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                                                      June
30, 2009


OR





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





For the
transition period
from                 to





Commission
file number 0-27782





Dime
Community Bancshares, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
                (State
      or other jurisdiction of incorporation or organization)
              
              11-3297463
                (I.R.S.
      employer identification number)209
      Havemeyer Street, Brooklyn, NY
                (Address of principal
      executive offices)
              
              11211
                (Zip
      Code)





(718)
782-6200


(Registrant's
telephone number, including area code)





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


YES           
X           NO
___





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





YES           
           NO
___





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.





LARGE
      ACCELERATED FILER ___
              ACCELERATED FILER X
              NON
      -ACCELERATED FILER  ___
              SMALLER
      REPORTING COMPANY ___





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


YES                                  NO           X





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





Classes of Common Stock
                
                Number of Shares Outstanding at August 7,
      2009$.01
      Par Value
                
                34,390,156











PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                Unaudited
      Condensed Financial StatementsCondensed
      Consolidated Statements of Financial Condition at June 30, 2009 and
      December 31, 2008
                3Condensed
      Consolidated Statements of Operations for the Three-Month and Six-Month
      Periods EndedJune
      30, 2009 and 2008
                4Condensed Consolidated Statements of Changes in Stockholders' Equity for
      the Six Months EndedJune
      30, 2009 and 2008 and
                  Consolidated Statements of Comprehensive Income forthe
      Three-Month and Six-Month Periods Ended June 30, 2009 and
    2008
                5Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2009 and 2008
                6Notes
      to Consolidated Financial Statements
                7-22Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                22-42Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                42-43Item
      4.
                Controls
      and Procedures
                43PART
      II - OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                43Item
      1A.
                Risk
      Factors
                43-47Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                47Item
      3.
                Defaults
      Upon Senior Securities
                47Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                47Item
      5.
                Other
      Information
                48Item
      6.
                Exhibits
                48-50Signatures
                51





Certain
statements contained in this quarterly report on Form 10-Q that are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”),
notwithstanding that such statements are not specifically identified as
such.  In addition, certain statements may be contained in future
filings with the U.S. Securities and Exchange Commission ("SEC"), in press
releases, and in oral and written statements made by management or with their
approval that are not statements of historical fact and constitute
forward-looking statements within the meaning of the Act.  Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenues, expenses, income or loss, earnings or loss per share, the payment or
nonpayment of dividends, capital structure and other financial items; (ii)
statements of plans, objectives and expectations of Dime Community Bancshares,
Inc. and its subsidiaries (the "Company") or those of its management or board of
directors, including those relating to products or services; (iii) statements of
future economic performance; and (iv) statements of assumptions underlying such
statements.  Forward-looking statements include information concerning
possible or assumed future results of operations and statements preceded by,
followed by or that include the words “believes,” “expects,” “feels,”
“anticipates,” “intends,” “plans,” “estimates,” “predicts,” “projects,”
“potential,” “outlook,” “could,” “will,” “may” or similar
expressions.




Forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions.  Actual results may differ materially
from those expressed in or implied by these forward-looking
statements.  Factors that could cause actual results to differ from
these forward-looking statements include, but are not limited to, the following,
as well as those discussed elsewhere in this report and the documents
incorporated by reference herein:


·
              the
      timing and occurrence or non-occurrence of events may be subject to
      circumstances beyond the Company's control;·
              there
      may be increases in competitive pressure among financial institutions or
      from non-financial institutions;·
              changes
      in the interest rate environment may reduce interest
    margins;·
              changes
      in deposit flows, loan demand or real estate values may adversely affect
      the business of The Dime Savings Bank of Williamsburgh
      (the"Bank");·
              changes
      in accounting principles, policies or guidelines may cause the Company's
      financial condition to be perceived differently;·
              changes
      in corporate and/or individual income tax laws may adversely affect the
      Company's business or financial condition;·
              general
      economic conditions, either nationally or locally in some or all areas in
      which the Company conducts business, or conditions in the securities
      markets or banking industry, may be less favorable than currently
      anticipated;·
              legislation
      or regulatory changes may adversely affect the Company's
      business;·
              technological
      changes may be more difficult or expensive than the Company
      anticipates;·
              success
      or consummation of new business initiatives may be more difficult or
      expensive than the Company anticipates;·
              litigation
      or other matters before regulatory agencies, whether currently existing or
      commencing in the future, may delay the occurrence or non-occurrence of
                events longer than the Company anticipates; and·
              the
      risks referred to in the section entitled "Risk
  Factors."





Undue
reliance should not be placed on any forward-looking
statements.  Forward-looking statements speak only as of the date they
are made, and the Company undertakes no obligation to update them in light of
new information or future events except to the extent required by Federal
securities laws.




2




Item
1.  Condensed Financial Statements





DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(Dollars
in thousands except share amounts)





June
      30, 2009
                      (Unaudited)
                    December
      31, 2008ASSETS:Cash
      and due from banks
                    $229,638
                    $211,020Investment
      securities held-to-maturity (estimated fair value of $5,395 and $9,082 at
      June 30, 2009 andDecember
      31, 2008, respectively) (Fully Unencumbered)
                    8,695
                    10,861Investment
      securities available-for-sale, at fair value (fully
      unencumbered)
                    6,540
                    16,602Mortgage-backed
      securities available-for-sale, at fair value:Encumbered
                    248,699
                    251,744Unencumbered
                    14,816
                    49,607263,515
                    301,351Loans:Real
      estate, net
                    3,242,033
                    3,289,314Other
      loans
                    3,262
                    2,191Less
      allowance for loan losses
                    (19,991)
                    (17,454)Total
      loans, net
                    3,225,304
                    3,274,051Loans
      held for sale
                    667
                    -Premises
      and fixed assets, net
                    29,986
                    30,426Federal
      Home Loan Bank of New York ("FHLBNY") capital stock
                    51,833
                    53,435Other
      real estate owned ("OREO")
                    -
                    300Goodwill
                    55,638
                    55,638Other
      assets
                    102,583
                    101,914Total
      Assets
                    $3,974,399
                    $4,055,598LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Due
      to depositors:Interest
      bearing deposits
                    $2,190,662
                    $2,169,341Non-interest
      bearing deposits
                    102,447
                    90,710Total
      deposits
                    2,293,109
                    2,260,051Escrow
      and other deposits
                    69,803
                    130,121Securities
      sold under agreements to repurchase
                    230,000
                    230,000Federal
      Home Loan Bank of New York advances
                    959,675
                    1,019,675Subordinated
      notes payable
                    25,000
                    25,000Trust
      Preferred securities payable
                    72,165
                    72,165Other
      liabilities
                    41,152
                    41,622Total
      Liabilities
                    $3,690,904
                    $3,778,634Commitments
      and ContingenciesStockholders'
      Equity:Preferred
      stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding
      atJune
      30, 2009 and December 31, 2008)
                    -
                    -Common
      stock ($0.01 par, 125,000,000 shares authorized, 51,122,319 shares and
      51,122,319shares
      issued at June 30, 2009 and
                      December 31, 2008, respectively, and 34,386,066 shares and34,179,900
      shares outstanding at June 30, 2009 and December 31, 2008,
      respectively)
                    511
                    511Additional
      paid-in capital
                    213,790
                    213,917Retained
      earnings
                    299,635
                    297,848Accumulated
      other comprehensive loss, net of deferred taxes
                    (7,717)
                    (11,111)Unallocated
      common stock of Employee Stock Ownership Plan ("ESOP")
                    (3,817)
                    (3,933)Unearned
      Restricted Stock Award common stock
                    (3,016)
                    (1,790)Common
      stock held by Benefit Maintenance Plan ("BMP")
                    (8,007)
                    (8,007)Treasury
      stock, at cost (16,736,253 shares and 16,942,419 shares atJune
      30, 2009 and December 31, 2008, respectively)
                    (207,884)
                    (210,471)Total
      Stockholders' Equity
                    $283,495
                    $276,964Total
      Liabilities And Stockholders' Equity
                    $3,974,399
                    $4,055,598


See notes
to condensed consolidated financial statements.


3


DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars
in thousands except per share amounts)





Three
      Months Ended June 30,
              
              Six
      Months Ended June 30,2009
              2008
              
              2009
              2008Interest
      income:Loans
      secured by real estate
              $47,662
              $44,147
              
              $95,991
              $87,213Other
      loans
              37
              41
              
              74
              85Mortgage-backed
      securities
              2,969
              3,370
              
              6,249
              5,586Investment
      securities
              194
              364
              
              439
              1,072Federal
      funds sold and other short-term investments
              858
              1,346
              
              1,361
              3,542Total
      interest  income
              51,720
              49,268
              
              104,114
              97,498Interest
      expense:Deposits
      and escrow
              11,718
              14,452
              
              25,930
              32,420Borrowed
      funds
              13,713
              11,706
              
              27,755
              22,737Total
      interest expense
              25,431
              26,158
              
              53,685
              55,157Net
      interest income
              26,289
              23,110
              
              50,429
              42,341Provision
      for loan losses
              2,252
              310
              
              4,892
              370Net
      interest income after provision for loan losses
              24,037
              22,800
              
              45,537
              41,971Non-interest
      income:Total
      other than temporary impairment ("OTTI") losses
              (1,160)
              -
              
              (7,264)
              -Less:  Non-credit
      portion of OTTI recorded inother
      comprehensive income (before taxes)
              274
              -
              
              1,338
              -Net
      OTTI recognized in earnings
              (886)
              -
              
              (5,926)
              -Service
      charges and other fees
              879
              1,146
              
              1,742
              2,201Net
      mortgage banking income (loss)
              856
              30
              
              (312)
              316Net
      (loss) gain on sales of investment securities and other real estate
      owned
              (92)
              (129)
              
              339
              (129)Income
      from bank owned life insurance
              501
              495
              
              995
              987Other
              600
              318
              
              974
              652Total
      non-interest income (loss)
              1,858
              1,860
              
              (2,188)
              4,027Non-interest
      expense:Salaries
      and employee benefits
              6,666
              6,010
              
              13,540
              12,411Stock
      benefit plan amortization expense
              952
              879
              
              1,878
              1,711Occupancy
      and equipment
              1,882
              1,764
              
              3,968
              3,335Federal
      deposit insurance premiums
              2,762
              173
              
              3,571
              237Data
      processing costs
              733
              778
              
              1,487
              1,556Other
              2,330
              2,654
              
              4,489
              5,288Total
      non-interest expense
              15,325
              12,258
              
              28,933
              24,538Income
      before income taxes
              10,570
              12,402
              
              14,416
              21,460Income
      tax expense
              3,654
              3,977
              
              4,650
              7,078Net
      income
              $6,916
              $8,425
              
              $9,766
              $14,382Earnings
      per Share:Basic
              $0.21
              $0.26
              
              $0.30
              $0.44Diluted
              $0.21
              $0.26
              
              $0.30
              $0.44





See notes
to condensed consolidated financial statements.


4


DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


AND
COMPREHENSIVE INCOME


(Dollars
in thousands)


Six
      Months Ended June 30,2009
              2008STATEMENTS
      OF CHANGES IN STOCKHOLDERS' EQUITYCommon
      Stock (Par Value $0.01):Balance
      at beginning of period
              $511
              $509Shares
      issued in exercise of options
              -
              2Balance
      at end of period
              511
              511Additional
      Paid-in Capital:Balance
      at beginning of period
              213,917
              208,369Stock
      options exercised
              -
              2,451Tax
      (expense) benefit of stock plans
              (156)
              473Amortization
      of excess fair value over cost – ESOP stock and stock options
      expense
              871
              997Release
      from treasury stock for restricted stock award shares
              (842)
              69Balance
      at end of period
              213,790
              212,359Retained
      Earnings:Balance
      at beginning of period
              297,848
              288,112Net
      income for the period
              9,766
              14,382Cash
      dividends declared and paid
              (9,234)
              (9,100)Cumulative
      effect adjustment for the adoption of the transition requirements of
      Statement of Financial AccountingStandards
      ("SFAS")
                No. 158, "Employers' Accounting for Defined Benefit Pension and Other
      PostretirementPlans
      - an amendment of FASB Statements
                No. 87, 88, 106, and 132(R)" ("SFAS 158") net of taxes
              -
              (23)Cumulative
      effect adjustment for the adoption of Financial Accounting Standards Board
      ("FASB") Staff PositionNo.
      FAS 115-2 and
                FAS 124-2, "Recognition and Presentation of Other-Than-Temporary
      Impairments" ("FSP 115-2"),net
      of taxes
              1,255
              -Balance
      at end of period
              299,635
              293,371Accumulated
      Other Comprehensive Loss, net of tax:Balance
      at beginning of period
              (11,111)
              (4,278)Cumulative
      effect adjustment for the adoption of FSP 115-2, net of
tax
              (1,255)
              (64)Amortization
      and reversal of net unrealized loss on securities transferred from
      available-for- sale to held-to-maturity, net of tax
              981
              -Non-credit
      component of OTTI charge recognized during the period, net of
      tax
              (735)
              -Change
      in other comprehensive income (loss) during the period, net of
      tax
              4,403
              (3,318)Balance
      at end of period
              (7,717)
              (7,660)ESOP:Balance
      at beginning of period
              (3,933)
              (4,164)Amortization
      of earned portion of ESOP stock
              116
              116Balance
      at end of period
              (3,817)
              (4,048)Unearned
      Restricted Stock Award Common StockBalance
      at beginning of period
              (1,790)
              (634)Amortization
      of earned portion of restricted stock awards
              519
              204Release
      from treasury stock for restricted stock award shares
              (1,745)
              (218)Balance
      at end of period
              (3,016)
              (648)Treasury
      Stock, at costBalance
      at beginning of period
              (210,471)
              (211,121)Purchase
      of treasury shares, at cost
              -
              (654)Release
      from treasury stock for restricted stock award shares
              2,587
              149Balance
      at end of period
              (207,884)
              (211,626)Common
      Stock Held by BMPBalance
      at beginning of period
              (8,007)
              (7,941)Common
      stock acquired
              -
              (66)Balance
      at end of period
              (8,007)
              (8,007)Total
      Stockholders' Equity
              $283,495
              $274,252




STATEMENTS
OF COMPREHENSIVE INCOME


Three
      Months
                        Ended
      June 30,
                      
                      Six
      Months
                        Ended
      June 30,2009
                      2008
                      
                      2009
                      2008Net
      Income
                      $6,916
                      $8,425
                      
                      $9,766
                      $14,382Amortization
      and reversal of net unrealized loss on securities transferred from
      available-for- sale to held-to-maturity,
                        net
      of taxes of $73 during the three months ended June 30, 2009 and $807
      during the six months ended June 30, 2009
                      89
                      -
                      
                      981
                      -Non-credit
      component of OTTI charge recognized during the period, net of tax benefit
      of $(124) during the three months
                        ended
      June 30, 2009 and $(604) during the six months ended June 30,
      2009
                      (151)
                      -
                      
                      (735)
                      -Reclassification
      adjustment for securities sold during the period, net of taxes of $195
      during the sixmonths
      ended June 30, 2009
                      -
                      -
                      
                      (236)
                      -Net
      unrealized securities gains (losses) arising during the period, net of
      taxes (benefit) of $765 and $(2,536) during
      the
                        three months ended June 30, 2009 and 2008, respectively, and $3,819 and
      $(2,828) during the six monthsended
      June 30, 2009
                        and 2008, respectively
                      929
                      (2,975)
                      
                      4,639
                      (3,318)Comprehensive
      Income
                      $7,783
                      $5,450
                      
                      $14,415
                      $11,064


See notes
to condensed consolidated financial statements.


5





DIME
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars
In thousands)





Six
      Months Ended June 30,2009
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income
              $9,766
              $14,382Adjustments
      to reconcile net income to net cash provided by  operating
      activities:Net
      loss on sale of other real estate owned
              92
              129Net
      gain on sale of loans originated for sale
              (635)
              (219)Net
      gain on sale of investment securities available-for-sale
              (431)
              763Net
      depreciation and amortization
              1,310
              638ESOP
      compensation expense
              370
              679Stock
      plan compensation (excluding ESOP)
              1,136
              370Provision
      for loan losses
              4,892
              300Provision
      to increase the liability for loans sold with recourse
              1,402
              -Recovery
      of write down of mortgage servicing asset
              (60)
              -OTTI
      charge for investment securities recognized in earnings
              5,926
              -Increase
      in cash surrender value of Bank Owned Life Insurance
              (994)
              (987)Deferred
      income tax credit
              (4,492)
              (691)Excess
      tax cost (benefit) of stock plans
              156
              (473)Changes
      in assets and liabilities:Origination
      of loans held for sale
              (10,370)
              (23,108)Proceeds
      from sale of loans held for sale
              110,339
              22,077Decrease
      in other assets
              739
              1,996(Decrease)
      in other liabilities
              (1,812)
              (6,642)Net
      cash provided by operating activities
              117,334
              9,214CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      decrease in federal funds sold and other short term
      investments
              -
              110,687Proceeds
      from principal repayments of investment securities
      held-to-maturity
              144
              80Proceeds
      from maturities of investment securities
available-for-sale
              -
              1,000Proceeds
      from calls and principal repayments of investment securities
      available-for-sale
              -
              601Proceeds
      from sales of investment securities available-for-sale
              10,359
              -Purchases
      of investment securities available-for-sale
              -
              (4,428)Principal
      collected on mortgage backed securities available-for-sale
              42,367
              24,693Purchases
      of mortgage backed securities available-for-sale
              -
              (183,849)Net
      increase in loans
              (56,145)
              (257,794)Purchases
      of fixed assets, net
              (601)
              (3,044)Proceeds
      from the sale of other real estate owned
              208
              767Redemption
      (Purchase) of FHLBNY capital stock
              1,602
              (11,481)Net
      cash used in investing activities
              (2,066)
              (322,768)CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      increase (decrease) in due to depositors
              33,058
              (99,106)Net
      (decrease) increase in escrow and other deposits
              (60,318)
              17,623Increase
      in securities sold under agreements to repurchase
              -
              109,920(Decrease)
      Increase in FHLBNY advances
              (60,000)
              213,175Cash
      dividends paid
              (9,234)
              (9,100)Exercise
      of stock options
              -
              2,453Excess
      tax (cost) benefit of stock plans
              (156)
              473Acquisition
      of common stock by BMP
              -
              (66)Purchase
      of treasury stock
              -
              (654)Net
      cash (used in) provided by financing activities
              (96,650)
              234,718INCREASE(DECREASE)
      IN CASH AND DUE FROM BANKS
              18,618
              (78,836)CASH
      AND DUE FROM BANKS, BEGINNING OF PERIOD
              211,020
              101,708CASH
      AND DUE FROM BANKS, END OF PERIOD
              $229,638
              $22,872SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for income taxes
              $8,189
              $12,263Cash
      paid for interest
              54,378
              54,572Loans
      transferred to other real estate owned
              -
              895Portfolio
      loans transferred to held for sale
              100,000
              -Amortization
      of unrealized loss on securities transferred from available-for-sale to
      held-to-maturity
              120
              -Reversal
      of unrealized loss on securities transferred from available-for-sale to
      held-to-maturity
              1,668
              -Decrease
      in accumulated other comprehensive loss
              (4,403)
              (3,382)





See notes
to condensed consolidated financial statements.


6





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








1.   NATURE
OF OPERATIONS





Dime Community Bancshares, Inc. (the
"Holding Company") is a Delaware corporation and parent company of the Bank, a
federally-chartered stock savings bank.  The Holding Company's direct
subsidiaries are the Bank, Dime Community Capital Trust 1 and 842 Manhattan
Avenue Corp.  The Bank's direct subsidiaries are Boulevard Funding
Corp., Havemeyer Investments, Inc., DSBW Preferred Funding Corporation, DSBW
Residential Preferred Funding Corp., Dime Reinvestment Corp. and 195 Havemeyer
Corp.





The Bank
maintains its headquarters in the Williamsburg section of Brooklyn, New York and
operates twenty-three full service retail banking offices located in the New
York City boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County, New
York.  The Bank’s principal business has been, and continues to be,
gathering deposits from customers within its market area, and investing them
primarily in multifamily residential, commercial real estate, one- to
four-family residential, construction and land acquisition, and consumer loans,
as well as mortgage-backed securities (“MBS”), obligations of the U.S.
Government and Government Sponsored Entities ("GSEs"), and corporate debt and
equity securities.





2.   SUMMARY
OF ACCOUNTING POLICIES





In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments necessary for a fair presentation of the Company's financial
condition as of June 30, 2009, the results of operations and statements of
comprehensive income for the three-month and six month periods ended June 30,
2009 and 2008, and the changes in stockholders' equity and cash flows for the
six-month periods ended June 30, 2009 and 2008.  The results of
operations for the three-month and six-month periods ended June 30, 2009 are not
necessarily indicative of the results of operations for the remainder of the
year ending December 31, 2009.  Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") have been omitted pursuant to the rules and regulations of the
SEC.





The
preparation of the condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Areas in the accompanying
consolidated financial statements where estimates are significant include the
allowance for loan losses, valuation of mortgage servicing rights, asset
impairment adjustments related to the valuation of goodwill and OTTI of
securities, loan income recognition, the valuation of financial instruments,
recognition of deferred tax assets and unrecognized tax benefits and the
accounting for defined benefit plans sponsored by the Company.





These unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements as of and for the year ended December 31, 2008 and notes
thereto.





3.   RECENT
ACCOUNTING PRONOUNCEMENTS





In June
2009, the FASB issued SFAS 168, "The FASB Accounting Standards CodificationTM and
the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB
Statement No. 162," which establishes the FASB Accounting Standards
CodificationTM (the "Codification"), which supersedes all existing accounting
standard documents and will become the single source of authoritative
non-governmental GAAP. All other accounting literature not included in the
Codification will be considered non-authoritative. The Codification was
implemented on July 1, 2009 and will be effective for interim and annual periods
ending after September 15, 2009. The Company expects to conform its financial
statements and related Notes to the new Codification in its Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2009.





In June
2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No.
46(R)" ("SFAS 167").  SFAS 167 amends FASB Interpretation No. 46(R),
"Consolidation of Variable Interest Entities," by amending the manner in which a
company determines whether an entity that is either insufficiently capitalized
or not controlled through voting (or similar rights) should be consolidated.
Under SFAS 167, the determination of whether a company is required to
consolidate an entity is based upon, among other factors, the entity’s purpose
and design and a company’s ability to direct the most significant economic
activities of the entity.  SFAS 167 is effective for fiscal years
beginning after November 15, 2009, and interim periods within those fiscal
years.  Adoption of SFAS 167 is not expected to have a material impact
upon the Company's consolidated financial condition or results of
operations.





In June
2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial
Assets" ("SFAS 166").  SFAS 166 eliminates the concept of a
"qualifying special-purpose entity," and changes the requirements for
derecognizing transferred financial assets that were previously established
under SFAS 140, "Accounting for Transfers and Servicing of




7




Financial
Assets and Extinguishments of Liabilities."  SFAS 166 also requires
increased disclosure related to transferred financial assets, including
securitization transactions, as well as other transactions where companies
possess continuing exposure to the risks related to financial assets transferred
or sold.  For the Company, SFAS 166 is effective for financial asset
transfers occurring after January 1, 2010, and early adoption of SFAS 166 is
prohibited.  The Company is evaluating the impact of adoption of SFAS
166.





In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
165").  SFAS 165 establishes general standards governing accounting
for and disclosure of events that occur after the balance sheet date but before
the financial statements are issued or are available to be
issued.  SFAS 165 also provides guidance on the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures that an entity should make about events
or transactions occurring after the balance sheet date. The Company adopted SFAS
165 effective June 30, 2009, and adoption had no impact on the Company’s
condensed consolidated financial statements. The Company evaluated subsequent
events through the filing date of this Quarterly Report on Form
10-Q.





