors and all other necessary parties to permit the sale of the various collateral properties and repayment of the loans. Pursuant to such agreements, contracts have been executed for the sale
of three of the four collateral properties, with execution of an agreement for the sale of the fourth property expected during the fourth quarter of 2002. The three executed contracts of sale, which are subject to standard contingencies, all provide
for closing dates prior to December 31, 2002 and further provide for full repayment of all principal and interest due under the loans, as well as all attorneys fees and other costs related to the collection of the debt. Management expects the
fourth contract for sale to contain substantially similar provisions.





With respect to the second previously announced credit, a $19.0
million loan secured by two assisted living facilities in the New York Metropolitan area, the Bank, the borrowers other creditors and the chapter 11 debtors are pursuing a




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strategy that calls for the sale of the properties securing the Banks loan. The court-appointed
receiver has continued to operate the facilities since the commencement of the borrowers bankruptcy filing and, in accordance with an order of the Bankruptcy Court, has begun to make monthly payments to the Bank out of the facilities
excess cash flow. Notwithstanding the facilities high value initially determined by independent appraisers, the softened market for assisted living facilities may result in the Bank recovering less than the full principal amount owed under its
loan. The Bank continues to work towards an expedited sale of the facilities, even if such a strategy may result in lower sale proceeds than may be available following an extended sales effort. The Bank believes that it is more prudent to pursue a
prompt resolution in order to reduce, to the extent possible, potential risks of future uncertainties and to restore the loan proceeds to productive use. No additional provision for loan loss relating to this commercial credit currently is expected.





7.    INTANGIBLE ASSETS





The following table sets forth information regarding intangible assets at September 30, 2002 and December 31, 2001:





At September 30, 2002


At December 31, 2001( In thousands)Deposit intangibles:Gross carrying amount

$
1,259


$
1,259Accumulated amortization


(368
)


(273
)Carrying amount, net

$
891


$
986





The following table sets forth the anticipated amortization expense, as of September 30,
2002, for the periods indicated:





Amount(In thousands)Deposit intangibles:Estimated amortization expense for the years ended:December 31, 2003

$126December 31, 2004

126December 31, 2005

126December 31, 2006

126December 31, 2007

126





The weighted average amortization period for the deposit intangibles is 10 years. The
Company incurred amortization expense of $95,000 for the nine months ended September 30, 2002 related to deposit intangibles.





8.    GUARANTEED PREFERRED BENEFICAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES





On March 20,
2002, Roslyn Preferred Trust I (RPT I), a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $63.0 million aggregate liquidation amount of floating rate guaranteed preferred beneficial interest in Junior
Subordinated Debentures (the Capital Securities) due April 1, 2032 at a distribution rate equal to the 6-month LIBOR plus 360 basis points, resetting on a semi-annual basis. The maximum distribution rate on the Capital Securities is 12.0% through
April 1, 2007, with no maximum thereafter. The Company may redeem the Capital Securities, in whole or in part, at any time on or after April 1, 2007. At September 30, 2002, the distribution rate was 5.88%. As of October 1, 2002, such rate adjusted
to 5.36%. Distributions on the Capital Securities are payable semi-annually on April 1 and October 1 of each year beginning October 1, 2002 and are reported in the accompanying consolidated statements of income as a component of non-interest expense
under the caption Capital securities costs.





The Holding Company made an initial capital contribution of $1.9 million to RPT
I in exchange for all of its common securities. RPT I was formed for the exclusive purpose of issuing the Capital Securities and using the proceeds to acquire $64.9 million in Junior Subordinated Debentures due April 1, 2032 issued by the Holding
Company. The




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Company has fully and unconditionally guaranteed the Capital Securities along with all obligations of
RPT I related thereto.





The proceeds from the issuance of the Capital Securities were used for general corporate purposes, including,
among other things, the repurchase of the Companys common stock and the repayment of borrowed funds.The costs associated with the Capital Securities issuance have been capitalized. The amortization expense relating to such capitalized
cost were $7,000 and $15,000 for the three and nine months ended September 30, 2002, respectively.




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##### Table of Contents




MANAGEMENTS DISCUSSION AND ANALYSIS


OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Overview





Roslyn Bancorp, Inc. is a
savings and loan holding company regulated by the Office of Thrift Supervision. The primary operating subsidiary of Roslyn Bancorp, Inc. is The Roslyn Savings Bank, a New York State chartered stock savings bank, and its subsidiaries (collectively,
the Bank). While the following discussion of financial condition and results of operations includes the collective results of Roslyn Bancorp, Inc. (on a stand alone basis, the Holding Company) and with its subsidiaries (collectively, the Company),
this discussion principally reflects the Banks activities.





Critical Accounting Policies





The Company identified the accounting policies below as critical to the Companys operations and understanding of the Companys results of operations.
Certain accounting policies are considered to be important to the portrayal of the Companys financial condition, since they require management to make complex or subjective judgments, some of which may relate to matters that are inherently
uncertain. The inherent sensitivity of the Companys consolidated financial statements to critical accounting policies and the use of judgments, estimates and assumptions could result in material differences in the Companys results of
operations or financial condition.





Allowance for Loan LossesThe Company has determined that the methodology used in
determining the level of its allowance for loan losses is critical in the presentation and understanding of the Companys consolidated financial statements. The allowance for loan losses represents managements estimate of probable losses
inherent in the loan portfolio. This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, and the loss recovery rates, among other things, are considered in this evaluation, as are the size and
diversity of individual large credits. Changes in these estimates could have a direct impact on the provision for loan losses and could result in a change in the allowance. While management uses available information to determine losses on loans,
future additions to the allowance may be necessary based on, among other things, unanticipated changes in economic conditions, particularly in the New York Metropolitan area.





In evaluating the portfolio, management takes into consideration numerous factors such as the Companys loan growth, prior loss experience, present and potential risks of the loan portfolio, risk
ratings assigned by lending personnel, ratings assigned by the Companys independent loan review function, the present financial condition of borrowers, current economic conditions and other portfolio risk characteristics. The Companys
formalized process for assessing the adequacy of the allowance for loan losses and the resultant need, if any, for periodic provisions to the allowance charged to income entails both individual loan analyses and loan pool analyses. The individual
loan analyses are periodically performed on individually significant loans or when otherwise deemed necessary, and primarily encompass multi-family, commercial real estate and construction and development loans. The result of these analyses is the
allocation of the overall allowance to specific allowances for individual loans considered impaired and non-impaired.





The loan pool
analyses are performed on the balance of the Companys loan portfolio, primarily consisting of one- to four-family residential and consumer loans. The pools consist of aggregations of homogeneous loans having similar credit risk
characteristics. Examples of pools defined by the Company for this purpose are Company-originated, fixed-rate residential loans; Company-originated, adjustable-rate residential loans; purchased fixed-rate residential loans; outside-serviced
residential loans; residential second mortgage loans; participations in conventional first mortgage loans; residential construction loans; commercial construction loans, etc. For each such defined pool there is a set of sub-pools based upon
delinquency status, including: current, 30-59 days, 60-89 days, 90-119 days and 120+ days (the latter two sub-pools are considered to be classified by the Company). For each sub-pool, the Company has developed a range of allowances
necessary to adequately provide for probable losses inherent in that pool of loans. These ranges are based upon a number of factors, including the risk characteristics of the pool, actual loss and migration experience, expected loss and migration
experience considering current economic conditions, industry norms and the relative seasoning of the




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##### Table of Contents

pool. The ranges of allowance developed by the Company are applied to the outstanding principal balance of the loans in each sub-pool; as a
result, further specific and general allocations of the overall allowance are made (the allocations for the classified sub-pools are considered specific and the allocations for the non-classified sub-pools are considered general).