On April
9, 2009, the FASB issued FSP 115-2.  FSP 115-2 amended the guidance
provided under GAAP related to OTTI of debt securities in order to make it more
operational.  FSP 115-2 modifies the technical criteria related to
both the recovery of impairment and collectibility of cash flows that a
reporting entity may employ in order to avoid recognizing OTTI.  Under
FSP 115-2, OTTI that has been determined to exist on debt securities is required
to be divided between credit and non-credit components, with changes in the
credit component recognized in earnings, and changes in the non-credit component
recognized in other comprehensive income.  In determining the amount
of credit-related OTTI to be recognized, FSP 115-2 permits the reporting entity
to discount the expected cash flows at the effective interest rate implicit in
the security at the date of acquisition.  FSP 115-2 also requires
additional disclosures related to all securities owned by the reporting
entity.  FSP 115-2 did not amend existing recognition and measurement
guidance related to OTTI of equity securities.  FSP 115-2 is required
to be applied to existing and new investments held by the reporting entity at
the beginning of the interim period of adoption.  For debt securities
held at the beginning of the interim period of adoption for which OTTI was
previously recognized, the entity recognizes the cumulative effect of adopting
FSP 115-2 as an adjustment to the opening balance of retained
earnings.  FSP 115-2 is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption
permitted.   The Company elected to early adopt FSP 115-2
effective January 1, 2009, reclassifying $1.2 million of previously recognized
after-tax OTTI out of retained earnings and into accumulated other comprehensive
loss as a cumulative effect adjustment, representing the after-tax non-credit
component of the previously recognized OTTI.





On April
9, 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, "Interim
Disclosures about Fair Value of Financial Instruments" ("FAS
107-1").  FAS 107-1 amends SFAS 107, "Disclosures about Fair Value of
Financial Instruments" ("SFAS 107"), to require that disclosures about fair
value of financial instruments mandated under SFAS 107 be made for all interim
periods.  FAS 107-1 also amended FASB Accounting Practice Board
Opinion No. 28, "Interim Financial Reporting" ("APB 28"), to require that the
disclosures mandated under APB 28 be made at each interim period.  FAS
107-1 is effective for interim periods ending after June 15, 2009, with early
adoption permitted.   The Company adopted FAS 107-1 effective
June 30, 2009, and has included such disclosure in Note 11 to the condensed
consolidated financial statements.





On April
9, 2009, the FASB issued Staff Position No. FAS 157-4, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FAS
157-4").  FAS 157-4 provides additional guidance for estimating fair
value when the volume and level of activity for the asset or liability have
significantly decreased, and provides guidance on identifying circumstances that
indicate a transaction is not orderly.  FAS 157-4 is effective for
interim and annual reporting periods ending after June 15, 2009, with earlier
adoption permitted.  If a reporting entity elects to early adopt
either FAS 115-2 or FAS 107-1, it must also early adopt FAS 157-4 in the same
interim period.  Since the Company elected to early adopt FAS 115-2,
it was required to early adopt FAS 157-4 during the quarter ended March 31,
2009.  FAS 157-4 was applied to the methodology utilized by the
Company to determine the fair value of its pooled trust preferred securities at
June 30, 2009.





On
January 12, 2009, the FASB issued Staff Position No. EITF 99-20-1, "Amendments
to the Impairment Guidance of EITF Issue No. 99-20"  ("FSP EITF
99-20-1").  FSP EITF 99-20-1 amends the impairment guidance in EITF
Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to Be Held by a
Transferor in Securitized Financial Assets" ("EITF 99-20"), to achieve more
consistent determination of whether an OTTI has occurred.  GAAP
provides two different models for determining whether the impairment of a debt
security is other than temporary.  EITF 99-20 requires the use of
market participant assumptions about future cash flows. This cannot be overcome
by management judgment of the probability of collecting all cash flows
previously projected.  SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") does not
require exclusive reliance on market participant assumptions about future cash
flows. Rather, SFAS 115 permits the use of reasonable management judgment of the
probability that the holder will be unable to collect all amounts
due.  FSP EITF 99-20-1 retains and emphasizes the objective of an OTTI
assessment and the related disclosure requirements in SFAS 115, and permits the
evaluation of impaired assets under the jurisdiction of EITF 99-20 to be
evaluated in accordance with the OTTI




8




methodology
of SFAS 115.  EITF 99-20-1 was effective immediately upon
issuance.  Adoption of EITF 99-20-1 did not have a material impact on
the Company’s consolidated financial condition or results of
operations.





In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1, "Employers'
Disclosures About Postretirement Benefit Plan Assets" ("FSP
132R-1").  FSP 132R-1 requires additional disclosure regarding
investment allocations, major categories, valuation techniques and
concentrations of risk related to plan assets held in an employer's defined
benefit pension or postretirement plan.  FSP 132R-1 further requires
disclosure of any effects of utilizing significant unobservable inputs [as
defined in SFAS 157, "Fair Value Measurements" ("SFAS 157") upon the overall
change in the fair value of plan assets during the reporting
period.  FSP 132R-1 is effective for years ending after December 31,
2009.  The Company is currently evaluating the impact of
adoption.





In June
2008, the FASB issued Staff Position No. EITF 03-6-1, "Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities" ("FSP EITF 03-6-1"). Under FSP EITF 03-6-1, unvested share-based
payment awards which receive non-forfeitable dividend rights or dividend
equivalents are considered participating securities and are required to be
included in computing earnings per share ("EPS") under the two-class method
outlined in SFAS 128, "Earnings per Share."  FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning on or after
December 15, 2008.  Adoption of FSP EITF 03-6-1 did not have a
material impact upon the Company's consolidated results of operations, as all
potential participating securities were already included in the calculation of
the Company's periodic basic and diluted shares.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133" ("SFAS
161").   SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities by requiring enhanced disclosures
about (i) the manner in which and reason that an entity uses derivative
instruments, with particular emphasis upon underlying risk, (ii) the manner in
which derivative instruments and related hedged items are accounted for under
SFAS 133, " Accounting for Derivative Instruments and Hedging Activities" and
its related interpretations, and (iii) (in tabular form) the manner in which
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS 161 further
requires enhanced disclosures of credit-risk-related contingent features of
derivative instruments.  This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial
adoption.  Adoption of SFAS 161 did not have a material impact upon
the Company's financial disclosures.





In
February 2008, the FASB issued Staff Position No. FAS 140-3, "Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions" ("FSP
140-3"), which provides guidance on accounting for a transfer of a financial
asset and repurchase financing. FSP 140-3 presumes that an initial transfer of a
financial asset and a repurchase financing are considered part of the same
arrangement (linked transaction) under SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
140"), however, if certain criteria are satisfied, the initial transfer and
repurchase financing shall not be evaluated as a linked transaction and shall be
evaluated separately under SFAS 140. Under FSP 140-3, a transferor and
transferee shall not separately account for a transfer of a financial asset and
a related repurchase financing unless: (i) there is a valid and distinct
business or economic purpose for entering into the two transactions separately,
and (ii) the repurchase financing does not result in the initial transferor
regaining control over the financial asset.  FSP 140-3 is effective
for financial statements issued for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years.  Adoption of FSP
140-3 did not have a material impact upon the Company's consolidated financial
condition or results of operations.





In December 2007, the FASB issued SFAS
No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"), which replaces
FASB Statement No. 141. SFAS 141R establishes principles and requirements
governing the manner in which an acquirer of a business recognizes and measures
in its financial statements the identifiable assets acquired, liabilities
assumed, any non-controlling interest in the acquiree, and goodwill acquired.
SFAS 141R also establishes disclosure requirements intended to enable users to
evaluate the nature and financial effects of the business combination. SFAS 141R
is effective for business combinations occurring during a fiscal year beginning
after December 15, 2008.





In December 2007, the FASB issued SFAS
No. 160, "Noncontrolling Interests in Consolidated Financial Statements— an
amendment of ARB No. 51" ("SFAS 160").  SFAS 160 requires that, for
purposes of accounting and reporting, minority interests be re-characterized as
non-controlling interests and classified as a component of
equity.  SFAS 160 also requires financial reporting disclosures that
clearly identify and distinguish between the interests of the parent and the
non-controlling owners. SFAS 160 applies to all entities that prepare
consolidated financial statements other than not-for-profit organizations,
however, will affect only those entities that have an outstanding
non-controlling interest in one or more subsidiaries or that deconsolidate a
subsidiary.  SFAS 160 is effective for fiscal years beginning after
December 15, 2008.  Adoption of SFAS 160 did not have a material
impact upon the Company's consolidated financial condition or results of
operations.


9
  4.   TREASURY
STOCK





The Company did not repurchase any
shares of treasury stock during the six months ended June 30,
2009.  On April 30, 2009, 207,193 shares of the Company's common stock
were released from treasury in order to fulfill benefit obligations under the
2004 Stock Incentive Plan.  The closing price of the Company's common
stock on that date was $8.34.  The shares were released utilizing the
average historical cost method.





On June
25, 2009, 1,031 shares of the Company's common stock were returned to treasury,
representing forfeited award shares under the 2004 Stock Incentive Plan that had
been previously released from treasury upon the award grant.





5.   ACCOUNTING
FOR GOODWILL





The
Company has designated the last day of its fiscal year as its date for annual
impairment testing.  The Company performed an impairment test as of
December 31, 2008 and concluded that no impairment of goodwill
existed.  However, subsequent to December 31, 2008, the price of the
Holding Company's common stock declined to such a level that its total market
capitalization, on occasion, fell below its consolidated stockholders'
equity.  As a result, the Company performed goodwill impairment tests
periodically during the six months ended June 30, 2009 and concluded, in each
instance, that no impairment of goodwill existed.  The most recent of
these tests was performed as of June 30, 2009.  No events or
circumstances have changed subsequent to June 30, 2009 that would reduce the
fair value of the Company's reporting unit below its carrying
value.  Such events or changes in circumstances would require the
immediate performance of an impairment test in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets."





6.   EARNINGS
PER SHARE





EPS is calculated and reported in
accordance with SFAS No. 128, "Earnings Per Share" ("SFAS 128").  For
entities like the Company with complex capital structures, SFAS 128 requires
disclosure of basic EPS and diluted EPS on the face of the income statement,
along with a reconciliation of the numerators and denominators of basic and
diluted EPS.





Basic EPS is computed by dividing net
income by the weighted-average number of common shares outstanding during the
period (weighted-average common shares are adjusted to exclude unallocated ESOP
shares).  Diluted EPS is computed using the same method as basic EPS,
however, the computation reflects the potential dilution that would occur if
outstanding in-the-money stock options were exercised and converted into common
stock.





The following is a reconciliation of
the numerators and denominators of basic EPS and diluted EPS for the periods
presented:





Three
      Months EndedJune
      30,
              
              Six  Months
      EndedJune
      30,2009
              
              2008
              
              2009
              
              2008(Dollars
      in Thousands)Numerator:Net
      Income per the Consolidated Statements of Operations
              $6,916
              
              $8,425
              
              $9,766
              
              $14,382Denominator:Weighted-average
      number of shares outstanding utilized in the calculation of basic
      EPS
              33,024,176
              
              32,643,946
              
              32,954,016
              
              32,586,186Common
      stock equivalents resulting from the dilutive effect of "in-the-money"
      outstanding stock options
              4,527
              
              470,273
              
              4,906
              
              320,877Anti-dilutive
      effect of tax benefits associated with "in-the-money" outstanding stock
      options
              (2,149)
              
              (178,934)
              
              (2,816)
              
              (133,432)Weighted
      average number of shares outstanding utilized in the calculation of
      diluted EPS
              33,026,554
              
              32,935,285
              
              32,956,106
              
              32,773,631





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





There
were 3,104,037 and 693,440 weighted-average stock options outstanding for the
three-month periods ended June 30, 2009 and 2008, respectively, that were not
considered in the calculation of diluted EPS since their exercise prices
exceeded the average market price during the period.  There were
3,104,037 and 753,936 weighted-average stock options outstanding for the
six-month periods ended June 30, 2009 and 2008, respectively, that were not
considered in the calculation of diluted EPS since their exercise prices
exceeded the average market price during the period.




10


7.    ACCOUNTING
FOR STOCK BASED COMPENSATION





During the three-month and six-month
periods ended June 30, 2009 and 2008, the Holding Company and Bank maintained
the Dime Community Bancshares, Inc. 1996 Stock Option Plan for Outside
Directors, Officers and Employees, the Dime Community Bancshares, Inc. 2001
Stock Option Plan for Outside Directors, Officers and Employees and the 2004
Stock Incentive Plan (collectively the "Stock Plans"), which are discussed more
fully in Note 15 to the Company's audited consolidated financial statements for
the year ended December 31, 2008, and which are subject to the accounting
requirements of SFAS No. 123 (revised 2004), "Share-Based Payment."





Stock
Option Awards





Combined activity related to stock
options granted under the Stock Plans during the periods presented was as
follows:





At
      or for the Three MonthsEnded
      June 30,
              
              At
      or for the Six MonthsEnded
      June 30,2009
              2008
              
              2009
              2008(Dollars
      in Thousands, Except per Share Amounts)Options
      outstanding – beginning of period
              3,116,564
              3,186,559
              
              3,116,564
              3,165,997Options
      granted
              205,633
              90,000
              
              205,633
              124,425Weighted
      average exercise price of grants
              $8.34
              $18.18
              
              $8.34
              $17.28Options
      exercised
              -
              214,811
              
              -
              228,674Weighted
      average exercise price of exercised options
              -
              $11.84
              
              -
              $11.91Options
      forfeited
              3,062
              2,250
              
              3,062
              2,250Weighted
      average exercise price of forfeited options
              $14.87
              $19.90
              
              $14.87
              $19.90Options
      outstanding – end of period
              3,319,135
              3,059,498
              
              3,319,135
              3,059,498Weighted
      average exercise price of outstanding options atthe
      end of period
              $14.56
              $14.94
              
              $14.56
              $14.94Remaining
      options available for grant
              724,290
              1,284,800
              
              724,290
              1,284,800Exercisable
      options at end of period
              2,591,130
              2,255,198
              
              2,591,130
              2,255,198Weighted
      average exercise price of exercisable options atthe
      end of period
              $15.16
              $15.17
              
              $15.16
              $15.17Cash
      received for option exercise cost
              -
              2,272
              
              -
              2,453Income
      tax benefit recognized
              -
              443
              
              -
              460Compensation
      expense recognized
              307
              236
              
              617
              474Remaining
      unrecognized compensation expense
              1,807
              2,446
              
              1,807
              2,446Weighted
      average remaining years for which compensationexpense
      is to be recognized
              2.3
              2.7
              
              2.3
              2.7





The range
of exercise prices and weighted-average remaining contractual lives of both
options outstanding and vested options were as follows:





Outstanding
      Options as of June 30, 2009Range
      of Exercise Prices
              Amount
              Weighted
      AverageExercise
      Price
              Weighted
      Average Contractual Years Remaining
              ExercisableOptions
      as ofJune
      30, 2009$4.50
      -  $5.00
              9,465
              $4.56
              0.6
              9,465$8.00
      - $8.50
              205,633
              8.34
              9.8
              -$10.50
      - $11.00
              380,351
              10.91
              2.4
              380,351$13.00-$13.50
              530,278
              13.16
              3.6
              530,278$13.51-$14.00
              956,375
              13.74
              7.8
              505,625$14.50-$15.00
              34,425
              14.92
              8.7
              8,606$15.00-$15.50
              318,492
              15.10
              5.9
              318,492$16.00-$16.50
              76,320
              16.45
              5.6
              76,320$16.51-$17.00
              61,066
              16.73
              9.1
              15,263$18.00-$18.50
              90,000
              18.18
              8.9
              90,000$19.50-$20.00
              656,730
              19.90
              4.6
              656,730Total
              3,319,135
              $14.56
              5.8
              2,591,130






11


The
weighted average exercise price and contractual years remaining for exercisable
options were $15.16 and 5.1 years, respectively, at June 30,
2009.  The weighted average fair value per option at the date of grant
for stock options granted was estimated as follows:





Three
      Months Ended June 30,
              
              Six
      Months Ended June 30,2009
              2008
              
              2009
              2008Total
      options granted
              205,633
              90,000
              
              205,633
              124,425Estimated
      fair value on date of grant
              $1.73
              $4.81
              
              $1.73
              $4.37Pricing
      methodology utilized
              Black-
      Scholes
              Black-
      Scholes
              
              Black-
      Scholes
              Black-
      ScholesExpected
      life (in years)
              5.99
              6.70
              
              5.99
              6.58Interest
      rate
              2.39%
              3.60%
              
              2.39%
              3.37%Volatility
              41.34
              31.18
              
              41.34
              30.85Dividend
      yield
              6.72
              3.08
              
              6.72
              3.27





Other
Stock Awards





Restricted Stock Awards – The
Company, from time to time, issues restricted stock awards to outside directors
and officers under the 2004 Stock Incentive Plan.  Typically, awards
to outside directors fully vest on the first anniversary of the grant date,
while awards to officers vest in equal annual installments over a four- or
five-year period.





The
following is a summary of activity related to the restricted stock awards
granted under the 2004 Stock Incentive Plan during the periods
indicated:





At
      or for the Three Months Ended June 30,
              At
      or for the Six Months Ended June 30,2009
              2008
              2009
              2008(Dollars
      in Thousands)Unvested
      allocated shares – beginning of period
              135,710
              60,304
              141,710
              66,304Shares
      granted
              207,197
              12,000
              207,197
              12,000Shares
      vested
              46,810
              23,551
              52,810
              29,551Shares
      forfeited
              1,031
              -
              1,031
              -Unvested
      allocated shares – end of period
              295,066
              48,753
              295,066
              48,753Unallocated
      shares - end of period
              -
              -
              -
              -Compensation
      recorded to expense
              $288
              $98
              $520
              $204Income
      tax (expense) benefit recognized
              (156)
              15
              (156)
              13





8.   ALLOWANCE
FOR LOAN LOSSES





Changes in the allowance for loan
losses for loans owned by the Bank were as follows:





Three
      MonthsEnded
      June 30,
                
                Six
      MonthsEnded
      June 30,2009
                2008
                
                2009
                2008(Dollars
      in Thousands)Balance
      at beginning of period
                $18,351
                $15,665
                
                $17,454
                $15,387Provision
      for loan losses
                2,252
                310
                
                4,892
                370Charge-offs
                (528)
                (116)
                
                (2,404)
                (260)Recoveries
                -
                -
                
                -
                -Transfer
      from (to) reserves on loan commitments
                (84)
                (473)
                
                49
                (111)Balance
      at end of period
                $19,991
                $15,386
                
                $19,991
                $15,386





Management's
quarterly evaluation of the loan loss reserves considers not only performance of
the current owned and serviced loan portfolios, but also general credit
conditions and volume of new business, in determining the timing and amount of
any future credit loss provisions. The increase in the provision for loan losses
during the three-month and six-month periods ended June 30, 2009 compared to the
three-month and six-month periods ended June 30, 2008 reflected both
deterioration in the Bank's local real estate market as well as an increase in
real estate loans from June 30, 2008 to June 30, 2009.





12





9.   FIRST
LOSS  EXPOSURE ON SERVICED LOANS





From
December 2002 through February 2009, the Bank sold multifamily loans to Fannie
Mae ("FNMA").  Pursuant to the sale agreement, the Bank retained an
obligation (off-balance sheet contingent liability) to absorb a portion of any
losses (as defined in the agreement) incurred by FNMA in connection with the
loans sold (the "First Loss Position").  The Bank has established a
liability account for estimated future losses in connection with the First Loss
Position.  In determining the estimate of probable future losses, the
Bank utilizes a methodology similar to that used in the calculation of its
allowance for loan losses.  For all performing loans within the FNMA
serviced pool, the liability recorded is the present value of the estimated
future losses calculated based upon the historical loss experience for
comparable multifamily loans owned by the Bank.  For problem loans
within the pool, the estimated future losses are determined in a manner
consistent with impaired or classified loans within the Bank's loan
portfolio.





At June
30, 2009, the Bank had a $3.5 million liability against the $21.9 million
First Loss Position.  Since the Bank no longer sells multifamily loans
to FNMA, the aggregate First Loss Position should never exceed its level at June
30, 2009.  Any future reduction in the First Loss Position shall
result from a formal settlement of incurred losses between the Bank and FNMA on
eligible loans within this pool.  This settlement cannot commence
until a legal disposal of the loan has occurred.  The liability
related to the First Loss Position may increase or decrease in the future based
upon, among other factors, the credit conditions of the remaining loans
outstanding within the pool of loans sold previously to FNMA.  Any
such future increases or decreases to the liability will be recognized as a
component of mortgage banking income.





The
following is a summary of the aggregate balance of multifamily loans serviced
for FNMA, the period-end balance of the total First Loss Position associated
with these loans, and activity related to the liability established for the
First Loss Position.





At
      or for the Three Months Ended June 30,
                    
                    At
      or for the Six Months Ended June 30,2009
                    2008
                    
                    2009
                    2008(Dollars
      in Thousand)Outstanding
      balance of multifamily loans serviced for FNMA at period
    end
                    $477,733
                    $542,063
                    
                    $477,733
                    $542,063Total
      First Loss Position at end of period
                    21,865
                    21,186
                    
                    21,865
                    21,186Liability
      Against the Total First Loss PositionBalance
      at beginning of period
                    $3,963
                    $2,458
                    
                    $5,573
                    $2,436Additions
      for loans sold during the period
                    -
                    47
                    
                    -
                    69Transfer
      out for serviced loans re-acquired by the Bank
                    (414)
                    -
                    
                    (3,439)
                    -(Credit)
      Provision for losses on problem loans(1)
                    (21)
                    300
                    
                    1,403
                    300Charge-offs
      and other net reductions in balance
                    (69)
                    (334)
                    
                    (78)
                    (334)Balance
      at period end
                    $3,459
                    $2,471
                    
                    $3,459
                    $2,471


(1) Amount
recognized as a component of mortgage banking income during the
period.





The Bank
has elected to periodically repurchase problem loans from within the FNMA
serviced loan pool in order to expedite their resolution and control
losses.  During the three months ended June 30, 2009, the Bank
re-acquired ten problem loans within the pool of loans serviced for FNMA having
an aggregate principal balance of $15.5 million.  Upon re-acquisition,
aggregate liabilities of $414,000 that were recorded related to these loans
within the liability for the First Loss Position served to reduce the
outstanding principal balance of the loans (reflecting a write-down of their
outstanding principal balance to the lower of the current appraised or marketed
value of the underlying collateral).  During the six months ended June
30, 2009, the Bank re-acquired fourteen problem loans within the pool of loans
serviced for FNMA having an aggregate principal balance of $24.2
million.  Upon re-acquisition, aggregate liabilities of $3.4 million
that were recorded related to these loans within the liability for the First
Loss Position served to reduce the outstanding principal balance of the loans
(reflecting a write-down of their outstanding principal balance to the lower of
the current appraised or marketed value of the underlying
collateral).


13
  10.   INVESTMENT
AND MORTGAGE-BACKED SECURITIES





The
following is a summary of major categories of securities owned by the Company at
June 30, 2009:





Unrealized
      Gains or Losses Recognized in Accumulated Other Comprehensive
      LossPurchase
                    Amortized
      / Historical Cost
                  Recorded
      Amortized/
                    Historical
      Cost (1)
                  Non-CreditOTTI
                  Unrealized
                    Gains
                  Unrealized
      Losses
                  Book
      Value
                  Other
      Unrealized Losses
                  FairValue(Dollars
      in Thousands)Held-to-Maturity:Pooled
      bank trust preferred securities
                  $19,643
                  $15,860
                  $(3,253)
                  -
                  $(3,912)(2)
                  $8,695
                  $(3,300)
                  $5,395Available-for-sale:Mutual
      fund investments
                  8,106
                  5,043
                  -
                  495
                  (4)
                  5,534
                  -
                  5,534Agency
      note
                  1,005
                  1,005
                  -
                  1
                  -
                  1,006
                  -
                  1,006Pass-through
      MBS issued by GSEs
                  176,624
                  176,624
                  -
                  5,201
                  -
                  181,825
                  
                  181,825Collateralized
      mortgage obligations
                    ("CMOs")  issued
      by GSEs
                  71,114
                  71,114
                  -
                  1,786
                  -
                  72,900
                  -
                  72,900Private
      issuer pass through MBS
                  3,812
                  3,812
                  -
                  -
                  (410)
                  3,402
                  -
                  3,402Private
      issuer CMOs
                  5,509
                  5,509
                  -
                  -
                  (121)
                  5,388
                  -
                  5,388Total
                  $285,813
                  $278,967
                  $(3,253)
                  $7,483
                  $(4,447)
                  $278,750
                  $(3,300)
                  $275,450


(1)
Amount represents the purchase amortized / historical cost less any
credit-related OTTI recognized through earnings.


(2)
Amount represents the unamortized portion of the unrealized loss that was
recognized in accumulated other comprehensive loss on September 1, 2008 (the day
on which these securities were transferred from available-for-sale to
held-to-maturity).





The
pooled bank trust preferred securities held-to-maturity had a weighted average
term to maturity of 25.5 years at June 30, 2009.  There were no sales
of investment securities held-to-maturity during the six months ended June 30,
2009 or the six months ended June 30, 2008.





The
agency note investment in the above table, which had a contractual maturity of
August 1, 2017, was called in accordance with its contractual terms on August 1,
2009.  During the six months ended June 30, 2009, proceeds from the
sales of investment securities available for sale totaled $10.4
million.  A gain of $431,000 was recognized on these
sales.  There were no sales of investment securities
available-for-sale during the six months ended June 30, 2008.





At June
30, 2009, MBS available-for-sale (which include pass-through MBS issued by GSEs,
CMOs issued by GSEs, private issuer pass through MBS and private issuer CMOs)
possessed a weighted average contractual maturity of 17.8 years and a weighted
average estimated duration of 2.0 years.  There were no sales of MBS
available-for-sale during either the six months ended June 30, 2009 or the six
months ended June 30, 2008.





As of June 30, 2009, the Company owned
eight securities with an aggregate remaining amortized cost of $19.6 million
based upon their purchase cost basis that were secured primarily by the
preferred debt obligations of a pool of U.S. banks (with a small portion secured
by debt obligations of insurance companies). From the Company’s initial
investment through June 30, 2009, six of the eight pooled trust preferred
securities had paid all contractual cash flows.  One security is
experiencing a deferral of a portion of its quarterly interest payment, and
another security is experiencing a deferral of the entire quarterly interest
payment.





At June
30, 2009, in management’s judgment, the credit quality of the collateral pool
underlying four of the securities deteriorated to the point that full recovery
of the Company’s initial investment was considered uncertain, thus resulting in
recognition of an OTTI charge.  The aggregate OTTI charge recognized
on these securities was $7.0 million at June 30, 2009, of which $3.8 million was
determined to be attributable to credit related factors and $3.2 million was
determined to be attributable to non-credit related factors.





On three
of the trust preferred securities, a $1.2 million OTTI charge was recognized
during the three months ended June 30, 2009, and a $7.3 million OTTI charge was
on recognized on four trust preferred securities during the six months ended
June 30, 2009.





As of
June 30, 2009, the Company had also recognized an OTTI charge of $3.1 million on
five actively-managed equity mutual fund investments.  This OTTI
charge, which was fully recognized during the three months ended March 31, 2009,
reflected both the significant deterioration in the valuation of the U.S. and
international equity markets, as well as the extended duration of the
decline.





The
Company did not recognize an OTTI charge on any of its securities during the
three-month or six-month periods ended June 30, 2008, and had no cumulative OTTI
charges related to its securities as of June 30, 2008.





The
Company adopted FSP 115-2 effective January 1, 2009.  For its pooled
bank trust preferred securities that were deemed to meet the OTTI criteria
established under FSP 115-2, the Company applied the FSP 115-2 provisions for
determining the credit related component of OTTI by discounting the expected
future cash flows applicable to the securities at the




14




effective
interest rate implicit in the security at the date of acquisition by the
Company.  The provisions of FSP 115-2 were not applicable to the
equity mutual fund investments on which the Company recognized OTTI charges
during the six months ended June 30, 2009.





The
following table provides a reconciliation of the pre-tax OTTI charges recognized
on the Company's investment securities during the three-month and six-month
periods ended June 30, 2009, as well as a breakdown of the credit-related and
non-credited related components of the OTTI activity during the
period:





At
      or for the Three MonthsEnded
      June 30, 2009
                                
                                At
      or for the Six MonthsEnded
      June 30, 2009Credit
      Related OTTI Recognized in Earnings
                                Non-Credit
      OTTI Recognized in Accumulated Other Comprehensive Loss
                                Total
      OTTI
                                
                                Credit
      Related OTTI Recognized in Earnings
                                Non-Credit
      OTTI Recognized in Accumulated Other Comprehensive Loss
                                Total
      OTTI(Dollars
      in Thousands)Cumulative
      balance at the beginning of the period
                                $5,962
                                $3,351
                                $9,313
                                
                                $3,209
                                $-
                                $3,209Cumulative
      effect adjustment of adopting FSP 115-2
                                -
                                -
                                -
                                
                                (2,287)
                                2,287
                                -OTTI
      recognized during the period
                                886
                                274
                                1,160
                                
                                5,926
                                1,338
                                7,264Transfer
      to non-credit OTTI
                                -
                                (354)
                                (354)
                                
                                -
                                (354)
                                (354)Amortization
      of previously recognized OTTI
                                -
                                (18)
                                (18)
                                
                                -
                                (18)
                                (18)Cumulative
      balance at end of the period
                                $6,848
                                $3,253
                                $10,101
                                
                                $6,848
                                $3,253
                                $10,101





The
remaining aggregate amortized cost of pooled bank trust preferred securities
that could be subject to future OTTI charges through earnings was $15.9 million
at June 30, 2009.  Of this total, unrealized losses of $7.2 million
have already been recognized as a component of accumulated other comprehensive
income.





The following table summarizes the
gross unrealized losses and fair value of investment securities and MBS as of
June 30, 2009, aggregated by investment category and the length of time the
securities were in a continuous unrealized loss position:





Total
                  12
      or MoreConsecutive
      Months
                    of
      Unrealized Losses
                  Less
      than 12Consecutive
      Months
                    of
      Unrealized LossesFair
      Value
                  Unrealized
      Losses
                  Fair
      Value
                  Unrealized
      Losses
                  Fair
      Value
                  Unrealized
      Losses(Dollars
      in thousands)Held-to-Maturity
      Securities:Pooled
      bank trust preferred securities (a)
                  $5,395
                  $10,465
                  $5,395
                  $10,465
                  $-
                  $-Available-for-Sale
      Securities:Private
      label MBS and CMOs
                  8,791
                  530
                  8,791
                  530
                  -
                  -PIMCO
      Total Return Mutual Fund
                  1,485
                  3
                  -
                  -
                  1,485
                  3Total
                  $15,671
                  $10,998
                  $14,186
                  $10,995
                  $1,485
                  $3


(a) At
June 30, 2009, the recorded balance of these securities was $8.7
million.  This balance reflected both the remaining unrealized loss of
$3.9 million that was recognized in accumulated other comprehensive loss on
September 1, 2008 (the day on which these securities were transferred from
available-for-sale to held-to-maturity) for four trust preferred securities that
have not been deemed OTTI, and an unrealized loss of $3.3 million that has been
recognized in accumulated other comprehensive loss that represents the
non-credit component of impairment for four trust preferred securities that have
been deemed OTTI.  In accordance with both SFAS 115 and FSP 115-2,
these unrealized losses are currently being amortized over the remaining
estimated life of these securities.





None of
the unrealized losses associated with the private label MBS and CMOs shown in
the above table were deemed to meet the criteria for OTTI at June 30,
2009.  Of the total unrealized loss on pooled bank trust preferred
securities shown in the above table, $6.8 million was deemed not to satisfy the
criteria for OTTI at June 30, 2009.  The following is a summary of
management's determination that the criteria for OTTI was not met for each
security classification:





Trust
Preferred Securities





At June
30, 2009, the Bank owned four pooled bank trust preferred securities with an
amortized cost of $10.9 million that were not deemed other than temporarily
impaired.  On September 1, 2008, the Company transferred these
securities from its available-for-sale portfolio to its held-to-maturity
portfolio.  Based upon the lack of an orderly market for these
securities, management determined that a formal election to hold them to
maturity was consistent with its initial investment decision.  The
cumulative unrealized loss on these four securities was $6.8 million at June 30,
2009, and reflected both illiquidity in the marketplace and concerns over future
bank failures.





15


Despite
the significant decline in market value, management believes that the unrealized
losses on these securities at June 30, 2009 were temporary, and that the full
value of the investments would be realized once the market dislocations have
been removed, or as the securities continue to make their contractual payments
of principal and interest.  In making this determination, management
considered the following:





·
            The
      Company has the intent and ability to hold these securities until they
      fully recover their impairment, evidenced by the election to reclassify
      them to held-to-maturity in 2008


·
            There
      was no cash or working capital requirement nor contractual or regulatory
      obligation that would compel the Company to sell any of these securities
      prior to their forecasted recovery or
maturity


·
            Each
      security has a diverse pool of underlying
  issuers


·
            None
      of the securities have exposure to real estate investment trust issued
      debt (which has experienced high default
rates)


·
            Each
      security features either a mandatory auction or a de-leveraging mechanism
      that could result in principal repayments to the Bank prior to the stated
      maturity of the security


·
            Each
      security is characterized by some level of
      over-collateralization


·
            Based
      upon an internal review of the collateral backing the trust preferred
      securities portfolio, which accounted for current and prospective
      deferrals, each of the securities could reasonably be expected to continue
      making all contractual payments


·
            Two
      of the four securities have maintained an investment grade rating since
      inception





Three of
the four securities have made all contractual payments since
inception.  The remaining security is currently in deferral on its
contractual interest payments.  The Company has elected to reverse all
interest accruals on this security, and has deemed the security a non-performing
asset as of June 30, 2009 (See the chart in Part I – Item 2 – Management's
Discussion and Analysis of Financial Condition and Results of Operations – Asset
Quality).   Despite this deferral, a review of the collateral
underlying this security at June 30, 2009, which accounted for current and
prospective deferrals, indicated that it could reasonably be expected to
continue making all of its contractual payments.  At June 30, 2009,
this security had a purchase cost basis of $2.9 million and a recorded balance
of $1.2 million, with the difference representing the remaining unamortized
unrealized loss upon its transfer from available for sale to held-to-maturity on
September 1, 2008.





Private
Label Pass-Through MBS and CMOs That Have Maintained an Unrealized Holding Loss
for 12 or More Consecutive Months





At June
30, 2009, the Company owned one private label pass-through MBS and two private
label CMOs that possessed unrealized losses for 12 or more consecutive months
with an amortized cost of $9.3 million and an unrealized loss of
$530,000.   The two private label CMOs had the highest possible
credit quality rating by all independent rating agencies, while the private
label pass-through MBS has maintained a split credit rating, with the most
recently issued rating being "AAA."  The unrealized losses on these
securities have resulted from reduced marketplace liquidity, as private label
MBS underwriting activity has ceased and investors preferring MBS issued by
GSEs.  These securities were not deemed to be other than temporarily
impaired at June 30, 2009 due to the following: (1) their credit quality rating
remained superior; (2) the Company's investment was in the most senior tranche
(or repayment pool); (3) the Company has received all contractual payments of
principal and interest on these securities and anticipates receipt of all future
contractual payments; and (4) the Company had the intent and ability to hold the
securities until the earlier of recovery or full receipt of their contractual
payments.





11.   FAIR
VALUE OF FINANCIAL INSTRUMENTS





The
Company adopted SFAS 157 on January 1, 2008.  The fair value hierarchy
established under SFAS 157 is summarized as follows:





Level 1 Inputs – Quoted
prices (unadjusted) for identical assets or liabilities in active markets that
the reporting entity has the ability to access at the measurement
date.





Level 2 Inputs – Significant
other observable inputs such as any of the following: (1) quoted prices for
similar assets or liabilities in active markets, (2) quoted prices for identical
or similar assets or liabilities in markets that are not active, (3) inputs
other than quoted prices that are observable for the asset or liability (e.g., interest rates and
yield curves observable at commonly quoted intervals, volatilities, prepayment
speeds, loss severities, credit risks, and default rates), or (4) inputs that
are derived principally from or corroborated by observable market data by
correlation or other means (market-corroborated inputs).





Level 3 Inputs– Unobservable
inputs for the asset or liability. Unobservable inputs reflect the reporting
entity's own assumptions about the assumptions that market participants would
use in pricing the asset or liability (including assumptions about
risk).  Unobservable inputs shall be used to measure fair value to the
extent that observable inputs




16




are not
available, thereby allowing for situations in which there is little, if any,
market activity for the asset or liability at the measurement date.





The
following tables present the assets that are reported on the condensed
consolidated statements of financial condition at fair value as of June 30, 2009
by level within the fair value hierarchy.  As required by SFAS 157,
financial assets are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.





Assets
      Measured at Fair Value on a Recurring BasisFair
      Value Measurements UsingDescription
              
              Total
      atJune
      30, 2009
              
              Level
      1
              
              Level
      2
              Level
      3
              
              Losses
      for the Six Months EndedJune
      30, 2009(Dollars
      in Thousands)Investment
      securities available-for-sale
              
              $6,540
              
              $5,534
              
              $1,006
              $-
              
              $3,063(1)MBS
      available-for-sale
              
              263,515
              
              -
              
              263,515
              -
              
              -


(1)  This
loss was fully incurred during the three months ended March 31,
2009.





The
Company’s available-for-sale investment securities and MBS are
reported at fair value, which is determined utilizing prices obtained from
independent parties. The valuations obtained are based upon market data, and
often utilize evaluated pricing models that vary by asset and incorporate
available trade, bid and other market information. For securities that do not
trade on a daily basis, pricing applications apply available information such as
benchmarking and matrix pricing. The market inputs normally sought in the
evaluation of securities include benchmark yields, reported trades,
broker/dealer quotes (obtained only from market makers or broker/dealers
recognized as market participants), issuer spreads, two-sided markets, benchmark
securities, bid, offers and reference data. For certain securities, additional
inputs may be used or some market inputs may not be
applicable.  Prioritization of inputs may vary on any given day based
on market conditions.





The
Company's available-for-sale investment securities and MBS at June 30, 2009 were
categorized as follows:





Investment
      Category
              
              Percentage
      ofTotal
              
              Valuation LevelUnder
      SFAS 157Pass
      Through MBS or CMOs issued by GSEs
              
              94.3%
              
              TwoPass
      Through MBS or CMOs issued by entities other than GSEs
              
              3.3
              
              TwoAgency
      note
              
              0.4
              
              TwoMutual
      fund investments
              
              2.0
              
              One





The
agency note owned by the Company possessed the highest possible credit rating
published by multiple established credit rating agencies as of June 30,
2009.  Obtaining a market value as of June 30, 2009 for this security
utilizing significant observable inputs as defined under SFAS 157 was not
difficult due to its continued marketplace demand.  The pass-through
MBS and CMOs issued by GSEs, which comprised approximately 94.3% of the
Company's total available-for-sale investment securities and MBS at June 30,
2009, all possessed the highest possible credit rating published by multiple
established credit rating agencies as of June 30, 2009.  Obtaining a
market value as of June 30, 2009 for these securities utilizing significant
observable inputs as defined under SFAS 157 was not difficult due to their
considerable demand.  For the pass through MBS and CMOs issued by
entities other than GSEs, obtaining a market value utilizing significant
observable inputs as defined under SFAS 157 was slightly more difficult due to
the lack of regular trading activity as of June 30, 2009.  For these
securities, the Company obtained market values from at least two credible market
sources, and verified that these values were prepared utilizing significant
observable inputs as defined under SFAS 157.  In accordance with
established policies and procedures, the Company utilized a midpoint value
obtained as its recorded fair value for securities that were valued with
significant observable inputs.





17








Assets
      Measured at Fair Value on a Non-Recurring BasisFair
      Value Measurements UsingDescription
              
              Total
      atJune
      30, 2009
              
              Level
      1
              
              Level
      2
              Level
      3
              
              Losses
      for the Three Months EndedJune
      30, 2009
              Losses
      for the Six Months EndedJune
      30, 2009(Dollars
      in Thousands)Pooled
      trust preferred securities(1)
              
              $1,695
              
              $-
              
              $-
              $1,695
              
              $1,160(1)
              $4,201(1)Impaired
      loans
              
              5,861
              
              -
              
              -
              5,861
              
              104(2)
              770(2)Loans
      held for sale carried at market value
              
              55
              
              -
              
              55
              -
              
              1
              1


(1)  
Amount represents the fair value of four held-to-maturity trust preferred
securities that were deemed other-than temporarily impaired at June 30,
2009.  Losses represent the total OTTI recognized (credit or
non-credit related) during the period.


(2)  
Amount represents charge-offs recognized on these loans during the three months
ended June 30, 2009, and $289 of charge-offs and $481 of specific reserves
established to write the outstanding principal down to the current appraised or
marketed value of the underlying collateral property during the six months ended
June 30, 2009.





Pooled Trust Preferred Securities,
Held to Maturity - At June 30, 2009, the Company owned eight pooled trust
preferred securities classified as held-to-maturity.  Late in 2008,
the market for these securities was deemed to be highly illiquid, and continued
to be deemed as such as of June 30, 2009.  As a result, at June 30,
2009, their estimated fair value was obtained primarily using a cash flow
valuation approach (Level 3 pricing as defined by SFAS 157).  In
addition, broker quotations, which were deemed to meet the criteria of
"distressed sale" pricing under the guidance of FAS 157-4, were given a minor
10% weighting in the valuation of the securities at June 30, 2009.  A
cash flow valuation for the eight securities performed utilizing default, cash
flow and discount rate assumptions determined by the Company's management (the
"Internal Cash Flow Valuation") was given a 45% weighting. This valuation
considered the creditworthiness of each individual issuer underlying the
collateral pool of the eight securities.  In addition, for five of the
eight securities, two independent cash flow model valuations were averaged and
given a 45% weighting.  For the remaining three securities, only one
independent cash flow valuation was available and was similarly given a 45%
weighting.  The 10% weighting of broker quotes represented a change
from the methodology applied at December 31, 2008 (at which time these quotes
were given no weighting) and reflected the continued emphasis upon considering
broker quotes set forth in FAS 157-4.





The major
assumptions utilized (each of which represents significant unobservable inputs
as defined in SFAS 157) in the Internal Cash Flow Valuation were as
follows:





Discount
rate – The discount rate utilized was derived from the Bloomberg fair market
value curve for debt offerings of similar credit rating.  In the event
that a security had a split investment rating, separate cash flow valuations
were made utilizing the appropriate discount rate and were averaged in order to
determine the Internal Cash Flow Valuation.





Defaults
- All underlying issuers with a Fitch bank rating of 5.0 were assumed to
default.  Underlying issuers with a Fitch bank rating of 3.5 through
4.5 were assumed to default at levels ranging from 5% to 75% based upon both
their rating as well as whether they had been granted approval to receive
funding under the U.S. Department of Treasury's Troubled Asset Relief Program
("TARP") Capital Purchase Program.





Cash flows – The actual cash flows for
the Company's investment tranche of each security, adjusted to assume that all
estimated defaults occurred on July 1, 2009, with an estimated recovery range
between 1% and 10% over the cash flow period (the remaining life of the
security).





The two
independent cash flow valuations discussed above were made utilizing a
methodology similar to the Internal Cash Flow Valuation, differing only in the
underlying assumptions deriving estimated cash flows, individual bank defaults
and discount rate.  Because of the significant judgment underlying
each of the pricing assumptions, management elected to recognize each of the
independent valuations and apply a weighting system to all of the valuations,
including the Internal Cash Flow Valuation, as all of these valuations were
determined utilizing valid and objective pricing methodologies.  The
overall weighting for the independent cash flow valuations was determined to be
the same as the weighting for the Internal Cash Flow Valuation in recognition
that the independent cash flow valuations, when viewed in aggregate, were deemed
to be an equally objective pricing methodology as the Internal Cash Flow
Valuation.  18


The
following is a summary of the average valuation derived on the eight securities
from each of the three pricing sources considered in valuing these
investments:




Source
                
                Average
      PricePer
      $100Broker
      sale quotation
                
                $18.95Independent
      cash flow valuations
                
                26.83Internal
      Cash Flow Valuation
                
                32.64





Impaired Loans - Loans with
certain characteristics are evaluated individually for impairment. A loan is
considered impaired when, based upon existing information and events, it is
probable that the Bank will be unable to collect all amounts due, including
principal and interest, according to the contractual terms of the loan
agreement. The Bank's impaired loans at June 30, 2009 were collateralized by
real estate and were thus carried at the lower of the outstanding principal
balance or the estimated fair value of the collateral.  Fair value is
estimated through current appraisals, where practical, or a drive-by inspection
and comparison of the collateral with similar properties in the area by either a
licensed appraiser or real estate broker and adjusted as deemed necessary by
management to reflect existing market conditions.  At June 30, 2009,
nine impaired loans were carried at fair value, with their principal balance
reduced to the current appraised or market value of the underlying collateral
property.  Net charge-offs recognized on these impaired loans were
$289,000 during the six months ended June 30, 2009, and were charged against the
allowance for loans losses.  In addition, specific reserves of
$481,000 were established on these loans as part of the provision for loan
losses recorded during the six months ended June 30, 2009.  These
reserves were recorded in order to reduce the principal balance of these loans
to the current appraised or market value of their underlying collateral
property.   Total charge-offs on impaired loans, including such
loans that are not carried at fair value, were $2.4 million during the six
months ended June 30, 2009.





Loans Held for Sale – At June
30, 2009, one of the Bank's three loans held for sale was recorded at fair value
since the contractual purchase price on the loan (as adjusted for all costs
associated with the loan origination) did not exceed its principal
balance.  The fair value of the loan represented the actual market
quote offered by the purchasing institution that was subsequently paid for the
loan shortly after June 30, 2009.





Financial Instruments Not Actively
Traded -While quoted market prices available in active trading
marketplaces are generally recognized under SFAS 157 as the best evidence of
fair value of financial instruments, several of the Company's financial
instruments are not bought or sold in active trading
marketplaces.  Accordingly, their fair values are derived or estimated
based on a variety of alternative valuation techniques.  All such fair
value estimates are based on relevant market information about the financial
instrument.  These estimates do not reflect any possible tax
ramifications, estimated transaction costs, or potential premium or discount
that could result from a one time sale of the entire holdings of a particular
financial instrument.  In addition, the estimates are based on
assumptions of future loss experience, current economic conditions, risk
characteristics, and other such factors.  These assumptions are
subjective in nature and involve inherent uncertainty.  Changes in
these assumptions could significantly affect the estimates.





Methods
and assumptions used to estimate fair values for financial instruments that are
not valued utilizing formal marketplace quotations (other than those previously
discussed) are summarized as follows:







Cash and Due From Banks -The
fair value is assumed to be equal to their carrying value as these amounts are
due upon demand.





Federal Funds Sold and Other Short
Term Investments – As a result of their short duration to maturity, the
fair value of these assets, principally overnight deposits, is assumed to be
equal to their carrying value due.





FHLBNY Capital Stock - The
fair value of FHLBNY stock is assumed to be equal to its carrying value as the
stock is carried at par value and redeemable at par value by the
FHLBNY.





Loans, Net- The fair value
of loans receivable is determined by discounting anticipated future cash flows
of the loans, net of anticipated prepayments, using a discount rate reflecting
current market rates for loans with similar terms.  This methodology
is applied to all loans, inclusive of non-accrual loans, as well as impaired
loans for which a write-down to the current fair market value of the underlying
collateral is not determined to be warranted.  In addition, the
valuation of loans reflects the consideration of secondary market prices for
loan types that have traditionally facilitated marketplace sales (over 80% of
the outstanding loan portfolio).  Due to significant market
dislocation, the secondary market prices were given little weighting in deriving
the loan valuation at June 30, 2009.





Mortgage Servicing Rights ("MSR")-The estimated fair value of the MSR is obtained through independent third
party valuation, and is derived from estimates of future cash flows that
incorporate estimates of assumptions utilized by market participants in
determining fair value, including, but not limited to, market discount rates,
prepayment speeds, servicing income, servicing costs, default rates and other
market driven data, such as perception of future interest rate
movements.





19


Deposits- The fair value of
savings, money market, and checking accounts is assumed to be their carrying
amount. The fair value of certificates of deposit is based upon the present
value of contractual cash flows using current interest rates for instruments of
the same remaining maturity.





Escrow and Other Deposits -The estimated fair value of escrow and other deposits is assumed to be
their carrying amount payable.





Securities Sold Under Agreements to
Repurchase and FHLBNY Advances -The fair value is measured by the
discounted anticipated cash flows through contractual maturity or next interest
repricing date, or an earlier call date if, as of the valuation date, the
borrowing is expected to be called.  The carrying amount of accrued
interest payable is its fair value.





Commitments to Extend Credit
- The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current interest rates and the committed rates.