The Companys overall allowance also contains an unallocated amount which is supplemental to the results of the aforementioned process and takes
into consideration known and expected trends that are likely to affect the creditworthiness of the loan portfolio as a whole, such as national and local economic conditions, unemployment conditions in the local lending area and the timeliness of
court foreclosure proceedings in the Companys lending areas. Management continues to believe that the Companys allowance for loan losses at September 30, 2002 is both appropriate in the circumstances and adequate to provide for estimated
probable losses inherent in the loan portfolio.





Employee Benefit PlansThe Company provides a range of benefits to its
employees and retired employees, including pensions and post-retirement health care and life insurance benefits. The Company records annual amounts relating to these plans based on calculations specified by accounting principles generally accepted
in the United States of America (GAAP), which include various actuarial assumptions, such as discount rates, assumed rates of return, assumed rates of compensation increases, turnover rates and health care cost trends. The Company reviews its
actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As required by GAAP, the effect of the modifications is generally recorded or amortized
over future periods. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based upon the advice of its actuaries.





Stock-Based CompensationIn accordance with Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company adheres to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock-based compensation plans and discloses in the footnotes to the annual consolidated financial statements pro forma net
income and earnings per share information as if the fair value based method had been adopted. No stock-based employee compensation expense is reflected in the accompanying consolidated statements of income, as all options granted under those plans
had an exercise price equal to the market value of the underlying common stock on the date of grant.





Investment in Debt and Equity
SecuritiesCertain of the Companys fixed income securities classified as available-for-sale are not publicly traded, and quoted market prices are not available from brokers or investment bankers on these securities. The change in the
fair value of these available-for-sale securities is recorded in other comprehensive income as an unrealized gain or loss. The Company calculates the fair value of these securities based upon assumptions established through the use of pricing models
and discounted cash flows of similar outstanding securities.





Income TaxesThe Company has established reserves for possible
payments to various taxing authorities with respect to the admissibility and timing of tax deductions. Management has made certain assumptions and judgments concerning the eventual outcome of these items. The Company continually reviews those
assumptions and judgments to reflect any changes that may have arisen concerning these items.





Comparison of Financial Condition at
September 30, 2002 and December 31, 2001





Total Assets





Total assets at September 30, 2002 were $10.76 billion, an increase of $2.02 billion, or 23.1%, from $8.74 billion at December 31, 2001. This increase primarily was due to increases in the
mortgage-backed and mortgage related securities portfolio and the debt and equity securities portfolio, partially offset by a decrease in total loans receivable held for investment, net. Mortgage-backed and mortgage related securities increased
$2.06 billion, or 57.8%, from $3.56 billion at December 31, 2001 to $5.62 billion at September 30, 2002. Debt and equity securities, net, increased $314.6 million, or 31.3%, to $1.32 billion at September 30, 2002, as compared to $1.00
billion at December 31, 2001. These




13




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##### Table of Contents

increases in the securities portfolios were primarily due to managements strategy of deploying proceeds from increased deposits,
borrowings and principal repayments on loans and securities into mortgage-backed and mortgage related securities and debt and equity securities. Total loans receivable held for investment, net, decreased $360.2 million, or 9.7%, to $3.34 billion at
September 30, 2002, as compared to $3.70 billion at December 31, 2001. The decrease in total loans receivable held for investment, net, is primarily due to principal repayments of $966.3 million, which were partially offset by loan originations of
$606.1 million for the nine months ended September 30, 2002.





Total Liabilities





Total liabilities at September 30, 2002 were $10.08 billion, an increase of $1.91 billion, or 23.4%, from $8.17 billion at December 31, 2001. The increase in
total liabilities principally was due to an increase in total deposits and borrowed funds. Total deposits increased $913.7 million, or 20.4.%, from $4.49 billion at December 31, 2001 to $5.40 billion at September 30, 2002. The increase in total
deposits reflects the Banks continued emphasis on attracting core deposits through new product offerings, competitive pricing and the addition of de novo branches. Core deposits increased $577.6 million, or 33.4%, from $1.73 billion at
December 31, 2001 to $2.31 billion at September 30, 2002. Additionally, certificates of deposit increased $336.1 million, or 12.2%, from $2.76 billion at December 31, 2001 to $3.09 billion at September 30, 2002. The increase in certificates of
deposits partially reflects the acquisition of $75.1 million of brokered deposits during the first quarter of 2002. Borrowed funds increased $1.01 billion, or 28.7%, from $3.52 billion at December 31, 2001 to $4.53 billion at September 30, 2002. The
Company utilizes borrowings, primarily in the form of reverse-repurchase agreements and Federal Home Loan Bank (FHLB) borrowings, to fund asset growth.





Capital Securities





On March 20, 2002, Roslyn Preferred Trust I (RPT I), a Delaware statutory business trust and a
wholly-owned subsidiary of the Company, issued $63.0 million aggregate liquidation amount of floating rate guaranteed preferred beneficial interest in Junior Subordinated Debentures (the Capital Securities) due April 1, 2032, at a distribution rate
equal to the 6-month LIBOR plus 360 basis points, resetting on a semi-annual basis. The maximum distribution rate on the Capital Securities is 12.0% through April 1, 2007, with no maximum thereafter. The Company may redeem the Capital Securities, in
whole or in part, at any time on or after April 1, 2007. At September 30, 2002, the distribution rate was 5.88%. As of October 1, 2002, such rate adjusted to 5.36%. See Note 8 to Notes to Consolidated Financial Statements included herein.





Stockholders Equity





Stockholders equity increased $45.9 million, or 8.1%, to $614.9 million at September 30, 2002 from $569.0 million at December 31, 2001. The increase was due to net income for the nine months ended September 30, 2002 of $106.3
million, the amortization of unallocated and unearned shares of common stock held by the Companys stock-related benefit plans of $7.7 million and an increase of $51.0 million in the net unrealized gains on securities available-for-sale from
December 31, 2001. Items that offset these increases were dividends paid of $31.1 million, the $12.9 million effect of stock options exercised for the nine months ended September 30, 2002 and the purchase of $73.3 million of treasury stock
(3,633,699 shares) and $1.7 million of SERP stock (73,062 shares) for the nine months ended September 30, 2002.




14




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##### Table of Contents




Analysis of Net Interest Income





Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of average
interest-earning assets and average interest-bearing liabilities and the interest rates earned or paid on them.





The following table sets
forth certain information regarding the Companys consolidated average statements of financial condition and the Companys average yields on interest-earning assets and average costs of interest-bearing liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense, annualized, by the average balance of interest-earning assets or interest-bearing liabilities, respectively. Average balances are derived from average daily balances and
include non-performing assets. The yields and costs include fees that are considered adjustments to yields and costs.