Based
upon the aforementioned valuation methodologies, the estimated carrying amount
and estimated fair values of all the Company's financial instruments were as
follows:




At
      June 30, 2009
                  Carrying
      Amount
                  Fair
      Value(Dollars
      in Thousands)Assets:Cash
      and due from banks
                  $229,638
                  $229,638Investment
      securities held to maturity (pooled trust preferred
      securities)
                  8,695
                  5,395Investment
      securities available-for-sale
                  6,540
                  6,540MBS
      available-for-sale
                  263,515
                  263,515Loans,
      net
                  3,225,304
                  3,282,856Loans
      held for sale
                  667
                  674MSR
                  3,199
                  3,969FHLBNY
      capital stock
                  51,833
                  51,833Liabilities:Savings,
      money market and checking accounts
                  1,240,272
                  1,240,272Certificates
      of deposit
                  1,052,837
                  1,060,545Escrow
      and other deposits
                  69,803
                  69,803Securities
      sold under agreements to repurchase
                  230,000
                  252,623FHLBNY
      advances
                  959,675
                  1,000,356Subordinated
      notes payable1
                  25,000
                  23,750Trust
      Preferred securities payable1
                  72,165
                  50,516Commitments
      to extend credit
                  623
                  623


1
The fair value of these liabilities is measured by independent market quotations
obtained based upon transactions occurring in the market as of the disclosure
date.




20


12.   RETIREMENT
AND POSTRETIREMENT PLANS





The
Holding Company or the Bank maintains the Retirement Plan of The Dime Savings
Bank of Williamsburgh (the "Employee Retirement Plan"), the Retirement Plan for
Board Members of Dime Community Bancshares, Inc. (the "Outside Director
Retirement Plan"), the BMP and the Postretirement Welfare Plan of The Dime
Savings Bank of Williamsburgh ("Postretirement Plan").  Net expenses
associated with these plans were comprised of the following
components:





Three
      Months EndedJune
      30,
      2009
                
                Three
      Months EndedJune
      30, 2008BMP,Employee
      and Outside DirectorRetirement
      Plans
                Postretirement
      Plan
                
                BMP,Employee
      and Outside
                  DirectorRetirement
      Plans
                PostretirementPlan(Dollars
      in thousands)Service
      cost
                $-
                $29
                
                $-
                $21Interest
      cost
                340
                76
                
                358
                65Expected
      return on assets
                (297)
                -
                
                (485)
                -Unrecognized
      past service liability
                -
                14
                
                -
                (7)Amortization
      of unrealized loss
                291
                -
                
                67
                4Net
      periodic (credit) cost
                $334
                $119
                
                $(60)
                $83





Six
      Months EndedJune
      30, 2009
                
                Six
      Months EndedJune
      30,
      2008BMP,Employee
      and Outside DirectorRetirement
      Plans
                Postretirement
      Plan
                
                BMP,Employee
      and Outside DirectorRetirement
      Plans
                PostretirementPlan(Dollars
      in thousands)Service
      cost
                $-
                $58
                
                $-
                $42Interest
      cost
                680
                152
                
                716
                130Expected
      return on assets
                (594)
                -
                
                (970)
                -Unrecognized
      past service liability
                -
                28
                
                -
                (14)Amortization
      of unrealized loss
                582
                -
                
                134
                8Net
      periodic (credit) cost
                $668
                $238
                
                $(120)
                $166




The
Company disclosed in its consolidated financial statements for the year ended
December 31, 2008 that it expected to make contributions or benefit payments
totaling $198,000 to the BMP, $131,000 to the Outside Director Retirement Plan,
and $161,000 to the Postretirement Plan during the year ending December 31,
2009.  The Company made benefit payments of $64,000 to the Outside
Director Retirement Plan during the six months ended June 30, 2009, and expects
to make an additional $64,000 of contributions or benefit payments during the
remainder of 2009.  The Company made net contributions totaling
$68,000 to the Postretirement Plan during the six months ended June 30, 2009,
and expects to make an additional estimated $93,000 of contributions or benefit
payments during the remainder of 2009.  The Company made no
contributions to the BMP during the six months ended June 30,
2009.  The Company does not expect to make any benefit payments or
contributions to the BMP during the remainder of 2009, since anticipated
retirements that formed the basis for the expected benefit payments in 2009 are
presently not expected to occur.





The
Company disclosed in its consolidated financial statements for the year ended
December 31, 2008 that, due to changes in pension funding law that occurred in
2008 and sharp declines in asset values, the Company was unable to provide an
estimate of expected contributions to the Employee Retirement Plan in
2009.  Based upon the most recent actuarial valuation of the Employee
Retirement Plan, the Company does not anticipate making any contributions to the
Employee Retirement Plan during 2009.





Effective
December 31, 2008, the Company changed the financial statement disclosure
measurement date for its defined benefit plans from October 1st to
December 31st.  On
January 1, 2008, the Company recorded reductions of $23,000 to retained earnings
and $64,000 to accumulated other comprehensive loss related to this
transition.





13.   INCOME
TAXES





During
the six months ended June 30, 2009, the Company's consolidated effective tax
rate, which normally approximates 37%, was reduced to 32% as a result of $5.9
million of recorded OTTI expense.  Similarly, the effective tax rate
was reduced to 35% during the three months ended June 30, 2009 as a result of
$886,000 of recorded OTTI charges.  Excluding




21




the
recorded OTTI charge, the Company's effective tax rate approximated 37.0% during
both the three-month and six-month periods ended June 30,
2009.  During the three-month and six-month periods ended June 30,
2008, the Company recorded a decline of $662,000 in income tax expense related
to a reduction in its reserve for unrecognized tax benefits, as events occurring
during the period resulted in the probable recognition of these
benefits.  During the six months ended June 30, 2008, the Company's
income tax expense was further reduced by adjustments of $275,000 associated
with the completion of the June 30, 2007 tax returns.  Excluding these
items, the Company's effective tax rate approximated 37.0% during the
three-month and six-month periods ended June 30, 2008.





14.   NET
MORTGAGE BANKING INCOME





Net
mortgage banking income presented in the condensed consolidated statements of
operations was comprised of the following items:





Three
      Months EndedJune
      30,
              
              Six
      Months EndedJune
      30,2009
              2008
              
              2009
              2008(Dollars
      in thousands)Gain
      on the sale of loans originated for sale
              $634
              $132
              
              $635
              $219Credit
      (Provision) to the liability for First Loss Position
              21
              (300)
              
              (1,402)
              (300)Recovery
      of write down of mortgage servicing asset
              -
              -
              
              60
              -Mortgage
      banking fees
              201
              198
              
              395
              397Net
      mortgage banking income(loss)
              $856
              $30
              
              $(312)
              $316





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





General





The
Holding Company is a Delaware corporation and parent company of the Bank, a
federally-chartered stock savings bank.  The Bank maintains its
headquarters in the Williamsburg section of Brooklyn, New York and operates
twenty-three full service retail banking offices located in the New York City
("NYC") boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County, New
York.  The Bank’s principal business has been, and continues to be,
gathering deposits from customers within its market area, and investing them
primarily in multifamily residential, commercial real estate, one- to
four-family residential, construction and land acquisition loans, consumer
loans, MBS, obligations of the U.S. government and GSEs, and corporate debt and
equity securities.





Executive
Summary





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





The
Bank's primary strategy is generally to seek to increase its product and service
utilization for each individual depositor, and to increase its household and
deposit market shares in the communities that it serves.  The Bank’s
primary strategy additionally includes the origination of, and investment in,
mortgage loans, with an emphasis on multifamily residential and mixed use real
estate loans.  During 2008, the Company grew assets due to continued
loan demand and favorable marketplace conditions surrounding the origination of
multifamily residential real estate loans.  In late 2008 and during
the three-month and six-month periods ended June 30, 2009, the Company
restricted asset growth due to concerns over the health of the commercial real
estate markets, and the desire to preserve capital levels to accommodate these
concerns.





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





22


The Bank
also strives to provide a stable source of liquidity and earnings through the
purchase of investment grade securities; seeks to maintain the asset quality of
its loans and other investments; and uses appropriate portfolio and
asset/liability management techniques in an effort to manage the effects of
interest rate volatility on its profitability and capital.





The year
ended December 31, 2008 and the three-month and six-month periods ended June 30,
2009 were dominated by a global real estate and economic recession fueled by
significant weakness in and/or failures of many of the world's largest financial
institutions.  As a result, the Bank recognized higher credit costs on
portfolio loans and OTTI on investment securities during the three-month and
six-month periods ended June 30, 2009 compared to the corresponding periods of
2008. However, historically high dislocations in credit markets caused
origination spreads from the benchmark origination interest rate to increase
significantly during the year ended December 31, 2008 and the three-month and
six-month periods ended June 30, 2009.  This increase, coupled with a
reduction in benchmark short-term interest rates by the Federal Open Market
Committee ("FOMC") (which significantly impact the pricing of the Bank's retail
deposits), favorably impacted the Company's net interest spread and net interest
margin during the three-month and six-month periods ended June 30, 2009 compared
to the corresponding periods of 2008.





Recent
Market Developments





Emergency
Economic Stabilization Act of 2008 (“EESA”)





The U.S.
and global economies are experiencing significantly reduced activity as a result
of, among other factors, disruptions in the financial system during the past
year as well as various other recessionary conditions. Reflecting concern about
the stability of the financial markets, many lenders and institutional investors
have reduced, and in some cases ceased to provide, funding to borrowers,
including other financial institutions. These factors resulted in limited
availability of credit, reduced confidence in the financial sector, and an
increased level of volatility in the financial markets.





In
response to the financial crises affecting the banking system and financial
markets, the EESA was enacted on October 3, 2008. The EESA grants the U.S.
Department of Treasury ("Treasury") the authority, among others, to establish
the TARP to purchase up to $700 billion of certain troubled assets, including
mortgages, MBS and certain other financial instruments, from financial
institutions for the purpose of stabilizing and providing liquidity to the U.S.
financial markets.





If a
publicly-traded financial institution sells troubled assets into the TARP,
Treasury will receive a warrant giving it the right to receive nonvoting common
stock or preferred stock in such financial institution, or voting stock with
respect to which Treasury agrees not to exercise voting power, subject to
certain de minimis exceptions.  Further, all financial institutions
that sell troubled assets to the TARP and satisfy certain conditions will also
be subject to certain executive compensation restrictions.





In
addition to establishing the TARP, the EESA urges the Secretary of the Treasury
to establish a program that will guarantee the principal of, and interest on,
troubled assets originated or issued prior to March 14, 2008.  The
Secretary of the Treasury will establish premiums for financial institutions
that participate in this program and may provide for variations in such rates in
accordance with the credit risk associated with the particular troubled asset
being guaranteed.





TARP
Capital Purchase Program





Under the
TARP, on October 14, 2008, the Treasury announced the TARP Capital Purchase
Program to strengthen the capital and liquidity positions of viable institutions
and encourage banks and thrifts to increase lending to creditworthy borrowers.
Under the TARP Capital Purchase Program, qualifying financial institutions were
able to sell senior preferred shares to the Treasury, which qualify as Tier 1
capital for regulatory capital purposes. In conjunction with its senior
preferred investment, Treasury also receives warrants to purchase common stock
of the participating institution with an aggregate market price equal to 15% of
the senior preferred investment.  The minimum amount of preferred
stock that would be issued was equal to 1% of the institution’s risk-weighted
assets, and the maximum was the lesser of $25 billion or 3% of the institution's
risk-weighted assets. Participating financial institutions are required to adopt
Treasury’s standards for executive compensation and corporate governance for the
period during which the Treasury holds equity issued under the
program.





On
January 5, 2009, after receiving approval of its application from Treasury, the
Company announced that it decided to forego participation in the TARP Capital
Purchase Program.  The Company conducted extensive financial analysis
and concluded that the benefits of the TARP Capital Purchase Program to the
Company and its shareholders were mitigated by several factors, including the
Company's strong capital levels and historically prudent investment and
underwriting practices, and the potential dilution to both earnings and book
value that participation in the TARP Capital Purchase Program would have created
over the next three to five years.




23


Temporary
Liquidity Guarantee Program





On
November 21, 2008, the Federal Deposit Insurance Corporation ("FDIC") adopted
the Temporary Liquidity Guarantee Program (“TLGP”) pursuant to its authority to
prevent “systematic risk” in the U.S banking system. It was adopted as an
initiative to counter the system-wide crisis in the nation’s financial
sector.  Under the TLGP, the FDIC will (i) guarantee, through the
earlier of maturity or June 30, 2012, certain senior unsecured debt issued by
participating institutions on or after October 14, 2008 and before June 30, 2009
under the Debt Guarantee Program ("DGP"), and (ii) fully insure non-interest
bearing transaction deposit accounts held at participating FDIC-insured
institutions through December 31, 2009 under the Transaction Account Guarantee
Program ("TAGP").  The Company elected not to participate in the
TLGP.





Eligible
institutions were covered under the TLGP at no cost for the first 30
days.  Institutions that elected not to participate in one or both
parts of the TLGP were required to notify the FDIC of their election to opt out
on or before December 5, 2008.  Institutions that did not opt out are
subject to a fee of 50 to 100 basis points per annum based on the length of
maturity of senior unsecured debt issued under the DGP.  Under the
TAGP, a 10 basis point surcharge will be added to the institution’s current
insurance assessment, quarterly, for balances in non-interest bearing
transaction accounts that exceed the existing deposit insurance limit of
$250,000.  Although the TLGP was originally scheduled to expire in
June 2009, on February 10, 2009 the FDIC announced its intention to extend the
TLGP through October 2009 for an additional premium.





On
January 16, 2009, in an effort to further strengthen the financial system and
U.S economy, the FDIC announced that it will soon propose rule changes to the
TLGP to extend the maturity of the guarantee from three to up to 10 years where
the debt is supported by collateral and the issuance supports new consumer
lending.  The FDIC's final rule regarding the extension of the DGP was
published June 3, 2009.  The final rule restates without change those
provisions of the interim rule that extended the FDIC's guarantee until the
earliest of the opt-out date, the maturity of the debt, the mandatory conversion
date for mandatory convertible debt, or December 31, 2012.  Until the
details of this extended program are finalized and published, management cannot
determine the extent, if any, that the Company would participate in this
program.





It is
unclear what impact the EESA, TARP Capital Purchase Program, TLGP, other
previously announced liquidity and funding initiatives of the Federal Reserve
and other agencies, and any additional programs that may be initiated in the
future will have on the financial markets and the other difficulties described
above, including the current levels of volatility and limited credit
availability, or on the U.S. banking and financial industries and the broader
U.S. and global economies. Further negative effects could have an adverse impact
on the Company and its business.





Proposed
Financial Regulatory Reforms





On June
17, 2009, President Obama and the Treasury announced a financial regulatory
reform white paper in which they proposed several reforms to the existing
financial services regulatory structure.  Among other matters, the
plan would create a new consumer protection agency and authorize greater powers
for the Federal Reserve Board.  The House and Senate are expected to
consider competing proposals over the coming years.  There can be no
assurance that the financial stability plan proposed by Treasury, the other
proposals under consideration or any other legislation or regulatory initiatives
will be effective at dealing with the ongoing economic crisis and improving
economic conditions globally, nationally or in the Company's markets, or that
the measures adopted will not have adverse consequences.





Insurance
of Deposit Accounts





On
February 27, 2009, the FDIC adopted a final rule modifying the risk-based
assessment system and set the initial base assessment rates beginning April 1,
2009 at 12 to 45 basis points depending on an institution’s risk category, with
adjustments resulting in increased assessment rates generally for institutions
with a significant reliance on secured liabilities and brokered
deposits.





On
February 27, 2009, the FDIC also adopted an interim rule imposing a 20 basis
point emergency special assessment on the industry on June 30, 2009, to be
collected on September 30, 2009.  The interim rule also permits the
FDIC to impose an emergency special assessment of up to 10 basis points after
June 30, 2009, if necessary to maintain public confidence in federal deposit
insurance.  On May 22, 2009, the FDIC adopted a final rule
implementing a 0.05% special assessment of each insured depository institution's
assets minus Tier 1 capital as of June 30, 2009, but no more than 0.10% times
the institution's assessment base for the second quarter of 2009, to be
collected by the FDIC on September 30, 2009.  Additional special
assessments may be imposed by the FDIC for future periods.





Based
upon the Bank's insured deposit balances at June 30, 2009, the Bank estimated
that its total assessments will range between 15 and 17 basis points (not
including special assessments) during the year ending December 31,
2009.  The adopted increases in assessments will result in total
pre-tax assessment expense of approximately $3.5 million to $4.0 million during
2009.  In addition, the Bank recognized a special assessment of $1.8
million during the quarter ended June 30, 2009, representing 0.05% of the Bank's
total assets (net of




24




Tier 1
capital) at June 30, 2009.  The Bank is currently anticipating another
$1.8 million special assessment to be charged by the FDIC in the third quarter
of 2009, although such assessment has not been formally announced by the
FDIC.





Selected
Financial Highlights and Other Data


(Dollars
in Thousands Except Per Share Amounts)





At
      or For the Three Months Ended June 30,
              
              At
      or For the Six Months Ended June 30,2009
              
              2008
              
              2009
              2008Performance
      and Other Selected Ratios:Return
      on Average Assets
              0.69%
              
              0.92%
              
              0.49%
              0.80%Return
      on Average Stockholders' Equity
              9.84
              
              12.44
              
              6.97
              10.66Stockholders'
      Equity to Total Assets
              7.13
              
              7.33
              
              7.13
              7.33Tangible
      Equity to Total Tangible Assets
              6.00
              
              6.11
              
              6.00
              6.11Loans
      to Deposits at End of Period
              141.55
              
              150.65
              
              141.55
              150.65Loans
      to Earning Assets at End of Period
              90.76
              
              88.16
              
              90.76
              88.16Net
      Interest Spread
              2.54
              
              2.39
              
              2.37
              2.20Net
      Interest Margin
              2.78
              
              2.67
              
              2.64
              2.50Average
      Interest Earning Assets to Average Interest Bearing
      Liabilities
              108.57
              
              109.02
              
              108.61
              108.77Non-Interest
      Expense to Average Assets
              1.53
              
              1.34
              
              1.44
              1.37Efficiency
      Ratio
              52.62
              
              48.84
              
              53.75
              52.77Effective
      Tax Rate
              34.57
              
              32.07
              
              32.26
              32.98Dividend
      Payout Ratio
              66.67
              
              53.85
              
              93.33
              63.64Average
      Tangible Equity
              $233,376
              
              $221,171
              
              $233,416
              $218,909Per
      Share Data:Reported
      EPS (Diluted)
              $0.21
              
              $0.26
              
              $0.30
              $0.44Cash
      Dividends Paid Per Share
              0.14
              
              0.14
              
              0.28
              0.28Stated
      Book Value
              8.24
              
              8.05
              
              8.24
              8.05Tangible
      Book Value
              6.84
              
              6.63
              
              6.84
              6.63Asset
      Quality Summary:Net
      Charge-offs
              $528
              
              $116
              
              $2,404
              $260Non-performing
      Loans
              12,878
              
              6,852
              
              12,878
              6,852Non-performing
      Loans/Total Loans
              0.40%
              
              0.22%
              
              0.40%
              0.22%Non-performing
      Assets
              $14,118
              
              6,852
              
              $14,118
              6,852Non-performing
      Assets/Total Assets
              0.36%
              
              0.18
              
              0.36%
              0.18Allowance
      for Loan Loss/Total Loans
              0.62
              
              0.49
              
              0.62
              0.49Allowance
      for Loan Loss/Non-performing Loans
              155.23
              
              224.55
              
              155.23
              224.55Regulatory
      Capital Ratios (Bank Only):Tangible
      Capital
              7.63%
              
              7.83%
              
              7.63%
              7.83%Leverage
      Capital
              7.63
              
              7.83
              
              7.63
              7.83Tier
      1 Risk-based Capital
              10.70
              
              10.70
              
              10.70
              10.70Total
      Risk-based Capital
              11.46
              
              11.46
              
              11.46
              11.46Earnings
      to Fixed Charges Ratios(1)Including
      Interest on Deposits
              1.40x
              
              1.46x
              
              1.26x
              1.38xExcluding
      Interest on Deposits
              1.73
              
              2.01
              
              1.50
              1.92


(1) Please refer
to Exhibit 12.1 for further detail on the calculation of these
ratios.





Critical
Accounting Policies





Various
elements of the Company’s accounting policies are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments.
The Company’s policies with respect to the methodologies it uses to determine
the allowance for loan losses, reserves for loan commitments, the liability for
the First Loss Position, the valuation of MSR, asset impairments (including the
valuation of goodwill and other than temporary declines in the valuation of
securities), the recognition of deferred tax assets and unrecognized tax
positions, the recognition of loan income, the valuation of financial
instruments and accounting for defined benefit plans are its most critical
accounting policies because they are important to the presentation of the
Company’s consolidated financial condition and results of operations, involve a
significant degree of complexity and require




25




management
to make difficult and subjective judgments which often necessitate assumptions
or estimates about highly uncertain matters. The use of different judgments,
assumptions and estimates could result in material variations in the Company's
consolidated results of operations or financial condition.





The
following are descriptions of the Company's critical accounting policies and
explanations of the methods and assumptions underlying their
application.





Allowance for Loan
Losses.GAAP requires the Bank to maintain an appropriate
allowance for loan losses.  Management uses available information to
estimate losses on loans and believes that the Bank maintains its allowance for
loan losses at appropriate levels.  Adjustments may be necessary,
however, if future economic, market or other conditions differ from the current
operating environment.





Although
the Bank believes it utilizes the most reliable information available, the level
of the allowance for loan losses remains an estimate subject to significant
judgment.  These evaluations are inherently subjective because,
although based upon objective data, it is management's interpretation of the
data that determines the amount of the appropriate allowance.  The
Company, therefore, periodically reviews the actual performance and charge-offs
of its portfolio and compares them to the previously determined allowance
coverage percentages.  In doing so, the Company evaluates the impact
that the variables discussed below may have on the portfolio to determine
whether or not changes should be made to the assumptions and
analyses.





The
Bank's loan loss reserve methodology consists of several components, including a
review of the two elements of its loan portfolio: problem loans [i.e., classified loans and
impaired loans under SFAS No. 114, "Accounting By Creditors for Impairment of a
Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures an amendment of FASB Statement No.
114" ("Amended SFAS 114")] and performing loans.  The Bank applied the
process of determining the allowance for loan losses consistently throughout the
three-month and six-month periods ended June 30, 2009 and 2008.





Performing
Loans





At June
30, 2009, the majority of the allowance for loan losses was allocated to
performing loans, which represented the overwhelming majority of the Bank's loan
portfolio.  Performing loans are reviewed at least quarterly based
upon the premise that there are losses inherent within the loan portfolio that
have not been identified as of the review date.  The Bank thus
calculates an allowance for loan losses related to its performing loans by
deriving an expected loan loss percentage and applying it to its performing
loans.  In deriving the expected loan loss percentage, the Bank
generally considers, among others, the following criteria: the Bank's historical
loss experience; the age and payment history of the loans (commonly referred to
as their "seasoned quality"); the type of loan (i.e., one- to four-family,
multifamily residential, commercial real estate, cooperative apartment,
construction and land acquisition or consumer); the underwriting history of the
loan (i.e., whether it
was underwritten by the Bank or a predecessor institution acquired by the Bank
and, therefore, originally subjected to different underwriting criteria); both
the current condition and recent history of the overall local real estate market
(in order to determine the accuracy of utilizing recent historical charge-off
data to derive the expected loan loss percentages); the level of, and trend in,
non-performing loans; the level and composition of new loan activity; and the
existence of geographic loan concentrations (as the overwhelming majority of the
Bank's loans are secured by real estate located in the NYC metropolitan area) or
specific industry conditions within the portfolio segments.  Since
these criteria affect the expected loan loss percentages that are applied to
performing loans, changes in any of them may affect the amounts of the allowance
and the provision for loan losses.





Problem
Loans





OTS
regulations and Bank policy require that loans possessing certain weaknesses be
classified as Substandard, Doubtful or Loss assets.  Assets that do
not expose the Bank to risk sufficient to justify classification in one of these
categories, however, which possess potential weaknesses that deserve
management's attention, are designated Special Mention.  Loans
classified as Special Mention, Substandard or Doubtful are reviewed individually
on a quarterly basis by the Bank's Loan Loss Reserve Committee to determine the
level of possible loss, if any, that should be provided for within the Bank's
allowance for loan losses.





The
Bank's policy is to charge-off immediately all balances classified as ''Loss''
and record a reduction of the allowance for loan losses for the full amount of
the outstanding loan balance.  The Bank applied this process
consistently throughout the three-month and six-month periods ended June 30,
2009 and 2008.





Under the
guidance established by Amended SFAS 114, loans determined to be impaired (i.e., loans where it is
probable that all contractual amounts due will not be collected in accordance
with the terms of the loan; generally, non-accrual one- to four-family loans in
excess of $625,500 and non-accrual and troubled-debt restructured multifamily
residential and commercial real estate loans) are evaluated at least quarterly
in order to establish impairment.  For each loan that the Bank
determines to be impaired, impairment is measured by the amount that the
carrying balance of the loan, including all accrued interest, exceeds the
estimated fair value of the collateral.  A specific reserve is
established on all impaired loans to the




26


extent of
impairment and comprises a portion of the allowance for loan
losses.   (See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Asset Quality – Impaired Loans"
for a discussion of impaired loans).





Non-performing
one- to four-family loans of $625,500 or less are not required to be evaluated
for impairment, and are classified as Substandard, Doubtful or Loss, and
reviewed and reserved for or recorded in the manner discussed above for loans of
such classification.





Reserve for Loan
Commitments.  The Bank maintains a separate reserve within
other liabilities associated with commitments to fund future loans that have
been accepted by the borrower.  This reserve is determined based upon
the historical loss experience of similar loans owned by the Bank at each period
end.  Any increases in this reserve amount are obtained via a transfer
of reserves from the Bank's allowance for loan losses, with any resulting
shortfall in the Bank's allowance for loan losses being satisfied through the
quarterly provision for loan losses.  Any decreases in this reserve
amount are recognized as a transfer of reserve balances back to the allowance
for loans losses at each period end.





Liability for the First Loss
Position on Multifamily Loans Sold to FNMA.  A liability is
also recorded related to the First Loss Position on multifamily residential real
estate loans sold with recourse under an agreement with FNMA.  This
liability reserve, which is included in other liabilities in the Company's
consolidated statements of financial condition, is determined in a manner
similar to the Company's allowance for loan losses related to loans held in
portfolio.





Valuation of MSR.The cost of
mortgage loans sold with servicing rights retained by the Bank is allocated
between the loans and the servicing rights based on their estimated fair values
at the time of the loan sale. In accordance with GAAP, MSR are carried at the
lower of cost or fair value and are amortized in proportion to, and over the
period of, anticipated net servicing income.   The Company
adopted SFAS No. 156, "Accounting for Servicing of Financial Assets" ("SFAS
156") effective January 1, 2007.  SFAS 156 requires all separately
recognized MSR to be initially measured at fair value, if
practicable.  The estimated fair value of MSR is determined by
calculating the present value of estimated future net servicing cash flows,
using estimated prepayment, default, servicing cost and discount rate
assumptions.  All estimates and assumptions utilized in the valuation
of MSR are derived based upon actual historical results for the Bank, or, in the
absence of such data, from historical results for the Bank's peers.





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





Assumptions
utilized in measuring the fair value of MSR for the purpose of evaluating
impairment additionally include the stratification based on predominant risk
characteristics of the underlying loans. Increases in the risk characteristics
of the underlying loans from the assumed amounts would result in a decline in
the fair value of the MSR.  A valuation allowance is established in
the event the recorded value of an individual stratum exceeds its fair value for
the full amount of the difference.





Asset Impairment
Adjustments.Certain assets are carried in the Company's
consolidated statements of financial condition at fair value or at the lower of
cost or fair value.





Goodwill Impairment
Analysis.





As of
June 30, 2009, the Company had goodwill totaling $55.6 million, which is
accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142").  SFAS 142 eliminates amortization of goodwill
and instead requires performance of an annual impairment test at the reporting
unit level.  Management annually performs analyses to test for
impairment of goodwill.  In the event that an impairment of goodwill
is determined to exist, it is recognized as a charge to earnings.





The
Company identified a single reporting unit for purposes of its goodwill
impairment testing, and thus performs its impairment test on a consolidated
basis.  The impairment test has two potential stages.  In
the initial stage, the Holding Company's market capitalization (reporting unit
fair value) is compared to its outstanding equity (reporting unit carrying
value).  The Company utilizes closing price data for the Holding
Company's common stock as reported on the Nasdaq National Market in order to
compute market capitalization. The Company has designated the last day of its
fiscal year as the annual date for impairment testing. The Company performed its
annual impairment test as of December 31, 2008 and concluded that no potential
impairment of goodwill existed since the fair value of the Company's reporting
unit exceeded its carrying value.  However, subsequent to December 31,
2008, the price of the Holding Company's common stock declined to such a level
that its total market capitalization, on occasion, fell below its consolidated
stockholders' equity.  As a result, the Company performed goodwill
impairment tests periodically during the six months ended June 30, 2009 and
concluded, in each instance, that no impairment of goodwill
existed.  The




27




most
recent of these tests was performed as of June 30, 2009.  No
events or circumstances have changed subsequent to June 30, 2009 that would
reduce the fair value of the Company's reporting unit below its carrying
value.  Such events or changes in circumstances would require the
immediate performance of an impairment test in accordance with SFAS
142.





Valuation of Financial
Instruments and
Analysis of OTTI Related to Investment Securities and MBS





Debt
securities are classified as held-to-maturity, and carried at amortized cost,
only if the Company has a positive intent and ability to hold them to
maturity.





At June
30, 2009, the Company owned eight pooled trust preferred securities classified
as held-to-maturity.  Late in 2008, the market for these securities
was deemed to be highly illiquid, and continued to be deemed as such as of June
30, 2009.  As a result, their estimated fair value was obtained
primarily using a cash flow valuation approach (Level 3 pricing as defined by
SFAS 157).  In addition, broker quotations, which were deemed to meet
the criteria of "distressed sale" pricing under the guidance of FAS 157-4, were
given a minor 10% weighting in the valuation of the securities at June 30,
2009.  A  cash flow valuation for the eight securities
performed utilizing the Internal Cash Flow Valuation was given a 45% weighting.
This valuation considered the creditworthiness of each individual issuer
underlying the collateral pool of the eight securities.  In addition,
for five of the eight securities, two independent cash flow model valuations
were averaged and given a 45% weighting.  For the remaining three
securities, only one independent cash flow valuation was available and was
similarly given a 45% weighting.  The 10% weighting of broker quotes
represented a change from the methodology applied at December 31, 2008 (at which
time these quotes were given no weighting) and reflected the continued emphasis
upon considering broker quotes set forth in FAS 157-4.





The major
assumptions utilized (each of which represent significant unobservable inputs as
defined in SFAS 157) in the Internal Cash Flow Valuation were as
follows:





Discount
rate – The discount rate utilized was derived from the Bloomberg fair market
value curve for debt offerings of similar credit rating.  In the event
that a security had a split investment rating, separate cash flow valuations
were made utilizing the appropriate discount rate and were averaged in order to
determine the Internal Cash Flow Valuation.





Defaults
- All underlying issuers with a Fitch bank rating of 5.0 were assumed to
default.  Underlying issuers with a Fitch bank rating of 3.5 through
4.5 were assumed to default at levels ranging from 5% to 75% based upon both
their rating as well as whether they had been granted approval to receive
funding under the TARP Capital Purchase Program.





Cash flows – The actual cash flows
for the Company's investment tranche of each security, adjusted to assume that
all estimated defaults occurred on July 1, 2009, with an estimated recovery
range between 1% and 10% over the cash flow period (the remaining life of the
security).





The two
independent cash flow valuations discussed above were made utilizing a
methodology similar to the Internal Cash Flow Valuation, differing only in the
underlying assumptions deriving estimated cash flows, individual bank defaults
and discount rate.  Because of the significant judgment underlying
each of the pricing assumptions, management elected to recognize each of the
independent valuations and apply a weighting system to all of the valuations,
including the Internal Cash Flow Valuation, as all of these valuations were
determined utilizing a valid and objective pricing methodology.  The
overall weighting for the independent cash flow valuations was determined to be
the same as the weighting for the Internal Cash Flow Valuation in recognition
that the independent cash flow valuations, when viewed in aggregate, were deemed
to be an equally objective pricing methodology as the Internal Cash Flow
Valuation.




The
following is a summary of the average valuation derived on the eight securities
from each of the three pricing sources considered in valuing these
investments:




Source
                
                Average
      PricePer
      $100Broker
      sale quotation
                
                $18.95Independent
      cash flow valuations
                
                26.83Internal
      Cash Flow Valuation
                
                32.64





Debt
securities that are not classified as held-to-maturity, along with all equity
securities, are classified as available-for-sale.  The Company owned
no securities classified as trading securities during the three-month and
six-month periods ended June 30, 2009 and
2008.  Available-for-sale debt and equity securities that have readily
determinable fair values are carried at fair value.  All of the
Company's available-for-sale securities at June 30, 2009 had readily
determinable fair values, which were based on published or securities dealers'
market values.





28


The
Company conducts a periodic review and evaluation of its securities portfolio,
taking into account the severity and duration of each unrealized loss, as well
as management's intent and ability to hold the security until the unrealized
loss is substantially eliminated, in order to determine if a decline in market
value of any security below its carrying value is either temporary or other than
temporary.  Unrealized losses on held-to-maturity securities that are
deemed temporary are disclosed but not recognized.  Unrealized losses
on debt or equity securities available-for-sale that are deemed temporary are
excluded from net income and reported net of deferred taxes as other
comprehensive income or loss.  All unrealized losses that are deemed
other than temporary on either available-for-sale or held-to-maturity securities
are recognized immediately as a reduction of the carrying amount of the
security, with a corresponding decline in either net income or accumulated other
comprehensive income or loss in accordance with FSP 115-2.  During the
three months ended June 30, 2009, unrealized losses of $1.2 million were deemed
other than temporary associated with three held-to-maturity pooled trust
preferred securities and five available-for-sale equity mutual fund
investments.  During the six months ended June 30, 2009, unrealized
losses of $7.3 million were deemed other than temporary associated with four
held-to-maturity pooled trust preferred securities and five available-for-sale
equity mutual fund investments.  No OTTI was recognized in the
Company's securities portfolio during the three-month or six-month periods ended
June 30, 2008.  Total unrealized holding gains on securities were $3.0
million at June 30, 2009, net of $4.1 million of unamortized unrealized holding
losses on securities that were transferred from available-for-sale to
held-to-maturity on September 1, 2008.  Unrealized holding losses
totaled $8.3 million at June 30, 2008.





Recognition of Deferred Tax
Assets.Management reviews all deferred tax assets
periodically.  Upon such review, in the event that there is a greater
than 50% likelihood that the deferred tax asset will not be fully realized, a
valuation allowance is recognized against the deferred tax asset in the amount
for which realization is determined to be more unlikely than likely to
occur.





Unrecognized Tax Positions.The Company performs two levels of evaluation for all uncertain tax
positions. Initially, a determination is made as to whether it is more likely
than not that a tax position will be sustained upon examination, including
resolution of any related appeals or litigation, based on the technical merits
of the position. In conducting this evaluation, management is required to
presume that the position will be examined by the appropriate taxing authority
possessing full knowledge of all relevant information. The second level of
evaluation is the measurement of a tax position that satisfies the
more-likely-than-not recognition threshold.  This measurement is
performed in order to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon ultimate
settlement.  In making its evaluation, management reviews applicable
tax rulings and other advice provided by reputable tax
professionals.





Loan Income
Recognition.  Interest income on loans is recorded using the
level yield method.  Loan origination fees and certain direct loan
origination costs are deferred and amortized as yield adjustments over the
contractual loan terms.





Accrual
of interest is generally discontinued on loans that have missed three
consecutive monthly payments, at which time the Bank reverses all previously
accrued interest.  Payments on non-accrual loans are generally applied
to principal.  Management may elect to continue the accrual of
interest when a loan is in the process of collection and the estimated fair
value of the collateral is sufficient to satisfy the outstanding principal
balance (including any outstanding advances related to the loan) and accrued
interest. Loans are returned to accrual status once the doubt concerning
collectibility has been removed and the borrower has demonstrated performance in
accordance with the loan terms and conditions for a period of at least 6
months.





Accounting for Defined Benefit
Plans.  Defined benefit plans are accounted for in accordance
with SFAS 158.  SFAS 158 requires an employer sponsoring a single
employer defined benefit plan to recognize the funded status of a benefit plan
in its statements of financial condition, measured as the difference between
plan assets at fair value (with limited exceptions) and the benefit
obligation.  The Company utilizes the services of trained actuaries
employed at an independent benefits plan administration entity in order to
assist in measuring the funded status of its defined benefit plans.





Liquidity
and Capital Resources





The Board
of Directors of the Bank has approved a liquidity policy that it reviews and
updates at least annually. Senior management is responsible for implementing the
policy.  The Bank's Asset-Liability Committee ("ALCO") is responsible
for general oversight and strategic implementation of the policy, and management
of the appropriate departments are designated responsibility for implementing
any strategies established by ALCO.  On a daily basis, senior
management receives a current cash position report and one-week forecast to
ensure that all short-term obligations are timely satisfied and that adequate
liquidity exists to fund future activities.  On a monthly basis,
reports detailing the Bank's liquidity reserves and forecasted cash flows are
presented to both senior management and the Board of Directors.  In
addition, on a monthly basis, a twelve-month liquidity forecast is presented to
ALCO in order to assess potential future liquidity concerns.  A
forecast of cash flow data for the upcoming 12 months is presented to the Board
of Directors on an annual basis.





The
Bank's primary sources of funding for its lending and investment activities
include deposits, loan and MBS payments, investment security maturities,
advances from the FHLBNY, and securities sold under agreement to repurchase
("REPOS") entered into with various financial institutions, including the
FHLBNY.  The Bank also sells selected multifamily




29


residential,
mixed use and one- to four-family residential real estate loans to private
sector secondary market purchasers and has in the past sold such loans to FNMA
..  The Company may additionally issue debt under appropriate
circumstances.  Although maturities and scheduled amortization of
loans and investments are predictable sources of funds, deposit flows and
prepayments on mortgage loans and MBS are influenced by interest rates, economic
conditions and competition.





The Bank
gathers deposits in direct competition with commercial banks, savings banks and
brokerage firms, many among the largest in the nation.  It must
additionally compete for deposit monies against the stock and bond markets,
especially during periods of strong performance in those arenas.  The
Bank's deposit flows are affected primarily by the pricing and marketing of its
deposit products compared to its competitors, as well as the market performance
of depositor investment alternatives such as the U.S. bond or equity
markets.  To the extent that the Bank is responsive to general market
increases or declines in interest rates, its deposit flows should not be
materially impacted.   However, favorable performance of the
equity or bond markets could adversely impact the Bank’s deposit
flows.





Retail
branch and internet banking deposits increased $33.1 million during the six
months ended June 30, 2009, compared to a decline of $99.1 million during the
six months ended June 30, 2008. During the six months ended June 30, 2009, core
deposits (i.e.
non-certificates of deposit) increased $133.4 million, and were partially offset
by a decline of $100.3 million in certificates of deposit
("CDs").  During this period, deposit pricing pressure diminished in
the Bank's marketplace and the Bank experienced an unusually large inflow of
money market and checking deposits from commercial
customers.   The decline in deposits during the six months ended
June 30, 2008 was fully experienced in CDs, which decreased $164.6 million, as
beneficial spreads between medium term FHLBNY advances and new CDs prompted
management to utilize FHLBNY advances as the primary funding source for balance
sheet growth, and limit aggressive efforts to retain maturing
CDs.  Partially offsetting the decline in CDs was an increase of $53.0
million in total interest bearing checking accounts during the period, resulting
primarily from the continued success of the interest bearing "Prime Dime"
checking account launched during the second half of 2007.





During
the six months ended June 30, 2009, principal repayments totaled $154.4 million
on real estate loans and $42.4 million on MBS.  During the six months
ended June 30, 2008, principal repayments totaled $227.3 million on real estate
loans and $24.7 million on MBS.  The decline in principal repayments
on loans related to decreased borrower refinance activities, reflecting
declining local real estate prices and difficult refinancing
conditions.  The increase in principal paydowns on MBS resulted from
the purchase of $183.8 million of MBS during the year ended December 31, 2008,
that increased their average balance by $33.5 million during the six months
ended June 30, 2009 compared to the six months ended June 30,
2008.  The Company does not presently believe that its future levels
of principal repayments will be materially impacted by problems currently
experienced in the residential mortgage market. See "Item 2 – Management's
Discussion and Analysis of Financial Condition and Results of Operations - Asset
Quality" for a further discussion of the Bank's asset quality.





From
December 2002 through February 2009, the Bank originated and sold multifamily
residential and mixed use mortgage loans in the secondary market to FNMA while
retaining servicing and generating fee income while it services the loans. The
Bank underwrote these loans using its customary underwriting standards, funded
the loans, and sold them to FNMA at agreed upon pricing.  Typically,
the Bank sought to sell loans with terms to maturity or repricing in excess of
seven years from the origination date since it did not desire to retain such
loans in portfolio as a result of their heightened interest rate
risk.  Under the terms of the sales program, the Bank retains the
First Loss Position on these sold loans. Once established, such amount continued
to increase as long as the Bank sold loans to FNMA under the
program.  The Bank retains this exposure until the portfolio of loans
sold to FNMA is satisfied in its entirety or the Bank funds claims by FNMA for
the maximum loss exposure.  During the six months ended June 30, 2008,
the Bank sold FNMA $18.4 million of loans pursuant to this program.





In
addition, during the six months ended June 30, 2009 the Bank sold $100.0 million
of multifamily loans to a third-party financial institution, represented by an
80% participation in $125.0 million of portfolio multifamily
loans.  All of these loans will remain fully serviced by the Bank, and
were sold at par and without recourse, with a gain recognized for the value of
the net servicing rights associated with the loans.  Loan sales to
third-party financial institutions may be utilized in the future by the
Bank.  The Bank did not sell any loans to third-party financial
institutions during the six months ended June 30, 2008.





During
the six months ended June 30, 2009, the Company reduced its level of FHLBNY
advances by $60.0 million, as it elected to utilize liquidity provided by
deposit inflows in order to reduce its overall borrowing level during the
period.   During the six months ended June 30, 2008, the Company
increased its REPO borrowings by $109.9 million and FHLBNY advances by $213.2
million.  These borrowings were added in order to fund purchases of
investment securities and MBS during the period.  Contained within
these added REPO borrowings and FHLBNY advances were interest rate caps that
provide a significant benefit to their average cost in the event of an increase
in short-term interest rates.





In the
event that the Bank should require funds beyond its ability to generate them
internally, an additional source of funds is available through use of its
borrowing line at the




30


FHLBNY.  At
June 30, 2009, the Bank had an additional potential borrowing capacity of $426.7
million available provided it owned the minimum required level of FHLBNY common
stock (i.e., 4.5% of its outstanding
FHLBNY borrowings).





The Bank
is subject to minimum regulatory capital requirements imposed by its primary
regulator, The Office of Thrift Supervision (the "OTS"), which, as a general
matter, are based on the amount and composition of an institution's assets. At
June 30, 2009, the Bank was in compliance with all applicable regulatory capital
requirements and was considered "well-capitalized" for all regulatory
purposes.





The
Company generally utilizes its liquidity and capital resources primarily to fund
the origination of real estate loans, the purchase of mortgage-backed and other
securities, the repurchase of Holding Company common stock into treasury and the
payment of quarterly cash dividends to shareholders of the Holding Company's
common stock.  During the six months ended June 30, 2009 and 2008,
real estate loan originations totaled $195.1 million and $504.3 million,
respectively.  There were no purchases of investment securities
(excluding short-term investments and federal funds sold) or MBS during the six
months ended June 30, 2009.  Purchases of investment securities
(excluding short-term investments and federal funds sold) and MBS totaled $188.3
million during the six months ended June 30, 2008.  The decrease in
real estate loan originations and investment security and MBS purchases both
resulted from management's election to curb asset growth during the six months
ended June 30, 2009, and thus: 1) focus lending primarily upon retaining
existing loans that were nearing their contractual repricing; and 2) retain an
unusually high level of liquidity in order to maintain balance sheet flexibility
during the remainder of 2009, especially in the event deposit balances decline
as a result of their historically low offering rates.





The
Holding Company did not repurchase any shares of its common stock during the six
months ended June 30, 2009.  As of June 30, 2009, up to 1,124,549
shares remained available for purchase under authorized share purchase
programs.  Based upon the $9.11 per share closing price of its common
stock as of June 30, 2009, the Holding Company would utilize $10.2 million in
order to purchase all of the remaining authorized shares.  For the
Holding Company to complete these share purchases, it would likely require
dividend distributions from the Bank.





During
the six months ended June 30, 2009, the Company paid $9.2 million in cash
dividends on its common stock, up from $9.1 million during the six months ended
June 30, 2008, reflecting an increase of 300,873 in issued and outstanding
shares from June 30, 2008 to June 30, 2009.





Contractual
Obligations





The Bank
is obligated for rental payments under leases on certain of its branches and
equipment and for minimum monthly payments under its current data systems
contract.   The Bank generally has outstanding at any time
significant borrowings in the form of FHLBNY advances and/or REPOS, and the
Holding Company has an outstanding $25.0 million non-callable subordinated note
payable due to mature in 2010, and $72.2 million of trust preferred borrowings
from third parties due to mature in April 2034, which are callable at any time
after April 2009.  The Holding Company currently does not intend to
call this debt.  None of these contractual obligations have changed
materially since December 31, 2008.  The Company additionally had a
reserve recorded related to unrecognized income tax benefits totaling $1.1
million at June 30, 2009.  The facts and circumstances surrounding
this obligation have not changed materially since December 31,
2008.  Please refer to Note 14 to the Company's consolidated audited
financial statements for the year ended December 31, 2008 for a further
discussion of the unrecognized income tax benefits.





Off-Balance
Sheet Arrangements





From December 2002 through February
2009, the Bank originated and sold multifamily residential mortgage loans in the
secondary market to FNMA while retaining servicing.  The Bank is
required to retain the First Loss Position related to all loans sold under this
program, which will remain in effect until either the entire portfolio of loans
sold to FNMA is satisfied or the Bank indemnifies FNMA for losses (as defined in
the agreement) in the aggregate amount of the First Loss Position.





In addition, as part of its loan
origination business, the Bank generally has outstanding commitments to extend
credit to third parties, which are subject to strict credit control
assessments.  Since many of these loan commitments expire prior to
funding, in whole or in part, the contract amounts are not estimates of future
cash flows.  The following table presents off-balance sheet
arrangements as of June 30, 2009:


31




Less
      than One Year
                One
      Year to Three Years
                Over
      Three Years to Five Years
                Over
      Five Years
                
                Total(Dollars
      in thousands)Credit
      Commitments:Available
      lines of credit
                $44,136
                $-
                $-
                $-
                
                $44,136Other
      loan commitments (1)
                65,797
                -
                -
                -
                
                65,797Other
      Commitments:First
      Loss Position on loans sold to FNMA (1)
                21,865
                -
                -
                -
                
                21,865Total
      Commitments
                $131,798
                $-
                $-
                $-
                
                $131,798





(1) In accordance
with FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," as well as SFAS 5, "Accounting for Contingencies," as of June 30, 2009,
reserves on loan commitments and the liability for the First Loss Position on
loans sold to FNMA were $523,000 and $3.5 million, respectively, and were
recorded in other liabilities in the Company's condensed consolidated statements
of financial condition.





Asset
Quality




General




At both June 30, 2009 and December 31,
2008, the Company had neither whole loans nor collateral underlying MBS that
would be considered subprime loans, i.e., mortgage loans advanced
to borrowers who did not qualify for market interest rates because of problems
with their income or credit history.  See Note 10 to the condensed
consolidated financial statements for a discussion of impaired investment
securities and MBS.





Monitoring
and Collection of Delinquent Loans







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







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





Accrual of interest is generally
discontinued on loans that have missed three consecutive monthly payments, at
which time the Bank reverses all previously accrued
interest.  Payments on non-accrual loans are generally applied to
principal.  Management may elect to continue the accrual of interest
when a loan is in the process of collection and the estimated fair value of the
collateral is sufficient to satisfy the outstanding principal balance (including
any outstanding advances related to the loan) and accrued interest. Loans are
returned to accrual status once the doubt concerning collectibility has been
removed and the borrower has demonstrated performance in accordance with the
loan terms and conditions for a period of at least 6 months.





Generally,
the Bank initiates foreclosure proceedings when a loan enters non-accrual
status.  At some point during foreclosure proceedings, the Bank
procures current appraisal information in order to prepare an estimate of the
fair value of the underlying collateral.  If a foreclosure action is
instituted and the loan is not brought current, paid in full, or refinanced
before the foreclosure action is completed, the property securing the loan is
generally sold.  It is the Bank's general policy to dispose of OREO
properties as quickly and prudently as possible in consideration of market
conditions, the physical condition of the property and any other mitigating
circumstances.