For the Three Months Ended September 30,2002


2001Average Balance

Interest

Average Yield/ Cost


Average Balance

Interest

Average Yield/ Cost(Dollars in thousands)ASSETS:Interest-earning assets:Federal funds sold and short-term deposits

$
78,488

$
326

1.66
%

$
47,182

$
412

3.49
%Debt and equity securities, net


1,374,913


22,696

6.60



900,958


18,131

8.05Mortgage-backed and mortgage related securities, net


4,938,321


73,045

5.92



3,322,835


53,367

6.42Real estate loans, net


3,044,484


53,132

6.98



3,532,998


66,227

7.50Consumer and other loans, net


297,844


3,951

5.31



305,057


5,328

6.99Total interest-earning assets


9,734,050


153,150

6.29



8,109,030


143,465

7.08Non-interest-earning assets(1)


395,490








269,530Total assets

$
10,129,540







$
8,378,560LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Money market accounts

$
590,480


3,224

2.18


$
362,969


2,844

3.13Savings accounts


1,051,108


2,904

1.11



901,059


3,867

1.72Super NOW and NOW accounts


287,344


484

0.67



222,986


804

1.44Certificates of deposit


3,132,008


27,190

3.47



2,745,121


35,501

5.17Total interest-bearing deposits


5,060,940


33,802

2.67



4,232,135


43,016

4.07Borrowed funds


4,103,935


50,076

4.88



3,275,764


43,606

5.32Total interest-bearing liabilities


9,164,875


83,878

3.66



7,507,899


86,622

4.61Non-interest-bearing liabilities


367,926








260,200Total liabilities


9,532,801








7,768,099Stockholders equity


596,739








610,461Total liabilities and stockholders equity

$
10,129,540







$
8,378,560Net interest income/interest rate spread(2)




$
69,272

2.63
%




$
56,843

2.47
%Net interest margin(2)







2.85
%







2.80
%Ratio of interest-earning assets to interest-bearing liabilities







106.21
%







108.01
%


---

|1) |  | Included in non-interest-earning assets for the three months ended September 30, 2002 and 2001 is Bank Owned Life Insurance (BOLI) with an average balance of
$116.9 million and $109.2 million, respectively, and associated income of $1.8 million and $2.0 million, respectively.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | On a tax equivalent basis, inclusive of reclassifying the BOLI asset, the net interest rate spread and the net interest margin for the three months ended
September 30, 2002 and 2001 would be 2.78% and 3.04%, and 2.69% and 3.08%, respectively.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






15




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##### Table of Contents




For the Nine Months Ended September 30,2002


2001Average Balance

Interest

Average Yield/ Cost


Average Balance

Interest

Average Yield/ Cost(Dollars in thousands)ASSETS:Interest-earning assets:Federal funds sold and short-term deposits

$
90,500

$
1,123

1.65
%

$
39,565

$
1,270

4.28
%Debt and equity securities, net


1,322,457


69,648

7.02



989,107


60,171

8.11Mortgage-backed and mortgage related securities, net


4,389,415


196,813

5.98



2,857,446


140,959

6.58Real estate loans, net


3,146,692


165,593

7.02



3,662,104


207,328

7.55Consumer and other loans, net


303,963


12,418

5.45



295,593


16,826

7.59Total interest-earning assets


9,253,027


445,595

6.42



7,843,815


426,554

7.25Non-interest-earning assets(1)


351,595








249,412Total assets

$
9,604,622







$
8,093,227LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Money market accounts

$
492,018


7,468

2.02


$
302,856


8,072

3.55Savings accounts


1,011,234


8,328

1.10



884,727


11,617

1.75Super NOW and NOW accounts


275,594


1,371

0.66



210,530


2,428

1.54Certificates of deposit


3,011,778


80,614

3.57



2,733,149


113,250

5.52Total interest-bearing deposits


4,790,624


97,781

2.72



4,131,262


135,367

4.37Borrowed funds


3,893,303


144,040

4.93



3,099,771


129,281

5.56Total interest-bearing liabilities


8,683,927


241,821

3.71



7,231,033


264,648

4.88Non-interest-bearing liabilities


345,942








255,157Total liabilities


9,029,869








7,486,190Stockholders equity


574,753








607,037Total liabilities and stockholders equity

$
9,604,622







$
8,093,227Net interest income/interest rate spread(2)




$
203,774

2.71
%




$
161,906

2.37
%Net interest margin(2)







2.94
%







2.75
%Ratio of interest-earning assets to interest-bearing liabilities







106.55
%







108.47
%


---

|1) |  | Included in non-interest-earning assets for the nine months ended September 30, 2002 and 2001 is BOLI with an average balance of $115.1 million and $107.3
million, respectively, and associated income of $5.7 million for each period.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | On a tax equivalent basis, inclusive of reclassifying the BOLI asset, the net interest rate spread and the net interest margin for the nine months ended
September 30, 2002 and 2001 would be 2.88% and 3.15%, and 2.59% and 3.03%, respectively.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16




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##### Table of Contents

Comparison of Operating Results for the Three Months Ended September 30, 2002 and 2001





Overview





The Company reported net income
of $36.0 million, or basic earnings per share of $0.46 and diluted earnings per share of $0.45, for the quarter ended September 30, 2002, compared to $28.5 million, or basic and diluted earnings per share of $0.33, for the comparable prior year
period.





Interest Income





Interest income for the quarter ended September 30, 2002 increased $9.7 million, or 6.8%, to $153.2 million from $143.5 million for the quarter ended September 30, 2001. This increase was primarily the result of an increase in
average interest-earning assets of $1.62 billion, or 20.0%, to $9.73 billion for the quarter ended September 30, 2002 from $8.11 billion in the comparable quarter of 2001. This increase in average balance was partially offset by a decrease in the
average yield on total interest-earning assets from 7.08% for the quarter ended September 30, 2001 to 6.29% for the 2002 comparable quarter. The increase in average interest-earning assets from the September 30, 2001 period was attributable to a
$1.62 billion increase in the average balance of mortgage-backed and mortgage related securities, net, and an increase in the average balance of debt and equity securities, net, of $474.0 million. Partially offsetting these increases was a decrease
in the average balance of real estate loans, net, of $488.5 million and a decrease in the average balance of consumer and other loans, net, of $7.3 million from the September 30, 2001 period.





Interest income on mortgage-backed and mortgage related securities, net, increased $19.6 million, or 36.9%, to $73.0 million for the three months ended September 30, 2002 from $53.4 million
for the same period in 2001. The increase was principally the result of an increase of $1.62 billion, or 48.6%, in the average balance of mortgage-backed and mortgage related securities, net, from $3.32 billion for the three months ended September
30, 2001 to $4.94 billion for the three months ended September 30, 2002. This increase in average balance primarily was due to managements decision to invest the proceeds received, primarily from increased borrowings and deposit liabilities,
into mortgage-backed and mortgage related securities. The increase in the average balance was offset by a decrease in the average yield on mortgage-backed and mortgage related securities, net, of 50 basis points from 6.42% for the three months ended
September 30, 2001 to 5.92% for the three months ended September 30, 2002.





Interest income on debt and equity securities, net, increased
$4.6 million, or 25.2%, to $22.7 million for the three months ended September 30, 2002 from $18.1 million for the same period in 2001. The increase was the result, in part, of an increase in the average balance of debt and equity securities, net, of
$474.0 million, or 52.6%, from $901.0 million for the three months ended September 30, 2001 to $1.37 billion for the three months ended September 30, 2002. The increase in average balance of debt and equity securities, net, was offset by a decrease
in the average yield on such securities of 145 basis points from 8.05% for the three months ended September 30, 2001 to 6.60% for the three months ended September 30, 2002.