Non-accrual
loans





Within the Bank's portfolio,
non-accrual loans totaled $12.8 million and $7.4 million at June 30, 2009 and
December 31, 2008, respectively.  During the six months ended June 30,
2009, thirteen loans totaling $8.0 million were added to non-accrual
status.  Partially offsetting this increase were four loans totaling
$2.5 million that were removed from non-accrual status as they were satisfied
during the period.  The difficulties experienced in both the national
real estate and financial services marketplaces combined to adversely impact the
metropolitan NYC area multifamily and commercial real estate markets during the
three-month and six-month periods ended June 30, 2009.





32


Impaired
Loans





A loan is considered impaired when it
is probable that all contractual amounts due will not be collected in accordance
with the terms of the loan. A loan is not deemed to be impaired, even during a
period of delayed payment by the borrower, if the Bank ultimately expects to
collect all amounts due, including interest accrued at the contractual
rate.  Generally, the Bank considers non-accrual and troubled-debt
restructured multifamily residential and commercial real estate loans, along
with non-accrual one- to four-family loans exceeding $625,500, to be impaired.
Non-accrual one-to four-family loans of $625,500 or less, as well as all
consumer loans, are considered homogeneous loan pools and are not required to be
evaluated individually for impairment.  Impairment is measured by the
amount that the carrying balance of the loan, including all accrued interest,
exceeds the estimate of the fair value of the collateral.  A reserve
is established on all impaired loans to the extent of impairment and comprises a
portion of the allowance for loan losses. The recorded investment in loans
deemed impaired was approximately $15.0 million, consisting of twenty-one loans,
at June 30, 2009, compared to $8.9 million, consisting of fifteen loans, at
December 31, 2008.  During the six months ended June 30, 2009, twelve
loans totaling $9.5 million were added to impaired status, while six loans
totaling $3.2 million were removed from impaired status.  Of the $3.2
million removed from impaired status, $1.2 million represented a satisfaction
that occurred during the period, and the remainder represented loans that were
no longer deemed to meet the criteria for impairment due primarily to their
continued performance in accordance with their contractual
terms.  During the six months ended June 30, 2008, five loans totaling
$4.1 million were added to impaired status, and were partially offset by the
transfer of two impaired loans totaling $1.0 million from loans to OREO, and the
satisfaction of one impaired loan totaling $208,000 during the same
period.  At June 30, 2009 and December 31, 2008, reserves totaling
$1.9 million and $1.1 million, respectively, were allocated within the allowance
for loan losses for impaired loans.  At June 30, 2009, total impaired
loans exceeded total non-accrual loans by $2.2 million due to one troubled debt
restructured loan and one modified delinquent loan which totaled $2.8 million at
June 30, 2009, and while deemed impaired, remained on accrual status since they
were performing in accordance with their respective restructuring or
modification agreements.  These impaired loans that remained on
accrual status were partially offset by ten non-accrual loans totaling $663,000
which, while on non-accrual status, were not deemed impaired since they were
either one- to four-family loans with individual outstanding balances of
$625,500 or less or consumer loans.





Troubled-Debt
Restructurings





Under GAAP, the Bank is required to
account for certain loan modifications or restructurings as ''troubled-debt
restructurings.'' In general, the modification or restructuring of a loan
constitutes a troubled-debt restructuring if the Bank, for economic or legal
reasons related to the borrower's financial difficulties, grants a concession to
the borrower that it would not otherwise consider.  Current OTS
regulations require that troubled-debt restructurings remain classified as such
until either the loan is repaid or returns to its original terms.  The
Bank had one loan with an outstanding principal balance of $1.0 million
classified as a troubled-debt restructuring at June 30, 2009.  This
loan was restructured in December 2008, has fully complied with the provisions
of the restructuring since inception, and was therefore reclassified from a
non-accrual loan to an accrual status troubled debt restructured loan during the
quarter ended June 30, 2009. The Bank had no loans classified as troubled debt
restructurings at December 31, 2008, as the aforementioned loan that was
restructured in December 2008 was retained on non-accrual status at December 31,
2008.





OREO





Property acquired by the Bank as
a result of a foreclosure on a mortgage loan or deed in lieu of foreclosure is
classified as OREO and recorded at the lower of the recorded investment in the
related loan or the fair value of the property on the date of acquisition, with
any resulting write down charged to the allowance for loan losses and any
disposition expenses charged to expense. The Bank obtains a current appraisal on
OREO property as soon as practicable after it takes possession and generally
reassesses the value of OREO at least annually thereafter.  The Bank
owned no OREO property with a recorded balance at June 30, 2009.  At
December 31, 2008, the Bank owned one OREO property with a recorded balance of
$300,000.  This property was sold in April 2009, and the Bank
recognized a loss of $92,000 on the sale.


33


The
following table sets forth information regarding non-accrual loans, OREO, and
impaired loans at the dates indicated:





At
      June 30, 2009
                At
      December 31, 2008(Dollars
      in Thousands)Non-accrual
      loansOne-
      to four-family
                $578
                $566Multifamily
      residential
                6,966
                776Commercial
      real estate
                2,398
                3,439Mixed
      Use
                2,851
                2,590Cooperative
      apartment
                83
                26Other
                2
                5Total
      non-accrual loans
                12,878
                7,402OREO
                -
                300Non-performing
      investment securities
                1,240
                -Total
      non-performing assets
                14,118
                7,702Ratios:Total
      non-accrual loans to total loans
                0.40%
                0.22%Total
      non-performing assets to total assets
                0.36
                0.19





Other
Potential Problem Loans





The Bank had a total of 30 real estate
loans, totaling $17.6 million, delinquent between 30 and 89 days at June 30,
2009, compared to 8 such delinquent loans, totaling $4.8 million, at December
31, 2008.   The growth in the dollar amount delinquent over 30
days from December 31, 2008 to June 30, 2009 resulted primarily from a net
increase of $12.8 million of over 30-day delinquent real estate loans during the
period.  The over 30-day delinquent levels fluctuate monthly, and are
generally considered a less accurate indicator of credit quality trends than
non-accrual loans.  However, given the considerable challenges facing
the NYC area multifamily and commercial real estate markets at June 30, 2009, it
is reasonable to expect that these delinquencies will remain above their
December 31, 2008 level for the foreseeable future.





Problem
Loans Serviced for Other Financial Institutions That are Subject to the First
Loss Position





The Bank
services a pool of multifamily loans sold to FNMA with an outstanding principal
balance of $477.7 million at June 30, 2009.  This pool of loans was
subject to the First Loss Position totaling $21.9 million at June 30,
2009.  Within this pool of loans, the Bank had not received a payment
from the borrower for a period of 90 days or more on loans totaling $1.8 million
at June 30, 2009, and has identified an additional $16.3 million of delinquent
loans.  As of August 1, 2009, one borrower relationship with aggregate
loans that comprised $14.2 million of the $16.3 million of other delinquent
loans became delinquent over 90 days.  Under the terms of the
servicing agreement with FNMA, the Bank is obligated to fund FNMA all monthly
principal and interest payments under the original terms of the loans until the
earlier of the following events: (1) the Bank re-acquires the loan from FNMA;
(2) the loans have been fully satisfied or enter OREO status; or (3) the First
Loss Position is fully exhausted.  The Bank is additionally required
to indemnify FNMA for any further losses (as defined in the sale agreement) in
connection with the FNMA-serviced portfolio until the earlier of event (2) or
(3).  (See Note 9 to the condensed consolidated financial
statements).  The Bank has previously repurchased, and may continue to
repurchase, loans sold to FNMA with recourse exposure that, subsequent to the
sale, become over 90 days delinquent.  Such repurchases are typically
performed in order to terminate monthly interest payments to FNMA and/or to
expedite the resolution of the loan.





Commercial
Real Estate Loans





As of
June 30, 2009, of its $3.2 billion total loan portfolio, the Bank owned 264
loans, totaling $484.6 million, fully secured by commercial real estate ("CRE")
properties, with an average loan size of $1.8 million.  The largest
ten of these loans totaled $109.2 million, of which $54.2 million of loan
balance were secured by office buildings and $55.0 million of loan balance were
secured by retail stores.  At June 30, 2009, the two largest CRE loans
were a $15.2 million loan originated in May 2005 secured by a three-story retail
building located in Manhattan, and a $13.7 million loan originated in June 2009
secured by a multi-tenanted shopping center in Queens, New York.  Of
the 10 largest CRE loans at June 30, 2009, $45.9 million were located in
Manhattan, New York, $18.0 million were located in New Jersey, $13.7 million
were located in Queens, New York, and the remainder were located within the NYC
metropolitan area.  Excluding the 10 largest loans, the remaining CRE
portfolio of 254 loans consisted primarily of office and retail space, and had
an average loan size approximating $1.5 million at June 30, 2009.





Largest
Individual Borrowers





The
Bank's largest aggregate amount of loans to one borrower was $40.9 million at
June 30, 2009.  The individual loans made to the largest individual
borrower were secured by several mixed use buildings located in Manhattan, New
York, containing in aggregate, 505 residential and 12 commercial
units.  The second largest individual borrower had outstanding




34




with the
Bank totaling $37.1 million at June 30, 2009.  These loans were
secured by three mixed use buildings located in Queens, New York, containing in
aggregate, 204 residential and 6 commercial units.





Allowance
for Loan Losses and Reserve Liability on Loan Origination
Commitments





Management's
quarterly evaluation of the loan loss reserves takes into account not only
performance of the current loan portfolio, but also general credit conditions
and volume of new business, in determining the timing and amount of any future
loan loss provisions.





The
allowance for loan losses was $20.0 million at June 30, 2009, up from $17.5
million at December 31, 2008.  In addition, the Bank had a reserve
liability related to loan origination commitments (recorded in other
liabilities) that totaled $523,000 at June 30, 2009 and $572,000 at December 31,
2008.  During the six months ended June 30, 2009, the Bank recorded a
provision of $4.9 million to its allowance for loan losses in order to provide
for additional inherent losses in the portfolio and loans committed for funding
at period end.  During the same period, the Bank also recorded net
charge-offs of approximately $2.4 million against its allowance for loan losses
(See "Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Policies – Allowance
for Loan Losses" for a further discussion).





Comparison
of Financial Condition at June 30, 2009 and December 31, 2008





Assets.  Assets
totaled $3.97 billion at June 30, 2009, a decline of $81.2 million from total
assets of $4.06 billion at December 31, 2008.





Real
estate loans designated to remain in portfolio declined $47.3 million during the
period.  On April 20, 2009, the Company sold an 80% participation in
$125.0 million of multifamily loans, reducing its loan balance by $100.0
million.  Absent this transaction, real estate loans (excluding the
allowance for loan losses) would have increased $52.7 million during the period,
as a result of real estate loan originations of $195.1 million during the six
months ended June 30, 2009, that exceeded amortization and satisfactions of
$154.4 million during the same period.  In addition, MBS
available-for-sale declined $37.8 million during the period as principal
repayments of $42.4 million on these securities were partially offset by an
increase of $4.8 million in their market valuation during the six months ended
June 30, 2009.  Investment securities available-for-sale declined
$10.1 million, primarily as a result of the sale of $10.0 million of municipal
agency securities during the period.  The Company reduced its
outstanding FHLBNY borrowings by $60.0 million during the six months ended June
30, 2009 as it elected to utilize liquidity provided by deposit inflows in order
to reduce its overall borrowing level during the period.  As a result
of the decline in FHLBNY borrowings, the Company's investment in FHLBNY capital
stock declined $1.6 million, reflecting an election to limit this investment to
the minimum level required to maintain its aggregate outstanding FHLBNY
borrowings.





Partially offsetting these declines was
a net increase of $18.6 million in the combined balance of cash and due from
banks and federal funds sold, which represent the primary measure of the
Company's short-term liquidity.  This aggregate increase was due to
the Company's election to hold cash inflows from deposits highly liquid in order
to provide greater balance sheet flexibility during the remainder
2009.





Liabilities.  Total
liabilities decreased $87.7 million during the six months ended June 30, 2009,
reflecting declines of $60.0 million in FHLBNY advances and $60.3 million in
escrow and other deposits, that were partially offset by an increase of $33.1
million in retail branch and Internet banking deposits during the
period.  The decline in escrow and other deposits resulted from the
payment of semi-annual real estate tax payments for mortgage loan customers in
June 2009 (See "Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for a discussion of the increase in retail branch and Internet banking deposits
and the decline in FHLBNY advances during the period).





Stockholders'
Equity.  Stockholders' equity increased $6.5 million during the
six months ended June 30, 2009, due primarily to net income of $9.8 million, a
reduction of $4.6 million in the after-tax balance of accumulated other
comprehensive loss (which increases stockholders' equity), and amortization of
stock plan benefit expense of $1.5 million, which were partially offset by $9.2
million in cash dividends paid during the period.  The decline in the
balance of accumulated other comprehensive loss reflected an increase in
valuation of a great majority of the Company's available-for-sale investments
and MBS during the period as a result of greater marketplace demand for
securities possessing high credit quality during the six month ended June 30,
2009.





Comparison
of Operating Results for the Three Months Ended June 30, 2009 and
2008





General.  Net
income was $6.9 million during the three months ended June 30, 2009, a decline
of $1.5 million from net income of $8.4 million during the three months ended
June 30, 2008.  During the comparative period, the provision for loan
losses increased $1.9 million and non-interest expense increased $3.1 million,
while net interest income increased $3.2




35




million,
resulting in a reduction in pre-tax income of $1.8 million.  Income
tax expense decreased $323,000 during the comparative period due to the decline
in pre-tax earnings.





Net Interest
Income.The discussion of net interest income for the three
months ended June 30, 2009 and 2008 presented below should be read in
conjunction with the following tables, which set forth certain information
related to the condensed consolidated statements of operations for those
periods, and which also present the average yield on assets and average cost of
liabilities for the periods indicated.  The average yields and costs
were derived by dividing income or expense by the average balance of their
related assets or liabilities during the periods represented. Average balances
were derived from average daily balances. The yields include fees that are
considered adjustments to yields.





Analysis
of Net Interest Income





Three
      Months Ended June 30,2009
              
              
              2008Average
              
              
              AverageAverage
              
              Yield/
              Average
              
              Yield/Balance
              Interest
              Cost
              Balance
              Interest
              CostAssets:
              (Dollars
      In Thousands)Interest-earning
      assets:Real
      estate loans
              $3,236,793
              $47,662
              5.89%
              $3,004,756
              $44,147
              5.88%Other
      loans
              1,631
              37
              9.07
              1,815
              41
              9.04Mortgage-backed
      securities
              270,515
              2,969
              4.39
              303,581
              3,370
              4.44Investment
      securities
              15,716
              194
              4.94
              34,540
              364
              4.22Federal
      funds sold and other short-term investments
              261,922
              858
              1.31
              116,778
              1,346
              4.61Total
      interest-earning assets
              3,786,577
              $51,720
              5.46%
              3,461,470
              $49,268
              5.69%Non-interest
      earning assets
              224,896
              
              
              197,614Total
      assets
              $4,011,473
              
              
              $3,659,084Liabilities
      and Stockholders' Equity:Interest-bearing
      liabilities:Interest
      bearing checking accounts
              $112,877
              $256
              0.91%
              $96,174
              $580
              2.42%Money
      Market accounts
              723,094
              2,550
              1.41
              712,160
              4,443
              2.50Savings
      accounts
              288,944
              307
              0.43
              278,782
              399
              0.57Certificates
      of deposit
              1,075,774
              8,605
              3.21
              978,975
              9,030
              3.70Borrowed
      Funds
              1,286,840
              13,713
              4.27
              1,108,931
              11,706
              4.23Total
      interest-bearing liabilities
              3,487,529
              $25,431
              2.92%
              3,175,022
              $26,158
              3.30%Non-interest
      bearing checking accounts
              98,277
              
              
              92,386Other
      non-interest-bearing liabilities
              144,465
              
              
              120,703Total
      liabilities
              3,730,271
              
              
              3,388,111Stockholders'
      equity
              281,202
              
              
              270,973Total
      liabilities and stockholders' equity
              $4,011,473
              
              
              $3,659,084Net
      interest income
              
              $26,289
              
              
              $23,110Net
      interest spread
              
              
              2.54%
              
              
              2.39%Net
      interest-earning assets
              $299,048
              
              
              $286,448Net
      interest margin
              
              
              2.78%
              
              
              2.67%Ratio
      of interest-earning assets to interest-bearing liabilities
              
              
              108.57%
              
              
              109.02%


36
  Rate/Volume
Analysis





Three
      Months Ended June 30, 2009 Compared
      to Three Months Ended June 30, 2008

                      Increase/
      (Decrease) Due to:Volume
                  Rate
                  Total(Dollars
      In thousands)Interest-earning
      assets:Real
      Estate Loans
                  $3,424
                  $91
                  $3,515Other
      loans
                  (3)
                  (1)
                  (4)Mortgage-backed
      securities
                  (365)
                  (36)
                  (401)Investment
      securities
                  (215)
                  45
                  (170)Federal
      funds sold and other short-term investments
                  1,074
                  (1,562)
                  (488)Total
                  $3,915
                  ($1,463)
                  $2,452Interest-bearing
      liabilities:Interest
      bearing checking accounts
                  $70
                  ($394)
                  ($324)Money
      market accounts
                  55
                  (1,948)
                  (1,893)Savings
      accounts
                  10
                  (102)
                  (92)Certificates
      of deposit
                  832
                  (1,257)
                  (425)Borrowed
      funds
                  1,887
                  120
                  2,007Total
                  $2,854
                  ($3,581)
                  ($727)Net
      change in net interest income
                  $1,061
                  $2,118
                  $3,179





During the three months ended June 30,
2009, FOMC monetary policies resulted in the maintenance of the overnight
federal funds rate in a range of 0.0% to 0.25%.  In addition,
dislocations in the securitization marketplace for loans secured by multifamily
and commercial real estate reduced the overall competition for the Bank's
primary loan product, thus permitting origination rates on these loans to remain
unaffected by general reductions in interest rates.  The combination
of these events favorably impacted the Company's net interest income and net
interest margin during the three months ended June 30, 2009 compared to the
three months ended June 30, 2008.





Interest
Income.  Interest income was $51.7 million during the three
months ended June 30, 2009, an increase of $2.4 million from $49.3 million
during the three months ended June 30, 2008.  This resulted primarily
from an increase in interest income of $3.5 million on real estate loans, which
was partially offset by declines in interest income of $401,000 on MBS and
$488,000 on federal funds sold and other short-term investments.





The
increase in interest income on real estate loans resulted from growth in their
average balance of $232.0 million during the three months ended June 30, 2009
compared to the three months ended June 30, 2008, reflecting originations of
$777.5 million during the period July 1 2008 through June 30, 2009, which was
partially offset by principal repayments of $449.6 million and loan sales of
$239.2 million during the same period.





The
decrease in interest income on MBS resulted from a reduction of $33.1 million in
their average balance during the three months ended June 30, 2009 compared to
the three months ended June 30, 2008.  The decrease in average balance
resulted from $65.8 million in principal repayments during the period July 2008
through June 2009.  The Company has not purchased any MBS since June
30, 2008.





The
decrease in interest income on federal funds sold and other short-term
investments resulted from a decline of 330 basis points in their average yield
(reflecting lower federal funds and benchmark short-term interest rates during
the three months ended June 30, 2009 as a result of FOMC monetary policy
actions), which was partially offset by an increase of $145.1 million in their
average balance during the comparative period.  The increase in
average balance reflected management's preference to retain funds in highly
liquid short-term investments during the three months ended June 30,
2009.





Interest
Expense.  Interest expense decreased $727,000, to $25.4
million, during the three months ended June 30, 2009, from $26.2 million during
the three months ended June 30, 2008.  The decline resulted primarily
from reductions in interest expense of $1.9 million on money market accounts,
$425,000 on CDs, and $324,000 on interest bearing checking accounts, which were
partially offset by increased interest expense of $2.0 million on borrowed
funds.





The
decrease in interest expense on money market accounts resulted from a decline of
109 basis points in their average cost, as the Bank lowered offering rates on
money market accounts during the period July 2008 through June 2009 in response
to the significant reduction in benchmark short-term interest rates that
occurred throughout 2008 and remained in effect during the first six months of
2009.  Similarly, the decline in interest expense on CDs resulted
primarily from a decrease of 49 basis points in their average cost during




37




the three
months ended June 30, 2009 compared to the three months ended June 30, 2008, and
the decline in interest expense on interest bearing checking accounts reflected
a decline of 151 basis points in their average cost during the comparative
period.  The decline in these average costs reflected lower offering
rates during the three months ended June 30, 2009 compared to the three months
ended June 30, 2008, as short-term market interest rates, which influence the
pricing of both CDs and interest bearing checking accounts, declined
significantly throughout 2008, and remained near zero during the first six
months of 2009.





The
increase in interest expense on borrowed funds resulted from $177.9 million of
growth in their average balance during the three months ended June 30, 2009
compared to the three months ended June 30, 2008, as the Company added REPOS and
FHLBNY advances throughout 2008 in order to fund operational requirements and
help maintain pricing discipline on deposits.  As competitive pricing
on deposits eased significantly during the first six months of 2009, a portion
of these borrowings were not renewed upon maturity.





Provision for Loan
Losses.  The provision for loan losses was $2.3 million during
the three months ended June 30, 2009, an increase of $1.9 million over the
provision of $310,000 recorded during the three months ended June 30,
2008.  This increase reflected the increase in non-accrual and other
problem loans from June 30, 2008 to June 30, 2009, deteriorating conditions in
the Bank's local real estate marketplace that resulted in a higher level of
estimated loan loss reserves on these non-accrual and other problem loans, and,
to a lesser extent, growth in the real estate loan portfolio from June 2008
through June 2009.





Non-Interest Income. Totalnon-interest income
remained relatively unchanged from the three months ended June 30, 2008 to the
three months ended June 30, 2009.  Within non-interest income, an
increase of $826,000 in mortgage banking income was offset by the recognition of
$886,000 of credit-related OTTI on trust preferred investment securities during
the three months ended June 30, 2009.  (See Note 10 to the Condensed
Consolidated Financial Statements for a further discussion of the OTTI
charge).  The increase in mortgage banking income resulted primarily
from a gain of $635,000 recognized on the sale of an 80% participation in $125.0
million of multifamily loans from portfolio to a third-party financial
institution during the three months ended June 30, 2009.  In addition,
the Bank recorded a charge to mortgage banking income of $300,000 during the
three months ended June 30, 2008 for an increase to the liability for the First
Loss Position on loans sold with recourse to FNMA.





Non-Interest
Expense.  Non-interest expense was $15.3 million during the
three months ended June 30, 2009, an increase of $3.1 million from $12.3 million
during the three months ended June 30, 2008.





Salaries
and employee benefits increased $656,000 during the comparative period as a
result of higher expenses associated with the Employee Retirement Plan (as a
result of a reduction in the projected future earnings of the plan assets due to
a decline in their value during the recent economic downturn), as well as a
smaller offset to salaries for capitalized loan origination salary costs of
$435,000 during the three months ended June 30, 2009 compared to the three
months ended June 30, 2008 (reflecting lower loan origination levels during the
comparative period). Occupancy and equipment expense increased by $118,000
during the comparative period, reflecting the opening of the Brooklyn Heights
branch in late 2008 and the acquisition of a building in late 2008 for future
operational use.  Federal deposit insurance costs increased $2.6
million during the comparative period as a result of a special insurance
assessment of $1.8 million incurred as of June 30, 2009, as well as ongoing
increases in such costs resulting from the recent FDIC Bank Insurance Fund
re-capitalization plan.  Other operating expenses declined $324,000
primarily as a result of reduced professional fees.





Non-interest
expense was 1.53% of average assets during the three months ended June 30, 2009,
compared to 1.34% during the three months ended June 30, 2008.  This
increase reflected the substantial increase in FDIC insurance expense during the
June 2009 quarter compared to the quarter ended June 30, 2008.





Income Tax
Expense.  Income tax expense declined $323,000 during the three
months ended June 30, 2009 compared to the three months ended June 30, 2008, due
primarily to a reduction of $1.8 million in pre-tax income during the
period.  The Company's customary consolidated effective tax rate
approximates 37%.  The impact of the OTTI charges on investment
securities reduced the actual effective tax rate for the quarter ended June 30,
2009 to 35%, while a non-recurring reduction of $662,000 in the reserve for
unrecognized tax benefits lowered the effective tax rate to 32% during the
quarter ended June 30, 2008.