Interest income on real estate loans, net, decreased $13.1 million, or 19.8%, to $53.1 million for the three months ended September 30, 2002 from $66.2 million for the same period in 2001. The decrease
was the result of a $488.5 million, or 13.8%, decrease in the average balance of real estate loans, net, outstanding from $3.53 billion for the quarter ended September 30, 2001 to $3.04 billion for the quarter ended September 30, 2002. The decrease
in average balance was due to a net decrease in the average balance of one- to four-family loans of $940.3 million, partially offset by a $451.8 million net increase in the average balance of multi-family, construction and commercial real estate
loans. The decrease in the interest income on real estate loans, net, was also the result of a 52 basis point decrease in the average yield on real estate loans from 7.50% for the three months ended September 30, 2001 to 6.98% for the three months
ended September 30, 2002. The decrease in the average yield was principally due to the low interest rate environment experienced during 2002, which has resulted in increased principal repayments on one- to four-family loans as consumers refinanced
their loans at lower rates, primarily with third parties.




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Interest income on consumer and other loans, net, decreased $1.3 million, or 25.8%, to $4.0 million for
the three months ended September 30, 2002 from $5.3 million for the same period in 2001. This decrease was due to a 168 basis point decrease in the average yield on consumer and other loans, net, from 6.99% for the three months ended September 30,
2001 to 5.31% for the same period in 2002, and a $7.3 million, or 2.4%, decrease in the average balance of consumer and other loans, net, outstanding from $305.1 million for the three months ended September 30, 2001 to $297.8 million for the three
months ended September 30, 2002. The decrease in average yield was principally due to downward re-pricing of consumer loan products, which are primarily linked to the Prime Rate, during the declining interest rate environment experienced during
2001.





Interest Expense





Interest expense for the three months ended September 30, 2002 was $83.9 million, compared to $86.6 million for the three months ended September 30, 2001, a decrease of $2.7 million, or 3.2%. The decrease in interest expense was the
result of a 95 basis point decrease in the average cost of interest-bearing liabilities for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001. The decrease in average cost was partially offset by a $1.65
billion, or 22.1%, increase in the average balance of interest-bearing liabilities from $7.51 billion for the quarter ended September 30, 2001 to $9.16 billion for the quarter ended September 30, 2002. The increase in average interest-bearing
liabilities reflects a $828.8 million increase in the average balance of interest-bearing deposits and a $828.2 million increase in the average balance of borrowed funds as compared to the prior year quarter.





Interest expense on interest-bearing deposits for the three months ended September 30, 2002 decreased $9.2 million, or 21.4%, to $33.8 million from $43.0 million
for the corresponding 2001 period. This decrease was primarily due to a 140 basis point decrease in the average rate paid on interest-bearing deposits from 4.07% for the three months ended September 30, 2001 to 2.67% for the corresponding period in
2002. Partially offsetting the decrease in the average rate paid was an increase in the average balance of interest-bearing deposit accounts of $828.8 million for the three months ended September 30, 2002 from the corresponding period in 2001. The
increase in the average balance of interest-bearing deposits was a result of increases in average balances of money market accounts of $227.5 million, Super NOW and NOW accounts of $64.4 million, savings accounts of $150.0 million and certificates
of deposits of $386.9 million for the three months ended September 30, 2002 from the corresponding period in 2001. The increase in the average balance of money market, savings, Super NOW and NOW accounts and certificates of deposits principally was
achieved by introducing new deposit products, competitive pricing and through additional deposits generated from the Companys de novo branching strategy.





Interest expense on borrowed funds for the three months ended September 30, 2002 increased $6.5 million, or 14.8%, to $50.1 million from $43.6 million for the corresponding 2001 period. The increase was primarily due to an
increase in the average balance of borrowed funds of $828.2 million, or 25.3%, from $3.28 billion for the three months ended September 30, 2001 to $4.10 billion for the three months ended September 30, 2002. Offsetting the increase in average
balance was a 44 basis point decrease in the average cost of borrowed funds from 5.32% for the three months ended September 30, 2001 to 4.88% for the corresponding period in 2002.





Net Interest Income





Net interest income before provision for loan losses was
$69.3 million for the three months ended September 30, 2002, as compared to $56.8 million for the three months ended September 30, 2001, an increase of $12.5 million, or 21.9%. The increase in net interest income reflects the impact of the expanded
interest rate spread and margin experienced for the three months ended September 30, 2002 as compared to the prior year quarter. The net interest rate spread and margin for the three months ended September 30, 2002 was 2.63% and 2.85%, respectively,
as compared to 2.47% and 2.80%, respectively, for the three months ended September 30, 2001.




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Provision for Loan Losses





The Company had a provision for loan losses for the three months ended September 30, 2002 of $750,000 as compared to $250,000 for the three months ended September 30, 2001. The provision for loan
losses for the three months ended September 30, 2002 and 2001 reflects managements qualitative and quantitative assessment of the loan portfolio, changes in the composition of the loan portfolio, net charge-offs and prospects for collection of
delinquent loans. At September 30, 2002 and December 31, 2001 the allowance for loan losses amounted to $42.7 million and $40.6 million, respectively. The ratio of such allowance to total non-performing loans was 97.29% at September 30, 2002, as
compared to 89.29 % at December 31, 2001. Non-performing loans were $43.9 million and $45.5 million at September 30, 2002 and December 31, 2001, respectively. During the three months ended September 30, 2002 the Company had net charge-offs of
$59,000, or 0.01% of average loans. For the three months ended September 30, 2001 net charge-offs were $55,000, or 0.00% of average loans.





The allowance for loan losses as a percentage of total non-performing loans was negatively impacted by the placement of two non-performing commercial credit relationships, totaling $32.3 million at September 30, 2002 and December 31,
2001, on non-accrual status during the fourth quarter of 2001. See Note 6 to Notes to Consolidated Financial Statements for further discussion of the two non-performing commercial credit relationships.





Non-Interest Income





Non-interest income
increased $1.4 million, or 16.1%, from $8.8 million for the quarter ended September 30, 2001 to $10.2 million for the quarter ended September 30, 2002. The increase reflects an increase in fees and service charges of $1.3 million, or 42.3%, from
$2.9 million for the quarter ended September 30, 2001 to $4.2 million for the quarter ended September 30, 2002. The increase in fees and service charges reflects the continued success of the Banks high performance checking campaign. Also
contributing significantly to the increase in non-interest income was a $2.4 million increase from the third quarter of 2001 in income related to the Companys joint venture for the development of a residential community in Oyster Bay, New
York, which generated $3.7 million in income related to the delivery of 64 units during the third quarter of 2002. Partially offsetting these increases was a decrease of $2.0 million, or 97.5%, in net gains on securities from $2.1 million for the
quarter ended September 30, 2001 to $52,000 for the quarter ended September 30, 2002.





Non-Interest Expense





Non-interest expense increased $2.8 million, or 13.8%, to $22.9 million for the quarter ended September 30, 2002, as compared to $20.1 million for the
same period in 2001. The increase in non-interest expense was attributable to an increase in general and administrative expenses, primarily relating to increases in compensation and benefits expenses, occupancy and equipment expenses and other
non-interest expenses. Additionally, non-interest expense increased due to the incurrence $954,000 of expense for the quarter ended September 30, 2002 relating to $63.0 million of Capital Securities issued in March of 2002. See Note 8 to Notes to
Consolidated Financial Statements included herein.





General and administrative expenses for the quarter ended September 30, 2002
increased $1.8 million, or 9.1%, to $21.9 million from $20.1 million for the quarter ended September 30, 2001. The increase in general and administrative expenses was primarily due to the increase in compensation and employee benefit costs of
$887,000, a $608,000 increase in occupancy and equipment expense and an increase in other non-interest expenses of $201,000.





The
increase in compensation and employee benefit expense was due to an increase in employee stock and performance-based benefit plan expenses and staffing additions related to de novo branch activities. The increase in occupancy and equipment expense
primarily relates to the operation of the de novo branches opened in the fourth quarter of 2001, first quarter 2002 and, to a lesser extent, third quarter 2002. The increase in other non-interest expenses was primarily due to




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increases in data and item processing fees and other operating expenses principally relating to the increase in the number of deposit accounts.





Income Taxes





The
provision for income taxes increased $5.0 million, from $14.9 million recorded during the quarter ended September 30, 2001 to $19.9 million recorded during the quarter ended September 30, 2002. The increase was attributable to the increase in income
before provision for income taxes and extraordinary item of $10.6 million in the current year quarter as compared to the same prior year quarter. Additionally, the Company recorded a $686,000 tax benefit during the quarter ended September 30, 2001
primarily related to T R Financial Corp.





Comparison of Operating Results for the Nine Months Ended September 30, 2002 and 2001





Overview





The
Company reported net income of $106.3 million, or basic earnings per share of $1.34 and diluted earnings per share of $1.31, for the nine months ended September 30, 2002, compared to $80.8 million, or basic and diluted earnings per share of $0.93
and $0.92, respectively, for the comparable prior year period.





Interest Income





Interest income for the nine months ended September 30, 2002 increased $19.0 million, or 4.5%, to $445.6 million from $426.6 million for the nine months ended
September 30, 2001. This increase was primarily the result of an increase in average interest-earning assets of $1.41 billion, or 18.0%, to $9.25 billion for the nine months ended September 30, 2002 from $7.84 billion in the comparable nine months
of 2001. This increase in average balance was partially offset by an 83 basis point decrease in the average yield on total interest-earning assets from 7.25% for the nine months ended September 30, 2001 to 6.42% for the 2002 comparable nine months.
The increase in average interest-earning assets from the September 30, 2001 period was attributable to a $1.53 billion increase in the average balance of mortgage-backed and mortgage related securities, net, an increase in the average balance of
debt and equity securities, net, of $333.4 million and an increase in the average balance of consumer and other loans, net, of $8.4 million. Partially offsetting these increases was a decrease in the average balance of real estate loans, net, of
$515.4 million from the September 30, 2001 period.





Interest income on mortgage-backed and mortgage related securities, net, increased
$55.8 million, or 39.6%, to $196.8 million for the nine months ended September 30, 2002 from $141.0 million for the same period in 2001. The increase was principally the result of an increase of $1.53 billion, or 53.6%, in the average balance of
mortgage-backed and mortgage related securities, net, from $2.86 billion for the nine months ended September 30, 2001 to $4.39 billion for the nine months ended September 30, 2002. This increase in average balance was primarily due to
managements decision to invest the proceeds received primarily from increased borrowings and deposit liabilities into mortgage-backed and mortgage related securities. The increase in the average balance was offset by a decrease in the average
yield on mortgage-backed and mortgage related securities, net, of 60 basis points from 6.58% for the nine months ended September 30, 2001 to 5.98% for the nine months ended September 30, 2002.





Interest income on debt and equity securities, net, increased $9.4 million, or 15.8%, to $69.6 million for the nine months ended September 30, 2002 from $60.2 million for the same period in
2001. The increase was the result, in part, of an increase in the average balance of debt and equity securities, net, of $333.4 million, or 33.7%, from $989.1 million for the nine months ended September 30, 2001 to $1.32 billion for the nine months
ended September 30, 2002. The increase in average balance of debt and equity securities, net, was offset by a decrease in the average yield on such securities of 109 basis points from 8.11% for the nine months ended September 30, 2001 to 7.02% for
the nine months ended September 30, 2002.




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Interest income on consumer and other loans, net, decreased $4.4 million, or 26.2%, to $12.4 million for the nine months ended September 30,
2002 from $16.8 million for the same period in 2001. This decrease was due to a 214 basis point decrease in the average yield on consumer and other loans, net, from 7.59% for the nine months ended September 30, 2001 to 5.45% for the same period in
2002, partially offset by an $8.4 million, or 2.8%, increase in the average balance of consumer and other loans, net, outstanding from $295.6 million for the nine months ended September 30, 2001 to $304.0 million for the nine months ended September
30, 2002. The decrease in average yield was principally due to downward re-pricing of consumer loan products during the low interest rate environment experienced during 2002.





Interest income on real estate loans, net, decreased $41.7 million, or 20.1%, to $165.6 million for the nine months ended September 30, 2002 from $207.3 million for the same period in 2001. The
decrease was the result of a $515.4 million, or 14.1%, decrease in the average balance of real estate loans, net, outstanding from $3.67 billion for the nine months ended September 30, 2001 to $3.15 billion for the nine months ended September 30,
2002. The decrease in the interest income on real estate loans, net was also the result of a 53 basis point decrease in the average yield on real estate loans from 7.55% for the nine months ended September 30, 2001 to 7.02% for the nine months ended
September 30, 2002. The decrease in the average yield was principally due to the low interest rate environment experienced during 2002, which has resulted in increased principal repayments on one- to four-family loans as consumers refinanced their
loans at lower rates, primarily with third parties.





Interest Expense





Interest expense for the nine months ended September 30, 2002 was $241.8 million, compared to $264.6 million for the nine months ended September 30, 2001, a decrease of $22.8 million, or
8.6%. The decrease in interest expense was the result of a 117 basis point decrease in the average cost of interest-bearing liabilities from 4.88% for the nine months ended September 30, 2001 to 3.71% for the nine months ended September 30, 2002.
The decrease in average cost was offset by a $1.45 billion, or 20.1%, increase in the average balance of interest-bearing liabilities from $7.23 billion for the nine months ended September 30, 2001 to $8.68 billion for the nine months ended
September 30, 2002. The increase in average interest-bearing liabilities reflects a $659.4 million increase in the average balance of interest-bearing deposits and a $793.5 million increase in the average balance of borrowed funds as compared to the
prior year nine months.





Interest expense on interest-bearing deposits for the nine months ended September 30, 2002 decreased $37.6
million, or 27.8%, to $97.8 million from $135.4 million for the corresponding 2001 period. This decrease was primarily due to a 165 basis point decrease in the average rate paid on interest-bearing deposits from 4.37% for the nine months ended
September 30, 2001 to 2.72% for the corresponding period in 2002. Offsetting the decrease in the average rate paid was an increase in the average balance of interest-bearing deposit accounts of $659.4 million, or 16.0%, for the nine months ended
September 30, 2002 from the corresponding period in 2001. The increase in the average balance of interest-bearing deposits was a result of increases in average balances of money market accounts of $189.2 million, savings accounts of $126.5 million,
Super NOW and NOW accounts of $65.1 million and certificates of deposits of $278.6 million for the nine months ended September 30, 2002 from the corresponding period in 2001. The increase in the average balance of money market, savings, Super NOW
and NOW accounts and certificates of deposits principally was achieved by introducing new deposit products, competitive pricing and through additional deposits generated from the Companys de novo branching strategy.