Comparison
of Operating Results for the Six Months Ended June 30, 2009 and
2008





General.  Net
income was $9.8 million during the six months ended June 30, 2009, a decline of
$4.6 million from net income of $14.4 million during the six months ended June
30, 2008.  During the comparative period, the provision for loan
losses increased $4.5 million, non-interest income declined $6.2 million and
non-interest expense increased $4.4 million, while net interest income increased
$8.1 million, resulting in a reduction in pre-tax income of $7.0
million.  Income tax expense decreased $2.4 million during the
comparative period due to the decline in pre-tax earnings.





Net Interest
Income.The discussion of net interest income for the six
months ended June 30, 2009 and 2008 presented below should be read in
conjunction with the following tables, which set forth certain information
related to the condensed consolidated statements of operations for those
periods, and which also present the average yield on assets and




38




average
cost of liabilities for the periods indicated.  The average yields and
costs were derived by dividing income or expense by the average balance of their
related assets or liabilities during the periods represented. Average balances
were derived from average daily balances. The yields include fees that are
considered adjustments to yields.





Analysis
of Net Interest Income





Six
      Months Ended June 30,2009
              
              
              2008Average
              
              
              AverageAverage
              
              Yield/
              Average
              
              Yield/Balance
              Interest
              Cost
              Balance
              Interest
              CostAssets:
              (Dollars
      In Thousands)Interest-earning
      assets:Real
      estate loans
              $3,273,050
              $95,991
              5.87%
              $2,949,510
              $87,213
              5.91%Other
      loans
              1,665
              74
              8.89
              1,816
              85
              9.36Mortgage-backed
      securities
              281,690
              6,249
              4.44
              248,176
              5,586
              4.50Investment
      securities
              19,261
              439
              4.56
              35,098
              1,072
              6.11Federal
      funds sold and other short-term investments
              244,469
              1,361
              1.11
              156,197
              3,542
              4.54Total
      interest-earning assets
              3,820,135
              $104,114
              5.45%
              3,390,797
              $97,498
              5.75Non-interest
      earning assets
              205,482
              
              
              195,107Total
      assets
              $4,025,617
              
              
              $3,585,904Liabilities
      and Stockholders' Equity:Interest-bearing
      liabilities:Interest
      bearing checking accounts
              $111,249
              $663
              1.20%
              $80,004
              $989
              2.48%Money
      Market accounts
              717,703
              6,146
              1.73
              691,411
              10,400
              3.02Savings
      accounts
              280,919
              660
              0.47
              275,311
              766
              0.56Certificates
      of deposit
              1,103,223
              18,461
              3.37
              1,018,389
              20,265
              3.99Borrowed
      Funds
              1,304,090
              27,755
              4.29
              1,052,410
              22,737
              4.33Total
      interest-bearing liabilities
              3,517,184
              $53,685
              3.06%
              3,117,525
              $55,157
              3.55%Non-interest
      bearing checking accounts
              97,197
              
              
              90,640Other
      non-interest-bearing liabilities
              131,099
              
              
              107,996Total
      liabilities
              3,745,480
              
              
              3,316,161Stockholders'
      equity
              280,137
              
              
              269,743Total
      liabilities and stockholders' equity
              $4,025,617
              
              
              $3,585,904Net
      interest income
              
              $50,429
              
              
              $42,341Net
      interest spread
              
              
              2.39%
              
              
              2.20%Net
      interest-earning assets
              $302,951
              
              
              $273,272Net
      interest margin
              
              
              2.64%
              
              
              2.50%Ratio
      of interest-earning assets to interest-bearing liabilities
              
              
              108.61%
              
              
              108.77%


39
  Rate/Volume
Analysis





Six
      Months Ended June 30, 2009Compared to Six Months Ended June 30,
      2008Increase/ (Decrease) Due to:Volume
                Rate
                Total(Dollars
      In thousands)Interest-earning
      assets:Real
      Estate Loans
                $12,007
                ($3,229)
                $8,778Other
      loans
                (8)
                (3)
                (11)Mortgage-backed
      securities
                953
                (290)
                663Investment
      securities
                (475)
                (158)
                (633)Federal
      funds sold and other short-term investments
                2,420
                (4,601)
                (2,181)Total
                $14,897
                ($8,281)
                $6,616Interest-bearing
      liabilities:Interest
      bearing checking accounts
                $510
                ($836)
                ($326)Money
      market accounts
                1,505
                (5,759)
                (4,254)Savings
      accounts
                51
                (157)
                (106)Certificates
      of deposit
                2,726
                (4,530)
                (1,804)Borrowed
      funds
                6,745
                (1,727)
                5,018Total
                $11,537
                ($13,009)
                ($1,472)Net
      change in net interest income
                $3,360
                $4,728
                $8,088





During
the six months ended June 30, 2009, FOMC monetary policies resulted in the
maintenance of the overnight federal funds rate in a range of 0.0% to
0.25%.  In addition, dislocations in the securitization marketplace
for loans secured by multifamily and commercial real estate reduced the overall
competition for the Bank's primary loan product, thus permitting origination
rates on these loans to remain unaffected by general reductions in interest
rates.  The combination of these events favorably impacted the
Company's net interest income and net interest margin during the six months
ended June 30, 2009 compared to the six months ended June 30, 2008.





Interest
Income.  Interest income was $104.1 million during the six
months ended June 30, 2009, an increase of $6.6 million from $97.5 million
during the six months ended June 30, 2008.  This resulted primarily
from increases in interest income of $8.8 million on real estate loans and
$663,000 in MBS, that were partially offset by declines of $2.2 million on
federal funds sold and other short-term investments and $633,000 on investment
securities





The
increase in interest income on real estate loans resulted from growth in their
average balance of $323.5 million during the six months ended June 30, 2009
compared to the six months ended June 30, 2008, reflecting originations of
$777.5 million during the period July 1, 2008 through June 30, 2009, which were
partially offset by principal repayments of $449.6 million and loan sales of
$239.2 million from July 1, 2008 through June 30, 2009.  The increase
in interest income on MBS resulted from an increase of $33.5 million in their
average balance during the six months ended June 30, 2009 compared to the six
months ended June 30, 2008. The increase in average balance resulted from $183.8
million of MBS purchases during the first six months of 2008, that were
partially offset by $65.8 million in principal repayments during the period July
2008 through June 2009.





The
decrease in interest income on federal funds sold and other short-term
investments resulted from a decline 343 basis points in their average yield
(reflecting lower federal funds and benchmark short-term interest rates during
the six months ended June 30, 2009 as a result of FOMC monetary policy actions),
which was partially offset by an increase of $88.3 million in their average
balance during the comparative period.  The increase in average
balance reflected management's preference to retain funds in highly liquid
short-term investments during the six months ended June 30, 2009.  The
decline in interest income on investment securities reflected reductions of both
$15.8 million in their average balance and 155 basis points in their average
yield.  The decline in average yield reflected lower interest rates
that resulted from FOMC monetary policy actions.  The decline in their
average balance reflected management's preference to either purchase MBS or
retain funds in highly liquid short-term investments during the six months ended
June 30, 2009.





Interest
Expense.  Interest expense decreased $1.5 million, to $53.7
million, during the six months ended June 30, 2009, from $55.2 million during
the six months ended June 30, 2008.  The decline resulted primarily
from reductions in interest expense of $4.3 million on money market accounts,
$1.8 million on CDs, and $326,000 on interest bearing checking accounts, which
were partially offset by increased interest expense of $5.0 million on borrowed
funds.





40


The
decrease in interest expense on money market accounts resulted from a decline of
129 basis points in their average cost, as the Bank lowered offering rates on
money market accounts during the period July 2008 through June 2009 in response
to the significant reduction in benchmark short-term interest rates that
occurred throughout 2008 and remained in effect during the first six months of
2009.  Similarly, the decline in interest expense on CDs resulted
primarily from a decrease of 62 basis points in their average cost during the
six months ended June 30, 2009 compared to the six months ended June 30, 2008,
and the decline in interest expense on interest bearing checking accounts
reflected a decline of 128 basis points in their average cost during the
comparative period.  The decline in these average costs reflected
lower offering rates during the six months ended June 30, 2009 compared to the
six months ended June 30, 2008, as short-term market interest rates, which
influence the pricing of both CDs and interest bearing checking accounts,
declined significantly throughout 2008, and remained near zero during the first
six months of 2009.





The
increase in interest expense on borrowed funds resulted from $251.7 million of
growth in their average balance during the six months ended June 30, 2009
compared to the six months ended June 30, 2008, as the Company added REPOS and
FHLBNY advances throughout 2008 in order to fund operational requirements and
help maintain pricing discipline on deposits.  As competitive pricing
on deposits eased significantly during the first six months of 2009, a portion
of these borrowings were not renewed upon maturity.





Provision for Loan
Losses.  The provision for loan losses was $4.9 million during
the six months ended June 30, 2009, an increase of $4.5 million over the
provision of $370,000 recorded during the six months ended June 30,
2008.  This increase reflected the increase in non-accrual and other
problem loans from June 30, 2008 to June 30, 2009, along with deteriorating
conditions in the Bank's local real estate marketplace that resulted in a higher
level of estimated loan loss reserves on these non-accrual and other problem
loans.





Non-Interest Income. Totalnon-interest income
declined $6.2 million from the six months ended June 30, 2008 to the six months
ended June 30, 2009, due primarily to a decline of $628,000 in mortgage banking
income during the comparative period and $5.9 million of credit-related OTTI
charges on trust preferred and equity mutual fund investment securities during
the six months ended June 30, 2009 (as the Company did not recognize any OTTI
during the six months ended June 30, 2008).  (See Note 10 to the
Condensed Consolidated Financial Statements for a further discussion of the OTTI
charges).  The decline in mortgage banking income reflected an
increased charge to net mortgage banking income of $1.1 million during the
comparative period recognized to increase the liability for the First Loss
Position on loans sold to FNMA with recourse.  (See Note 9 to the
Company's Condensed Consolidated Financial Statements for a further discussion
of the provisions to the liability on the First Loss Position).  This
reduction in mortgage banking income was partially offset by an increase of
$416,000 in gains on loans sold during the six months ended June 30, 2009
compared to the six months ended June 30, 2008, due primarily to the gain of
$635,000 recognized on the sale of an 80% participation in $125.0 million of
multifamily loans from portfolio to a third-party financial institution in
April, 2009.





Non-Interest
Expense.  Non-interest expense was $28.9 million during the six
months ended June 30, 2009, an increase of $4.4 million from $24.5 million
during the six months ended June 30, 2008.





Salaries
and employee benefits increased $1.1 million during the comparative period as a
result of $786,000 of higher expenses associated with the Employee Retirement
Plan, as well as a smaller offset to salaries for capitalized loan origination
salary costs of $550,000 during the six months ended June 30, 2009 compared to
the six months ended June 30, 2008 (reflecting lower loan origination levels
during the comparative period). Occupancy and equipment expense increased by
$633,000 during the comparative period, reflecting the opening of the Brooklyn
Heights branch in late 2008 and the acquisition of a building in late 2008 for
future operational use.  Federal deposit insurance costs increased
$3.3 million during the comparative period as a result of a special insurance
assessment of $1.8 million incurred as of June 30, 2009, as well as ongoing
increases in such costs resulting from the recent FDIC Bank Insurance Fund
re-capitalization plan.  Other operating expenses declined $799,000
primarily as a result of reduced marketing and professional fees.





Non-interest
expense was 1.44% of average assets during the six months ended June 30, 2009,
compared to 1.37% during the six months ended June 30, 2008.  This
increase reflected the substantial increase in FDIC insurance expense during the
six months ended June 30, 2009 compared to the six months ended June 30,
2008.





Income Tax
Expense.  Income tax expense declined $2.4 million during the
six months ended June 30, 2009 compared to the six months ended June 30, 2008,
due primarily to a reduction of $7.0 million in pre-tax income during the
period.  The Company's customary consolidated effective tax rate
approximates 37%.  The impact of the OTTI charges on investment
securities reduced the actual effective tax rate for the six months ended June
30, 2009 to 32%, while the combination of a non-recurring reduction of $662,000
in the reserve for unrecognized tax benefits and a reduction of $275,000 in
recorded income tax expense related to the completion of the June 30, 2007 tax
returns lowered the effective tax rate to 33% during the six months ended June
30, 2008.


41
  Item
3.                      
Quantitative and Qualitative Disclosures About Market Risk





Quantitative
and qualitative disclosures about market risk were presented at December 31,
2008 in Item 7A of the Company's Annual Report on Form 10-K, filed with the SEC
on March 16, 2009.  The following is an update of the discussion
provided therein.





General.  Virtually
all of the Company's market risk continues to reside at the Bank
level.  The Bank's largest component of market risk remains interest
rate risk.  The Company is not subject to foreign currency exchange or
commodity price risk.  At June 30, 2009, the Company owned no trading
assets, nor did it conduct transactions involving derivative instruments
requiring bifurcation in order to hedge interest rate or market
risk.





Assets, Deposit Liabilities and
Wholesale Funds.  There was no material change in the
composition of assets, deposit liabilities or wholesale funds from December 31,
2008 to June 30, 2009.





Interest Sensitivity
Gap.  There was no material change in the computed one-year
interest sensitivity gap from December 31, 2008 to June 30, 2009.





Interest Rate Risk Exposure (Net
Portfolio Value) Compliance.  At June 30, 2009, the Bank
continued to monitor the impact of interest rate volatility upon net interest
income and net portfolio value ("NPV") in the same manner as at December 31,
2008.  There were no changes in the Board-approved limits of
acceptable variance in the effect of interest rate fluctuations upon net
interest income and NPV at June 30, 2009 compared to December 31,
2008.





The
analysis that follows presents the estimated NPV resulting from market interest
rates prevailing at a given quarter-end ("Pre-Shock Scenario"), and under four
other interest rate scenarios (each a "Rate Shock Scenario") represented by
immediate, permanent, parallel shifts in interest rates from those observed at
June 30, 2009 and December 31, 2008.  The analysis additionally
presents a measurement of the interest rate sensitivity at June 30, 2009 and
December 31, 2008.  Interest rate sensitivity is measured by the basis
point changes in the various NPV ratios ("NPV Ratios") from the Pre-Shock
Scenario to the Rate Shock Scenarios.  NPV Ratios represent the NPV as
a percentage of the total value of assets determined under each respective Pre-
and Rate Shock Scenario.  An increase in the NPV Ratio is considered
favorable, while a decline is considered unfavorable.




At
      June 30, 2009Net
      Portfolio Value
                  
                  
                  
                  
                  At
      December 31, 2008DollarAmount
                  DollarChange
                  Percentage
                    Change
                  
                  NPVRatio
                  Basis
      Point Change
                    in
      NPV Ratio
                  
                  NPV
      Dollar
                    Amount
                  NPV
                    Ratio
                  Basis
      Point Change
                    in
      NPV Ratio
                  Board
      Approved NPV Ratio Limit(Dollars
      in thousands)Rate
      Shock Scenario+
      200 Basis Points
                  $312,485
                  $(47,322)
                  -13.15%
                  
                  7.97%
                  (94)
                  
                  $236,751
                  6.02%
                  (126)
                  5.0%+
      100 Basis Points
                  342,764
                  (12,099)
                  -3.36
                  
                  8.61
                  (30)
                  
                  270,905
                  6.77
                  (51)
                  6.0Pre-Shock
      Scenario
                  359,807
                  -
                  -
                  
                  8.91
                  -
                  
                  296,834
                  7.28
                  -
                  7.0-
      100 Basis Points
                  354,863
                  (4,944)
                  -1.37
                  
                  8.71
                  (20)
                  
                  312,334
                  7.54
                  26
                  7.0-
      200 Basis Points
                  N/A
                  N/A
                  N/A
                  
                  N/A
                  N/A
                  
                  N/A
                  N/A
                  N/A
                  7.0


The NPVs
presented above incorporate some asset and liability values derived from the
Bank’s valuation model, such as those for mortgage loans and time deposits, and
some asset and liability values that are provided by reputable independent
sources, such as values for the Bank's MBS and CMO portfolios, as well as its
putable borrowings.  The Bank's valuation model makes various
estimates regarding cash flows from principal repayments on loans and passbook
deposit decay rates at each level of interest rate change.  The Bank's
estimates for loan repayment levels are influenced by the recent history of
prepayment activity in its loan portfolio as well as the interest rate
composition of the existing portfolio, especially vis-à-vis the existing
interest rate environment.  In addition, the Bank considers the amount
of fee protection inherent in the loan portfolio when estimating future
repayment cash flows.  Regarding passbook deposit decay rates, the
Bank tracks and analyzes the decay rate of its passbook deposits over time and
over various interest rate scenarios and then makes estimates of its passbook
deposit decay rate for use in the valuation model.  No matter the care
and precision with which the estimates are derived, actual cash flows for
passbooks, as well as loans, could differ significantly from the Bank's
estimates, resulting in significantly different NPV calculations.
  The Bank
also generates a series of spot discount rates that are integral to the
valuation of the projected monthly cash flows of its assets and
liabilities.  The Bank's valuation model employs discount rates that
are representative of prevailing market rates of interest, with appropriate
adjustments it believes are suited to the heterogeneous characteristics of the
Bank’s various asset and liability portfolios.
 
 The
Pre-Shock Scenario NPV increased from $296.8 million at December 31, 2008 to
$359.8 million at June 30, 2009.  The NPV Ratio at June 30, 2009 was
8.91% in the Pre-Shock Scenario, an increase from the NPV Ratio of 7.28% in that
Scenario at December 31, 2008.  The increase in the Pre-Shock Scenario
NPV was due primarily to both an increase in the valuation of multifamily loans
(reflecting lower marketplace offering rates on such loans at June 30, 2009
compared to December 31, 2008), and a decline in the valuation of borrowings
  42
  (which
positively impacts NPV) that resulted from higher quoted interest rates from the
FHLBNY for comparable borrowings at June 30, 2009 compared to December 31,
2008.
 
 The
Bank’s +200 basis point Rate Shock Scenario NPV increased from $236.8 million at
December 31, 2008 to $312.5 million at June 30, 2009.  The increase
resulted primarily from a more favorable valuation of multifamily loans at June
30, 2009 compared to December 31, 2008, reflecting a decline in their estimated
term to next interest rate repricing at June 30, 2009 compared to December 31,
2008.  Assets with a reduced term to next interest rate repricing
generate a more favorable NPV in a rising rate interest rate
environment.  As a result, the decline in the NPV of total assets from
the Pre-Shock Scenario to the +200 basis point Rate Shock Scenario was lower at
June 30, 2009 than December 31, 2008.
 
 The NPV
Ratio was 7.97% in the +200 basis point Rate Shock Scenario at June 30, 2009, an
increase from the NPV Ratio of 6.02% in the +200 basis point Rate Shock Scenario
at December 31, 2008.  The increase reflected the aforementioned
increase in the +200 basis point Rate Shock Scenario NPV during the comparative
period.
 
 At June 30, 2009, the interest rate sensitivity (i.e., the basis point
change in the NPV Ratio calculated under the various Rate Shock Scenarios
compared to the Pre-Shock Scenario) in the +200 basis point Rate Shock Scenario
was negative 94 basis points, compared to interest rate sensitivity of negative
126 basis points in the +200 basis point Rate Shock Scenario at December 31,
2008.  The reduction in sensitivity was due primarily to a combination
of less sensitivity in the valuation of multifamily loans, as well as a larger
increase in the deposit intangible value in the +200 basis point Rate Shock
Scenario at June 30, 2009 compared to December 31, 2008 (reflecting lower market
deposit offering rates at June 30, 2009 compared to December 31,
2008).


Item
4.    Controls and Procedures





Management
of the Company, with the participation of its Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness as of June 30,
2009, of the Company's disclosure controls and procedures, as defined in Rules
13a-15(e) and 15(d)-15(e) under the Exchange Act.  Based upon this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective as of June
30, 2009 in ensuring that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Security and Exchange Commission’s rules and forms.





Changes
in Internal Control Over Financial Reporting





There was
no change in the Company's internal control over financial reporting that
occurred during the Company's last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.





PART
II – OTHER INFORMATION





Item
1.     Legal Proceedings





In the
ordinary course of business, the Company is routinely named as a defendant in or
party to various pending or threatened legal actions or
proceedings.  Certain of these matters may seek substantial monetary
damages.  In the opinion of management, the Company is involved in no
actions or proceedings that will have a material adverse impact on its financial
condition and results of operations.





Item
1A.  Risk Factors





The
Company's  business may be adversely affected by conditions in the
financial markets and economic conditions generally.





The
United States continues to be in a recession.  Business activity
across a wide range of industries and regions is greatly reduced and
individuals, local governments and many businesses are experiencing serious
financial difficulty.





The
Company has been materially and adversely affected by significant declines in
the values of nearly all asset classes. Declining asset values, defaults on
mortgages and consumer loans, and the lack of market and investor confidence, as
well as other factors, have all combined to decrease the availability of
liquidity.  Some banks and other lenders have suffered significant
losses. The foregoing has significantly weakened the strength and liquidity of
many financial institutions worldwide.





The
Company's financial performance generally, and in particular the ability of
borrowers to pay interest on and repay principal of outstanding loans and the
value of collateral securing those loans, is highly dependent upon the business
environment in the markets where the Company operates, in the New York
metropolitan area and in the United States as a whole. The business environment
continues to deteriorate for many of the Bank's borrowers.  It is
expected that the business environment in the New York metropolitan area, the
United




43


States
and worldwide will continue to deteriorate for the foreseeable future. There can
be no assurance that these conditions will improve in the near term. Such
conditions adversely affected and may continue to adversely affect the credit
quality of the Bank's loans, results of operations and financial
condition.





The
Bank’s focus on multifamily and commercial real estate lending may subject it to
greater risk of an adverse impact on operations from a decline in the
economy.





The
credit quality of the Bank's portfolio can have a significant impact on the
Company's earnings, results of operations and financial
condition.  The majority of loans in the Bank’s portfolio are secured
by multifamily residential property. Multifamily loans have traditionally been
viewed as exposing lenders to a greater risk of loss than one- to four-family
residential loans, due to the following concerns:  1) They typically
involve higher loan principal amounts and thus expose the Bank to a greater
potential impact of losses from any one loan or concentration of loans to one
borrower relative to the size of the Bank’s capital position; and 2) their
borrowers often own several properties, and often a borrower experiencing
financial difficulties in connection with one income producing property may
default on all of his or her outstanding loans, even if the properties securing
the other loans are generating positive cash flow.  See "Part
I.   Item 3. Quantitative and Qualitative Disclosures About
Market Risk" for a further discussion.





As part
of the Company’s strategic plan, it increased its emphasis on commercial real
estate loans from 2002 through 2007. Loans secured by commercial real estate are
generally larger and involve a greater degree of risk than one- to four-family
and multifamily residential mortgage loans. Because payments on loans secured by
commercial real estate are often dependent upon successful operation or
management of the collateral properties, repayment of such loans is generally
subject to a greater extent to prevailing conditions in the real estate market
or the economy. Further, the collateral securing such loans may depreciate over
time, may be difficult to appraise and may fluctuate in value based upon the
success of the business.





Multifamily
and commercial real estate loans additionally involve a greater risk than one-
to four- family residential mortgage loans because economic and real estate
conditions, and government regulations such as rent control and rent
stabilization laws, which are outside the control of the borrower or the Bank,
could impair the value of the security for the loan or the future cash flow of
such properties. As a result, rental income might not rise sufficiently over
time to satisfy increases in the loan rate at repricing or increases in overhead
expenses (i.e.,
utilities, taxes, etc.). Impaired loans are thus difficult to identify before
they become problematic. In addition, if the cash flow from a collateral
property is reduced (e.g., if leases are not
obtained or renewed), the borrower’s ability to repay the loan and the value of
the security for the loan may be impaired.





In
addition, in deciding whether to extend credit or enter into other transactions,
the Bank may rely on information furnished by or on behalf of a customer and
counterparties, including financial statements, credit reports and other
financial information. Reliance on inaccurate or misleading financial
information could have a material adverse impact on the Company's business and,
in turn, its financial condition and results of operations.





The
Company is dependent on economic and real estate conditions and geographic
concentration in its market area.





The Bank
gathers deposits primarily from the communities and neighborhoods in close
proximity to its branches. The Bank lends primarily in the NYC metropolitan
area, although its overall lending area is much larger, and extends
approximately 150 miles in each direction from its corporate headquarters in
Brooklyn. The majority of the Bank’s mortgage loans are secured by properties
located in its primary lending area, approximately 75% of which are located in
the NYC boroughs of Brooklyn, Queens and Manhattan.  As a result of
this geographic concentration, the Bank’s results of operations depend largely
upon economic conditions in this area. A deterioration in economic conditions or
increase in unemployment in the NYC metropolitan area could have a material
adverse impact upon the quality of the Bank’s loan portfolio and the demand for
its products and services, and, accordingly, on the Company’s results of
operations, cash flows, business, financial condition and
prospects.