Interest expense on borrowed funds for the nine months ended September 30, 2002 increased $14.7 million, or 11.4%, to $144.0 million from $129.3 million for the
corresponding 2001 period. The increase was primarily due to an increase in the average balance of borrowed funds of $793.5 million, or 25.6%, from $3.01 billion for the nine months ended September 30, 2001 to $3.89 billion for the nine months ended
September 30, 2002. Offsetting the increase in average balance was a 63 basis point decrease in the average cost of borrowed funds from 5.56% for the nine months ended September 30, 2001 to 4.93% for the corresponding period in 2002.




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Net Interest Income





Net interest income before provision for loan losses was $203.8 million for the nine months ended September 30, 2002, as compared to $161.9 million for the nine months ended September 30, 2001, an
increase of $41.9 million, or 25.9%. The increase in net interest income reflects the impact of the expanded interest rate spread and margin experienced for the nine months ended September 30, 2002 as compared to the prior year nine months. The net
interest rate spread and margin for the nine months ended September 30, 2002 was 2.71% and 2.94%, respectively, as compared to 2.37% and 2.75%, respectively, for the nine months ended September 30, 2001.





Provision for Loan Losses





The Company had
a provision for loan losses for the nine months ended September 30, 2002 of $2.3 million as compared to $350,000 for the nine months ended September 30, 2001. The provision for loan losses for the nine months ended September 30, 2002 and 2001
reflects managements qualitative and quantitative assessment of the loan portfolio, changes in the composition of the loan portfolio, net charge-offs and prospects for collection of delinquent loans. During the nine months ended September 30,
2002 the Company had net charge-offs of $174,000, or 0.01% of average loans. For the nine months ended September 30, 2001 net charge-offs were $520,000, or 0.01% of average loans.





Non-Interest Income





Non-interest income increased $12.4 million, or 59.5%, from
$20.8 million for the nine months ended September 30, 2001 to $33.2 million for the nine months ended September 30, 2002. The increase reflects an increase in fees and service charges of $3.9 million, or 46.6%, from $8.5 million the nine months
ended September 30, 2001 to $12.4 million for the nine months ended September 30, 2002. The increase in fees and service charges reflects the continued success of the Banks high performance checking campaign, as well as increased fee income
associated with the sale of alternative investment products. Also contributing significantly to the increase in non-interest income was an increase of $12.6 million, from $1.3 million for the nine months ended September 30, 2001 to $13.9 million for
the 2002 period, in income related to the Companys joint venture for the development of a residential community in Oyster Bay, New York. This increase reflects the delivery of 216 units in the nine months ended September 30, 2002, as compared
to the delivery of 13 units in the nine months ended September 30, 2001. Partially offsetting these increases was a decrease of $3.6 million, or 96.9%, in net gains on securities from $3.7 million for the nine months ended September 30, 2001 to
$117,000 for the nine months ended September 30, 2002 and a decrease of $547,000, or 7.5%, in other non-interest income, including income from bank owned life insurance, from $7.3 million for the nine months ended September 30, 2001 to $6.8 million
for the corresponding 2002 period.





Non-Interest Expense





Non-interest expense increased $12.9 million, or 22.5%, to $70.3 million for the nine months ended September 30, 2002, as compared to $57.4 million for the same period in 2001. The increase in
non-interest expense was attributable to an increase in general and administrative expenses, primarily relating to increases in compensation and benefits expenses and other non-interest expenses. Additionally, non-interest expense increased due to
the incurrence $2.0 million of expense for the nine months ended September 30, 2002 relating to $63.0 million of Capital Securities issued in March of 2002.





General and administrative expenses for the nine months ended September 30, 2002 increased $11.0 million, or 19.1%, to $68.3 million from $57.3 million for the nine months ended September 30, 2001. The
increase in general and administrative expenses was primarily due to the increase in compensation and employee benefit costs of $7.3 million, a $1.3 million increase in occupancy and equipment expense and an increase in other non-interest expenses
of $2.6 million.




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The increase in compensation and employee benefit expense was primarily due to an increase in employee
stock and performance-based benefit plan expenses, commission expenses paid on sales of alternative investment products and staffing additions related to de novo branch activities. The increase in occupancy and equipment expense primarily relates to
the operation of the de novo branches opened in the fourth quarter of 2001, first quarter 2002 and, to a lesser extent, the third quarter of 2002. The increase in other non-interest expenses was primarily due to an increase in professional fees,
data processing fees and other operating expenses.





Income Taxes





The provision for income taxes increased $18.2 million, from $39.9 million recorded during the nine months ended September 30, 2001 to $58.1 million recorded during the nine months ended September 30,
2002. The increase was attributable to the increase in income before provision for income taxes and extraordinary item of $39.4 million in the current year nine months as compared to the same prior year nine months. Additionally, the Company
recorded a $2.1 million tax benefit during the nine months ended September 30, 2001 primarily related to T R Financial Corp.





Liquidity and Capital Resources





The Companys primary sources of funds are deposits, borrowings and proceeds
from the principal and interest payments on loans and securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and prepayments of mortgage loans and mortgage-backed securities
are greatly influenced by general interest rates, economic conditions and competition and, therefore, are less predictable.





Another
source of funding for the Holding Company is dividend payments from the Bank. Dividends paid by the Bank have primarily been used to fund common stock repurchases, pay dividends on the Companys common stock and repay borrowings. The
Banks ability to pay dividends to the Holding Company is generally limited by New York State banking law and regulations and the regulations of the Federal Deposit Insurance Corporation and the Office of Thrift Supervision. For the nine months
ended September 30, 2002, the Bank paid $7.2 million of dividends to the Holding Company.





As of September 30, 2002, the Company had
issued $75.0 million in unsecured senior notes at a rate of 7.50% and a maturity date of December 1, 2008. The Company used the net proceeds from the senior notes for general corporate purposes, including the repurchase of outstanding common stock
and repayment or reduction of indebtedness. The costs associated with the issuance of the senior notes have been capitalized and are being amortized generally over the life of the borrowing. In addition, the Company has the ability to issue up to an
additional $125.0 million in debt and other types of securities, with rates and terms to be determined, pursuant to the Companys $200.0 million shelf registration filed with the Securities and Exchange Commission during 2001.





On March 20, 2002, the Company, through its wholly-owned subsidiary Roslyn Preferred Trust I (RPT I), issued $63.0 million aggregate liquidation
amount of floating rate guaranteed preferred beneficial interest in Junior Subordinated Debentures (the Capital Securities). Such securities bear interest at 6-month LIBOR plus 360 basis points and are due April 1, 2032. The proceeds from the
issuance of the Capital Securities were used for general corporate purposes, including, among other things, the repurchase of the Companys common stock and the repayment of borrowed funds.The costs associated with the Capital
Securities issuance have been capitalized and are being amortized generally over the life of the borrowing.





The primary investing
activities of the Company are the origination of mortgage and construction loans and the purchase of mortgage-backed, mortgage related, debt and equity securities. During the nine months ended September 30, 2002, the Bank originated $491.1 million
of construction, multi-family and commercial real estate loans, as compared to $355.5 million in the comparable 2001 period. This increase reflects managements decision to de-emphasize its reliance on one- to four-family lending and capitalize
on its higher margin lending operations. Originations of one- to four-family mortgage loans for the nine months ended September 30, 2002 and 2001 were $93.7 million and $44.5 million, respectively. Also during the nine months ended September 30,
2002 the Bank purchased securities available-for-sale totaling $5.61 billion as compared to $3.53 billion during the nine months ended September 30, 2001. In addition to the




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aforementioned investing activities, the Company, during the nine months ended September 30, 2002, made a $25.0 million investment in a real
estate joint venture, with The Holiday Organization, for the development of a 177 unit residential community located in Mount Sinai, Suffolk County, New York.