Conditions
in the real estate markets in which the collateral for the Bank’s mortgage loans
are located strongly influence the level of the Bank’s non-performing loans and
the value of its collateral. Real estate values are affected by, among other
items, fluctuations in general or local economic conditions, supply and demand,
changes in governmental rules or policies, the availability of loans to
potential purchasers and acts of nature. Declines in real estate markets have in
the past, and may in the future, negatively impact the Company’s results of
operations, cash flows, business, financial condition and
prospects.





The
Bank’s allowance for loan losses may be insufficient.





The
Bank’s allowance for loan losses is maintained at a level considered adequate by
management to absorb losses inherent in its loan portfolio. The amount of
inherent loan losses which could be ultimately realized is susceptible to
changes in economic, operating and other conditions, including changes in
interest rates, that could be beyond the Bank’s control. Such losses could
exceed current estimates. Although management believes that the Bank’s allowance
for loan losses is adequate, there can be no assurance that the allowance




44


will be
sufficient to satisfy actual loan losses should such losses be realized. Any
increases in the allowance for loan losses will result in a decrease in net
income and, possibly, capital, and may have a material adverse effect on the
Bank’s financial condition and results of operations.





Increases
in interest rates may reduce the Company’s profitability.





The
Bank’s primary source of income is its net interest income, which is the
difference between the interest income earned on its interest earning assets and
the interest expense incurred on its interest bearing liabilities. The one-year
interest rate sensitivity gap is the difference between interest rate sensitive
assets maturing or repricing within one year and interest rate sensitive
liabilities maturing or repricing within one year, expressed as a percentage of
total assets. In a rising interest rate environment, an institution with a
negative gap would generally be expected, absent the effects of other factors,
to experience a greater increase in its cost of liabilities relative to its
yield on assets, and thus decrease its net interest income.





Based
upon historical experience, if interest rates were to rise, the Bank would
expect the demand for multifamily loans to decline. Decreased loan origination
volume would likely negatively impact the Bank's interest income. In addition,
if interest rates were to rise rapidly and result in an economic decline, the
Bank would expect its level of non-performing loans to increase. Such an
increase in non-performing loans may result in an increase to the allowance for
loan losses and possible increased charge-offs, which would negatively impact
the Company's net income.





Further,
the actual amount of time before mortgage loans and MBS are repaid can be
significantly impacted by changes in mortgage redemption rates and market
interest rates. Mortgage prepayment, satisfaction and refinancing rates will
vary due to several factors, including the regional economy in the area where
the underlying mortgages were originated, seasonal factors, and other
demographic variables. However, the most significant factors affecting
prepayment, satisfaction and refinancing rates are prevailing interest rates,
related mortgage refinancing opportunities and competition.  The level
of mortgage and MBS prepayment, satisfaction and refinancing activity impacts
the Company's earnings due to its effect on fee income earned on prepayment and
refinancing activities, along with liquidity levels the Company will experience
to fund new investments or ongoing operations.





As a
federally-chartered savings bank, the Bank is required to monitor changes in its
NPV, which is the difference between the estimated market value of its assets
and liabilities. In addition, the Bank monitors its NPV ratio, which is the NPV
divided by the estimated market value of total assets. The NPV ratio can be
viewed as a corollary to the Bank’s capital ratios. To monitor its overall
sensitivity to changes in interest rates, the Bank simulates the effect of
instantaneous changes in interest rates of up to 200 basis points on its assets
and liabilities. Interest rates do and will continue to fluctuate, and the Bank
cannot predict future FOMC actions or other factors that will cause interest
rates to vary.





The
Company is subject to uncertain risks related to changes in laws, government
regulation and monetary policy.





The
Holding Company and the Bank are subject to extensive supervision, regulation
and examination by the OTS, as the Bank's chartering agency, and the FDIC, as
its deposit insurer. Such regulation limits the manner in which the Holding
Company and Bank conduct business, undertake new investments and activities and
obtain financing. This regulation is designed primarily for the protection of
the deposit insurance funds and the Bank’s depositors, and not to benefit the
Bank or its creditors. The regulatory structure also provides the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect
to capital levels, the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes.  Failure to
comply with applicable laws and regulations could subject the Holding Company
and Bank to regulatory enforcement action that could result in the assessment of
significant civil money penalties against the Holding Company and
Bank.  For further information regarding the laws and regulations that
affect the Holding Company and the Bank, see "Item 1. Business - Regulation -
Regulation of Federal Savings Associations," and "Item 1. Business - Regulation
- Regulation of Holding Company" in the Company's Annual Report on Form 10-K for
the year ended December 31, 2008 filed on March 16, 2009.





The
fiscal and monetary policies of the federal government and its agencies could
have a material adverse effect on the Company's results of operations. The Board
of Governors of the Federal Reserve System regulates the supply of money and
credit in the United States.  Its policies determine in significant
part the cost of funds for lending and investing and the return earned on those
loans and investments, both of which affect the net interest
margin.  Government action can materially decrease the value of the
Company's financial assets, such as debt securities, mortgages and
MSR.  Governmental policies can also adversely affect borrowers,
potentially increasing the risk that they may fail to repay their
loans.  Changes in Federal Reserve Board or governmental policies are
beyond the Company's control and difficult to predict; consequently, the impact
of these changes on the Company's activities and results of operations is
difficult to predict.





Financial
institution regulation has been the subject of significant legislation in recent
years, and may be the subject of further significant legislation in the future,
none of which is within the control of the Holding Company or the Bank.
Significant new laws or changes in, or repeals of, existing laws may cause the
Company's results of operations to differ materially. Further, federal monetary
policy, particularly as implemented through the OTS, significantly affects
credit conditions for the Company, primarily through open market




45


operations
in United States government securities, the discount rate for bank borrowings
and reserve requirements for liquid assets. A material change in any of these
conditions would have a material impact on the Bank, and therefore, on the
Company’s results of operations.  Increased regulation and oversight
will increase the Company's compliance costs and may hinder the Company's
ability to introduce new products.  Current and potential future
increases in FDIC assessments will decrease the Company's earnings.





Competition
from other financial institutions in originating loans and attracting deposits
may adversely affect profitability.





The Bank
operates in a highly competitive industry that could become even more
competitive as a result of legislative, regulatory and technological changes,
and continued consolidation.





The
Bank's retail banking and a significant portion of its lending business are
concentrated in the NYC metropolitan area. The NYC banking environment is
extremely competitive. The Bank’s competition for loans exists principally from
savings banks, commercial banks, mortgage banks and insurance
companies.  The Bank has faced sustained competition for the
origination of multifamily residential and commercial real estate loans.
Management anticipates that the current level of competition for multifamily
residential and commercial real estate loans will continue for the foreseeable
future, and this competition may inhibit the Bank’s ability to maintain its
current level and pricing of such loans.





Other
financial institutions that participate in the TARP Capital Purchase Program and
the TLGP may have a source of funding that costs less than market-rate funding
available to the Company.  The Company has declined to participate in
both the TARP Capital Purchase Program and the TLGP.  The Bank’s cost
of borrowing may be higher than competitors with weaker balance sheets but with
government backing.  The Bank’s cost of funding may make it difficult
for it to complete with its government-backed competitors.





Clients
could pursue alternatives to the Bank's deposits, causing the Bank to lose a
relatively inexpensive source of funding.  The Bank gathers deposits
in direct competition with commercial banks, savings banks and brokerage firms,
many among the largest in the nation. In addition, it must also compete for
deposit monies against the stock markets, mutual funds, and other
securities.  Over the previous decade, consolidation in the financial
services industry, coupled with the emergence of Internet banking, has altered
the deposit gathering landscape and may increase competitive pressures on the
Bank.





The
Bank may not be able to meet the cash flow requirements of its depositors and
borrowers or meet its operating cash needs.





Liquidity
is the ability to meet cash flow needs on a timely basis at a reasonable cost.
The liquidity of the Bank is used to make loans and repay deposit liabilities as
they become due or are demanded by customers. Liquidity policies and limits are
established by the board of directors. The Holding Company's overall liquidity
position and the liquidity position of the Bank are regularly monitored to
ensure that various alternative strategies exist to cover unanticipated events
that could affect liquidity. Funding sources include deposits, repayments of
loans and MBS, investment security maturities and redemptions, advances from the
FHLBNY and REPOS. The Bank maintains a portfolio of securities that can be used
as a secondary source of liquidity. The Bank also can borrow through the Federal
Reserve Bank’s discount window. If the Bank was unable to access any of these
funding sources when needed, it might be unable to meet customers’ needs, which
could adversely impact the Company's financial condition, results of operations,
cash flows, and level of regulatory-qualifying capital.





The
soundness of other financial institutions could adversely affect the
Company.





The
Company's ability to engage in routine funding transactions could be adversely
affected by the actions and commercial soundness of other financial
institutions.  The Company has exposure to many different industries
and counterparties.  As a result, defaults by, or even rumors or
questions about, one or more financial services institutions, or the financial
services industry generally, have led to market-wide liquidity problems and
could lead to losses or defaults by the Company or by other
institutions.  There is no assurance that any such losses would not
materially and adversely affect the Company's results of
operations.





Negative
public opinion could damage the Company's reputation and adversely impact its
business and revenues.





As a
financial institution, the Bank's earnings and capital are subject to risks
associated with negative public opinion.  Negative public opinion
could result from the Company's actual or alleged conduct in any number of
activities, including lending practices, the failure of any product or service
sold by the Bank to meet customers’ expectations or applicable regulatory
requirements, corporate governance and acquisitions, or from actions taken by
government regulators and community organizations in response to those
activities.  Negative public opinion can adversely affect the
Company's ability to attract and/or retain clients and can expose the Company to
litigation and regulatory action.  Actual or alleged conduct by one of
the Company's businesses can result in negative public opinion about its other
businesses.  Negative public opinion could also affect the Company's
credit ratings, which are important to its access to unsecured wholesale
borrowings.  Significant changes in these ratings could change the
cost and availability of these sources of funding.





46


The
impact of recently enacted and proposed legislation and government programs to
stabilize the financial markets cannot be predicted at this time.





On
October 3, 2008, former President Bush signed the EESA into law in response to
the problems affecting the banking system and financial markets. Pursuant to the
EESA, Treasury was granted the authority to, among other things, purchase up to
$700 billion of troubled assets (including mortgages, MBS and certain other
financial instruments) from financial institutions for the purpose of
stabilizing and providing liquidity to the U.S. financial markets.  On
October 14, 2008, Treasury, the Federal Reserve Bank ("FRB") and the FDIC issued
a joint statement announcing additional steps aimed at stabilizing the financial
markets.  Initially, Treasury announced the TARP Capital Purchase
Program, a $250 billion voluntary capital purchase program available to
qualifying financial institutions that sell preferred shares to
Treasury.  In addition, the FDIC announced that its Board of
Directors, under the authority to prevent "systemic risk" in the U.S. banking
system, approved the TLGP, intended to strengthen confidence and encourage
liquidity in the banking system by permitting the FDIC to (i) guarantee certain
newly issued senior unsecured debt issued by participating institutions under
the DGP, and (ii) fully insure non-interest bearing transaction deposit accounts
held at participating FDIC-insured institutions, regardless of dollar amount
under the TAGP.  Third, to further increase access to funding for
businesses in all sectors of the economy, the FRB announced further details of
its Commercial Paper Funding Facility program ("CPFF"), which provides a broad
backstop for the commercial paper market.  The Company does not
currently participate in the TAGP, CPP, DGP or CPFF.





On
February 10, 2009, in a statement to the Senate Banking Committee Hearing,
Treasury Secretary Timothy Geithner outlined a Financial Stability Plan to
restore stability to the U.S. financial system.  The Financial
Stability Plan includes a variety of measures aimed at the broader credit
markets and includes the creation of a comprehensive housing program to
forestall foreclosures and stabilize the residential mortgage
market.  In addition, on February 11, 2009, the OTS urged
OTS-regulated institutions to suspend foreclosures on owner-occupied homes until
the Financial Stability Plan’s “home loan modification program” is finalized in
the next few weeks.  On February 18, 2009, President Obama announced
the Administration’s Homeowner Affordability and Stability Plan, (the
"HASP").  The HASP aims to accomplish the following three key
objectives: (i) refinance mortgages of up to 4 to 5 million "responsible
homeowners" to prevent additional foreclosures; (ii) provide a $75 billion
initiative to help up to 3 to 4 million "at-risk homeowners" primarily through
the use of uniform loan modifications; and (iii) help maintain low mortgage
rates by strengthening confidence in FNMA and Freddie Mac.  Mortgage
lenders may participate in the program on a voluntary basis.





On
January 27, 2009, the House Judiciary Committee approved H.R. 200, the "Helping
Families Save Their Homes in Bankruptcy Act of 2009" ("Bankruptcy
Legislation").  The Bankruptcy Legislation would grant a judge the
ability to modify the terms of a mortgage for a homeowner in Chapter 13
bankruptcy.  Under the proposed Bankruptcy Legislation, borrowers
would be eligible to have a bankruptcy judge reduce the principal balance on
their home loan.  If any such borrower resells his or her home within
five years, the borrower will be required to share the proceeds with the
lender.  On April 30, 2009, the Senate rejected a proposed amendment
containing language similar to that of the Bankruptcy Legislation by a vote of
45 to 51. However, at a July 23, 2009 Senate Judiciary Committee hearing,
discussions were held regarding the proposals in the failed Bankruptcy
Legislation.





The
Company cannot predict the actual impact that the foregoing or any other
governmental program will have on the financial markets.  The failure
of the financial markets to stabilize and a continuation or worsening of current
financial market conditions could materially and adversely affect the Company's
business, financial condition, results of operations, access to credit or the
trading price of the Holding Company's common stock.  In addition, the
initiatives of President Obama's administration, and the possible enactment of
the Bankruptcy Legislation as proposed, could materially and adversely affect
the Company's financial condition and results of operations.





Item
2.                     
Unregistered Sales of Equity Securities and Use of Proceeds





(c)
            The Holding Company did not repurchase any shares of its common stock into
      treasury during the three months ended June 30, 2009.  No
      existing repurchase
              programs
      expired during the three months ended June 30, 2009, nor did the Company
      terminate any repurchase programs prior to expiration during the
      quarter.  As of
              June
      30, 2009, the Company had an additional 1,124,549 shares remaining
      eligible for repurchase under its twelfth stock repurchase program, which
      was publicly
              announced
      in June 2007.





Item
3.                      Defaults
Upon Senior Securities





None.





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








(a)           The
Holding Company's 2009 Annual Meeting of Shareholders was held on May 21,
2009.





47


(c)           The
following is a summary of the matters voted upon at the meeting and the votes
obtained:





Description
                Votes
      For
                VotesAgainst
                Abstentions
                Votes
                  Withheld
                Broker
                  Non-Votes1)
      Election of the following individuals as Directors for a term to expire at
                  the 2012 Annual Meeting of Shareholders:Michael
      P. Devine
                31,305,645
                -0-
                -0-
                1,016,882
                -0-Anthony
      Bergamo
                31,567,247
                -0-
                -0-
                755,280
                -0-Fred
      P. Fehrenbach
                31,567,202
                -0-
                -0-
                755,325
                -0-Joseph
      J. Perry
                31,634,941
                -0-
                -0-
                687,586
                -0-2)  Approval
      of Dime Community Bancshares, Inc. Annual Incentive Plan
                27,452,933
                745,604
                56,284
                -0-
                4,067,7063)
      Ratification of the appointment of Deloitte & Touche LLP to act as
                  independent auditors for the Company for the year ending December 31,
      2009
                31,319,725
                966,900
                35,902
                -0-
                -0-





(d)           Not
applicable.





Item
5.                      Other
Information





None.





Item
6.                      Exhibits





Exhibit
Number





3(i)
              
              Amended
      and Restated Certificate of Incorporation of Dime Community Bancshares,
      Inc. (1)3(ii)
              
              Amended
      and Restated Bylaws of Dime Community Bancshares, Inc.
  (16)4.1
              
              Amended
      and Restated Certificate of Incorporation of Dime Community Bancshares,
      Inc. [See Exhibit 3(i) hereto]4.2
              
              Amended
      and Restated Bylaws of Dime Community Bancshares, Inc.
  (16)4.3
              
              Draft
      Stock Certificate of Dime Community Bancshares,
      Inc.  (2)4.4
              
              Certificate
      of Designations, Preferences and Rights of Series A Junior Participating
      Preferred Stock (3)4.7
              
              Second
      Amended and Restated Declaration of Trust, dated as of July 29, 2004, by
      and among Wilmington TrustCompany,
      as Delaware Trustee, Wilmington Trust
                Company as Institutional Trustee, Dime Community Bancshares,Inc.,
      as Sponsor, the Administrators of Dime Community Capital Trust I and the
      holders from time
                totime
      of undividedbeneficial
      interests in the assets of Dime Community Capital Trust I
    (8)4.8
              
              Indenture,
      dated as of March 19, 2004, between Dime Community Bancshares, Inc. and
      Wilmington Trust Company, astrustee
      (8)4.9
              
              Series
      B Guarantee Agreement, dated as of July 29, 2004, executed and delivered
      by Dime Community Bancshares,Inc.,
      as Guarantor and Wilmington Trust Company,
                as Guarantee Trustee, for the benefit of the holders from time totime
      of the Series B Capital Securities of Dime Community Capital Trust I
      (8)10.1
              
              Amended
      and Restated Employment Agreement between The Dime Savings Bank of
      Williamsburgh and Vincent F.Palagiano
      (15)10.2
              
              Amended
      and Restated Employment Agreement between The Dime Savings Bank of
      Williamsburgh and Michael P.Devine
      (15)10.3
              
              Amended
      and Restated Employment Agreement between The Dime Savings Bank of
      Williamsburgh andKenneth
      J. Mahon (15)10.4
              
              Employment
      Agreement between Dime Community Bancorp, Inc. and Vincent F. Palagiano
      (15)10.5
              
              Employment
      Agreement between Dime Community Bancorp, Inc. and Michael P.
      Devine  (15)10.6
              
              Employment
      Agreement between Dime Community Bancorp, Inc. and Kenneth J. Mahon
      (15)10.7
              
              Form
      of Employee Retention Agreement by and among The Dime Savings Bank of
      Williamsburgh, Dime CommunityBancorp,
      Inc. and certain officers (4)10.7(i)
              
              Amendment
      to Form of Employee Retention Agreement by and among The Dime Savings Bank
      of Williamsburgh, DimeCommunity
      Bancorp, Inc. and certain officers(15)  48
  10.8
              
              The
      Benefit Maintenance Plan of Dime Community Bancorp, Inc.
    (15)10.9
              
              Severance
      Pay Plan of The Dime Savings Bank of Williamsburgh (15)10.10
              
              Retirement
      Plan for Board Members of Dime Community Bancorp, Inc.
  (15)10.11
              
              Dime
      Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
      Officers and Employees, as amendedby
      amendments number 1 and 2 (5)10.12
              
              Recognition
      and Retention Plan for Outside Directors, Officers and Employees of Dime
      Community Bancorp, Inc., asamended
      by amendments number 1 and 2 (5)10.13
              
              Form
      of stock option agreement for Outside Directors under Dime Community
      Bancshares, Inc. 1996 and 2001Stock
      Option Plans for Outside Directors, Officers and
                Employees and the 2004 Stock Incentive Plan. (5)10.14
              
              Form
      of stock option agreement for officers and employees under Dime Community
      Bancshares, Inc. 1996 and 2001Stock
      Option Plans for Outside Directors, Officers and
                Employees and the 2004 Stock Incentive Plan (5)10.15
              
              Form
      of award notice for outside directors under the Recognition and Retention
      Plan for Outside Directors, Officersand
      Employees of Dime Community Bancorp, Inc. (5)10.16
              
              Form
      of award notice for officers and employees under the Recognition and
      Retention Plan for Outside Directors,Officers
      and Employees of Dime Community Bancorp, Inc. (5)10.17
              
              Financial
      Federal Savings Bank Incentive Savings Plan in RSI Retirement Trust
      (6)10.18
              
              Financial
      Federal Savings Bank Employee Stock Ownership Plan (6)10.20
              
              Dime
      Community Bancshares, Inc. 2001 Stock Option Plan for Outside Directors,
      Officers and Employees (7)10.21
              
              Dime
      Community Bancshares, Inc. 2004 Stock Incentive Plan for Outside
      Directors, Officers and Employees (14)10.22
              
              Waiver
      executed by Vincent F. Palagiano (11)10.23
              
              Waiver
      executed by Michael P. Devine (11)10.24
              
              Waiver
      executed by Kenneth J. Mahon (11)10.25
              
              Form
      of restricted stock award notice for officers and employees under the 2004
      Stock Incentive Plan (10)10.26
              
              Employee
      Retention Agreement between The Dime Savings Bank of Williamsburgh, Dime
      Community Bancshares, Inc. and Christopher D. Maher
(15)10.27
              
              Form
      of restricted stock award notice for outside directors under the 2004
      Stock Incentive Plan (10)


10.28
              
              Employee
      Retention Agreement between The Dime Savings Bank of Williamsburgh, Dime
      Community Bancshares, Inc.  and Daniel Harris
    (15)10.29
              
              Dime
      Community Bancshares, Inc. Annual Incentive Plan (15)10.30
              
              Amendment
      to the Dime Savings Bank of Williamsburgh 401(K) Plan
  (15)10.31
              
              Employee
      Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain
      Affiliates (15)12.1
              
              Computation
      of ratios of earnings to fixed charges.31(i).1
              
              Certification
      of Chief Executive Officer Pursuant to Rule
      13a-14(a)/15d-14(a)31(i).2
              
              Certification
      of Chief Financial Officer Pursuant to Rule
      13a-14(a)/15d-14(a)32.1
              
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. 135032.2
              
              Certification
      of Chief Financial Officer Pursuant to 18 U.S.C.
  1350





(1)
              Incorporated
      by reference to the registrant's Transition Report on Form 10-K for the
      transition period ended December 31, 2002 filed on March 28,
      2003.(2)
              Incorporated
      by reference to the registrant's Annual Report on Form 10-K for the fiscal
      year ended June 30, 1998 filed on September 28, 1998.(3)
              Incorporated
      by reference to the registrant's Current Report on Form 8-K dated April 9,
      1998 and filed on April 16, 1998.(4)
              Incorporated
      by reference to Exhibits to the registrant's Annual Report on Form 10-K
      for the fiscal year ended June 30, 1997 filed on September 26,
      1997.(5)
              Incorporated
      by reference to the registrant's Annual Report on Form 10-K for the fiscal
      year ended June 30, 1997 filed on September 26, 1997, and the Current
      Reports on Form 8-K filed on March 22, 2004 and March 29,
      2005.(6)
              Incorporated
      by reference to the registrant's Annual Report on Form 10-K for the fiscal
      year ended June 30, 2000 filed on September 28, 2000.(7)
              Incorporated
      by reference to the registrant's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2003 filed on November 14,
    2003.(8)
              Incorporated
      by reference to Exhibits to the registrant’s Registration Statement No.
      333-117743 on Form S-4 filed on July 29, 2004.(9)
              Incorporated
      by reference to the registrant's Annual Report on Form 10-K for the fiscal
      year ended December 31, 2003 filed on March 15,
  2004.











49


(10)
                Incorporated
      by reference to the registrant's Current Report on Form 8-K filed on March
      22, 2005.(11)
                Incorporated
      by reference to the registrant's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2005 filed on May 10, 2005.(12)
                Incorporated
      by reference to the registrant's Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 filed on November 9,
  2006.(13)
                Incorporated
      by reference to the registrant's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2008 filed on May 12, 2008.(14)
                Incorporated
      by reference to the registrant's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2008 filed on August 8, 2008.(15)
                Incorporated
      by reference to the registrant's Annual Report on Form 10-K for the fiscal
      year ended December 31, 2008 filed on March 16, 2009.(16)
                Incorporated
      by reference to the registrant's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2009 filed on May 11,
  2009
  50






SIGNATURES











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








Dime
      Community Bancshares, Inc.











Dated:
      August 10, 2009
              
              By:/s/ VINCENT F.
PALAGIANOVincent
      F. PalagianoChairman
      of the Board and Chief Executive
Officer








Dated:
      August 10, 2009
              
              By:/s/ KENNETH J. MAHONKenneth
      J. MahonFirst
      Executive Vice President and Chief Financial Officer (Principal Accounting
      Officer)





51