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





The Company closely monitors its liquidity position on a daily basis. Excess short-term liquidity is invested in overnight federal funds sold and/or in short-term repurchase agreements. In the event
that the Company should require funds beyond its ability to generate them internally, additional sources of funds are available through the use of reverse-repurchase agreements, FHLB advances and other borrowing facilities. At September 30, 2002,
the Company had $4.53 billion in borrowed funds outstanding, as compared to $3.52 billion at December 31, 2001.





At September 30, 2002,
the Company had outstanding loan commitments to advance $486.0 million of loans, which primarily consisted of commercial real estate and construction loans. Management of the Company anticipates that it will have sufficient funds available to meet
its current loan commitments. Also, in the normal course of business, the Company enters into commitments to purchase securities. As of September 30, 2002, the Company had commitments outstanding to purchase United States Government agency
securities of $81.8 million and mortgage backed securities of $803.6 million.





Certificates of deposit that are scheduled to mature in
one year or less at September 30, 2002 totaled $1.88 billion. Based upon prior experience and the Companys current pricing strategy, management believes that a significant portion of such deposits will remain with the Company.





The Companys most liquid assets are cash and cash equivalents, short-term securities and securities available-for-sale. The levels of these
assets are dependent on the Companys operating, financing, lending and investment activities during any given period. At September 30, 2002 and December 31, 2001, the Company had $90.6 million and $102.8 million, respectively, in cash and cash
equivalents. Additionally, the Company had no short-term repurchase agreements outstanding at September 30, 2002 or December 31, 2001.





Interest Rate Sensitivity AnalysisManagement Of Interest Rate Risk





The principal objectives of the
Companys interest rate risk management are to evaluate the interest rate risk inherent in certain balance sheet accounts, determine the level of risk appropriate given the Companys business strategy, operating environment, capital and
liquidity requirements and performance objectives, and manage the risk consistent with the Board of Directors approved guidelines. Through such management, the Company seeks to reduce the vulnerability of its operations to changes in interest
rates. The Companys Board of Directors reviews the Companys interest rate risk position on a monthly basis. Additionally, an Asset/Liability Committee comprised of the Banks senior management reviews the Companys interest
rate risk position on a weekly basis. Senior management is also responsible for reviewing, with the Board of Directors, its activities and strategies, the effect of those strategies on the Companys net interest margin, the market value of the
Companys portfolio of investments and loans and the effect that changes in interest rates will have on the Companys portfolio and exposure limits.





The Company has utilized the following strategies, among other things, to manage interest rate risk: (i) increasing low-cost core deposits through an expanded branch network and product offerings; (ii) focusing on higher
margin business




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lines by expanding construction, commercial real estate, multi-family and consumer lending; and (iii) effectively utilizing borrowed funds and
deposits to support asset growth while maintaining market spreads. Management believes that reducing its exposure to interest rate fluctuations will enhance long-term profitability.





Interest Rate Sensitivity AnalysisGap Analysis





The matching of assets and
liabilities may be analyzed by examining the extent to which such assets and liabilities are interest rate sensitive and by monitoring an institutions interest rate sensitivity gap. An asset or liability is said to be
interest rate sensitive within a specific time period if it will mature or re-price within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or re-pricing within a
specific time period and the amount of interest-bearing liabilities maturing or re-pricing within that same time period. At September 30, 2002, the Companys one-year gap position was positive 33.08%. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, an institution with a positive gap position would be in a better position to invest in higher yielding assets, which, consequently, may result in the yield of its interest-earning assets increasing at a rate faster
than its cost of interest-bearing liabilities, as opposed to if the institution had a negative gap. Accordingly, during a period of falling interest rates, an institution with a positive gap would tend to have its interest-earning assets re-pricing
downward at a faster rate than its interest-bearing liabilities as compared to an institution with a negative gap which, consequently, may tend to negatively affect the growth of its net interest income. The Companys September 30, 2002
cumulative one-year gap position reflects the classification of available-for-sale securities within re-pricing periods based on their contractual maturities adjusted for estimated callable features and prepayments, if any. If available-for-sale
securities at September 30, 2002 were classified within the one-year maturity or re-pricing category, net interest-earning assets would have exceeded interest-bearing liabilities maturing or re-pricing within the same period by $5.34 billion,
representing a positive cumulative one-year gap position of 49.64%. Available-for-sale securities may or may not be sold, subject to managements discretion. Given the Companys existing liquidity position and its ability to sell
securities from its available-for-sale portfolio, management of the Company believes that its current gap position will have no material adverse effect on its liquidity position.





The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2002, that are anticipated by the Company, based upon certain
assumptions, to re-price or mature in each of the future time periods shown (the Gap Table). Except as stated, the amount of assets and liabilities shown which re-price or mature during a particular period was determined in accordance with the
earlier of the term to re-price or the contractual maturity of the asset or liability. The Gap Table sets forth an approximation of the projected re-pricing of assets and liabilities at September 30, 2002 on the basis of contractual maturities,
anticipated prepayments, callable features and scheduled rate adjustments within a one-year period and subsequent annual time intervals. Prepayment assumptions ranging from 4% to 50% per year were applied to the real estate loan portfolio, dependent
upon the loan type and coupon. Mortgage-backed and mortgage related securities were assumed to prepay at rates between 15% and 70% annually, dependent upon the security type, call features and pass-through rate. Money market accounts were assumed to
decay at 14% per annum, savings accounts were assumed to decay at 4% per annum and Super NOW and NOW accounts were assumed to decay at 3% per annum. Prepayment and deposit decay rates (estimated deposit withdrawal activity) can have a significant
impact on the Companys estimated gap. While the Company believes such assumptions are reasonable, there can be no assurance that assumed prepayment or decay rates will approximate actual future real estate loan and mortgage-backed and mortgage
related securities prepayments and deposit withdrawal activity.





In addition to the foregoing, callable features of certain assets and
liabilities may cause actual experience to vary from that indicated. Included in the Gap Table are $829.5 million of callable securities at their estimated fair value and classified primarily based upon their respective call features and/or interest
rates. Of such securities, $653.1 million have been classified, using callable features, in the Up to One Year category, $83.2 million have been classified, according to their contractual maturity date, in the Four to Five
Years category and $93.2 million have been classified, according




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##### Table of Contents

to their contractual maturity date, in the Over Five Years category. Also included in the Gap Table are $2.32 billion of callable
borrowings, classified according to their maturity date, except for $150.0 million of such borrowings which have been classified according to their first call date, in the One to Two Years category. If all callable borrowings at
September 30, 2002 were classified according to their first call date, the Companys one-year gap position would have been positive 19.84%.





The Companys positive gap position at September 30, 2002 and December 31, 2001 of 33.08% and 15.33%, respectively, primarily reflects the effect of increased prepayment activity during 2002 in the mortgage-backed securities and
real estate loan portfolios, in addition to the Companys increased investment in shorter-term multi-family/construction loans. Also contributing to the greater positive gap position as of September 30, 2002, when compared to December 31, 2001,
was the lengthening of certificates of deposit maturities. Partially offsetting these factors was an increase in borrowed funds maturing in the Up to One Year category.




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##### Table of Contents




At September 30, 2002Up to One Year


One to Two
Years


Two to Three Years


Three To Four Years


Four to Five Years


Over Five Years


Total(Dollars in thousands)Interest-earning assets(1):Federal funds sold

$
14,800


$



$



$



$



$



$
14,800Debt and equity securities, net(2)


914,929



7,457







22,370



1,135



493,298



1,439,189Mortgage-backed and mortgage related securities, net(2)


4,362,696



905,631



227,549



69,423



26,795



28,193



5,620,287Real estate loans, net(3)(4)


1,398,074



556,126



311,019



243,475



323,531



174,461



3,006,686Consumer and other loans, net(3)(4)


236,392



8,250



8,327



6,989



5,372



28,188



293,518Total interest-earning assets


6,926,891



1,477,464



546,895



342,257



356,833



724,140



10,374,480Interest-bearing liabilities(1):Money market accounts


100,741



59,336



38,117



27,040



21,094



472,241



718,569Savings accounts


45,505



42,844



40,393



38,133



36,044



882,102



1,085,021Super NOW and NOW accounts


8,934



8,666



8,406



8,154



7,909



255,740



297,809Certificates of deposit


1,881,461



562,693



237,268



80,655



274,614



56,153



3,092,844Borrowed funds


1,269,074



349,973



375,269



599,968



199,966



1,735,951



4,530,201Capital securities


63,000























63,000Total interest-bearing liabilities


3,368,715



1,023,512



699,453



753,950



539,627



3,402,187



9,787,444Interest sensitivity gap(5)

$
3,558,176


$
453,952


$
(152,558
)

$
(411,693
)

$
(182,794
)

$
(2,678,047
)

$
587,036Cumulative interest sensitivity gap

$
3,558,176


$
4,012,128


$
3,859,570


$
3,447,877


$
3,265,083


$
587,036Cumulative interest sensitivity gap as a percentage of total assets


33.08
%


37.30
%


35.88
%


32.05
%


30.35
%


5.46
%Cumulative net interest- earning assets as a percentage of cumulative interest-bearing liabilities


205.62
%


191.35
%


175.80
%


158.98
%


151.13
%


106.00
%


---

|(1) |  | Interest-earning assets and liabilities are included in the period in which the balances are expected to be re-deployed and/or re-priced as a result of
anticipated prepayments and call dates, scheduled rate adjustments and contractual maturities.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Debt, equity and mortgage-backed and mortgage related securities, net, are shown at their respective carrying values. Included in debt and equity securities,
net, is $119.9 million of Federal Home Loan Bank stock.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | For the purpose of the gap analysis, the allowance for loan losses and non-performing loans have been excluded.
|--- |  | ---------------------------------------------------------------------------------------------------------------

|(4) |  | Loans held-for-sale are included in the Up to One Year category.
|--- |  | ------------------------------------------------------------------

|(5) |  | The interest sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities.
|--- |  | ------------------------------------------------------------------------------------------------------------------------



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Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or periods to re-pricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage (ARM) loans, have features which limit adjustments
to interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the table. Finally, the
ability of borrowers to service their ARM loans may decrease in the event of an interest rate increase. The table reflects managements estimates as to periods to re-pricing at particular points in time. Among the factors considered, management
monitors both current trends and its historical re-pricing experience with respect to particular or similar products. For example, the Bank has a number of deposit accounts, including passbook savings, Super NOW and NOW accounts and money market
accounts, which, subject to certain regulatory exceptions, may be withdrawn at any time. The Bank, based upon its historical experience, assumes that while all customers in these account categories could withdraw their funds on any given day, not
all will do so even if market interest rates were to change. As a result, different assumptions may be used at different points in time.




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##### Table of Contents




ITEM 3.    
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





For a description of the Companys
quantitative and qualitative disclosures about market risk, see the information set forth under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations-Interest Rate Sensitivity
AnalysisManagement of Interest Rate Risk and Interest Rate Sensitivity AnalysisGap Analysis.





ITEM
4.    
DISCLOSURES AND CONTROLS





(a)  Evaluation of disclosure controls and
procedures.    The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the chief financial officer of the Company concluded that the Companys disclosure controls and procedures were adequate.





(b)  Changes in internal controls.    The Company made no significant changes in its internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief executive officer and chief financial officer.




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##### Table of Contents




PART IIOTHER INFORMATION





ITEM 1.    
LEGAL PROCEEDINGS





The Company is not involved in any pending legal proceedings other than routine legal
proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Companys financial condition or results of operations.





ITEM 2.    
CHANGES IN SECURITIES AND USE OF PROCEEDS





None.





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 AND REPORTS ON FORM 8-K





(a)          Exhibits





3.1

Certificate of Incorporation of Roslyn Bancorp, Inc.(1)3.2

Certificate of Amendment to Certificate of Incorporation of Roslyn Bancorp, Inc.(2)3.3

Third Amended and Restated Bylaws of Roslyn Bancorp, Inc.(3)4.1

Shareholder Protection Rights Agreement, dated as of September 26, 2000, between Roslyn Bancorp, Inc. and Registrar
and Transfer Company, as Rights Agent(4)4.2

Form of Senior Indenture(5)4.3

Form of Subordinated Indenture(5)11.0

Statement Re: Computation of Per Share Earnings99.1

Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 200299.2

Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002





(b)          Reports on Form 8-K





None.


---

|1. |  | Incorporated by reference into this document from Exhibits filed with the Registration Statement on Form S-1, and any amendments thereto, Registration Statement
No. 333-10471, filed with the Securities and Exchange Commission on August 20, 1996.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | Incorporated by reference into this document from the Exhibits to the Companys quarterly report on Form 10-Q, Commission File No. 0-28886, filed with the
Securities and Exchange Commission on August 13, 1999.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Incorporated by reference into this document from Exhibits to the Companys quarterly report on Form 10-Q, Commission file No. 0-28886, filed with the
Securities and Exchange Commission on August 10, 2000.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | Incorporated by reference into this document from Exhibits to the Companys Form 8-A, Commission File No. 0-28886, filed with the Securities and Exchange
Commission on September 29, 2000.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|5. |  | Incorporated by reference into this document from Exhibits to the Companys Form S-3, Commission File No. 333-67282, filed with the Securities and Exchange
Commission on August 10, 2001.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents




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.





ROSLYN BANCORP, INC. (Registrant)Date:    October 31, 2002

By:

/s/    Joseph L. MancinoJoseph L. Mancino Vice
Chairman of the Board, President and Chief Executive Officer





Date:    October 31, 2002

By:

/s/    Michael P. PuorroMichael P. Puorro Treasurer
and Chief Financial Officer




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##### Table of Contents




CERTIFICATIONS





I, Joseph L. Mancino, President and Chief Executive Officer of Roslyn Bancorp, Inc.,
certify that:





1.  I have reviewed this quarterly report on Form 10-Q of Roslyn Bancorp, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.  The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;





5.  The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial
data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.  The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date:    October 31, 2002





/s/    Joseph L. MancinoJoseph L. Mancino President and Chief Executive Officer of Roslyn Bancorp, Inc.







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##### Table of Contents




I, Michael P. Puorro, Treasurer and Chief Financial Officer of Roslyn Bancorp, Inc., certify that:





1.  I have reviewed this quarterly report on Form 10-Q of Roslyn Bancorp, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.  The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;





5.  The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial
data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud,
whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.  The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date:    October 31, 2002





/s/    Michael P. PuorroMichael P. Puorro Treasurer and Chief Financial Officer of
Roslyn Bancorp, Inc.




34