Dime Community Bancshares Reports Earnings for the Quarter Ended March 31, 2009

Prepayment fees declined along with the pace of refinancing in the commercial mortgage market. Refinancing activity has picked up slightly in the second quarter; however, the Company does not expect a near-term return to the more robust levels experienced in 2008.

NET INTEREST INCOME

Net interest income was $24.1 million during the March 2009 quarter, up $300,000 from the December 2008 quarter. Growth in average interest earning assets of $224.2 million from the December 2008 quarter to the March 2009 quarter generated the increase in the linked quarter net interest income. Offsetting the increase in average interest earning assets was a decline in net interest margin from 2.63% in the December 2008 quarter to 2.51% in the March 2009 quarter. The decline in net interest margin reflected the Company's decision to retain deposit inflows in highly liquid cash balances at the Federal Reserve Bank, earning a negative spread to funding costs.

Mr. Palagiano commented, "Late in 2008 (in the post-TARP operating environment), our business strategy shifted considerably toward capital preservation, resulting in the decision to curb asset growth this year. The combination of deposit growth experienced from promotional programs instituted in late 2008, and unanticipated inflows of commercial money market and checking deposits during the first few months of 2009, created funding in excess of our desired level during the March 2009 quarter. We elected to keep these funds highly liquid. While that decision adversely impacted our net interest margin during the most recent quarter, we expect that it will allow management to maintain considerable flexibility in managing deposits and borrowings during the remainder of 2009."

Declines of $679,000 in prepayment and other fee income and $94,000 in FHLBNY capital stock income during the quarter ended March 31, 2009 compared to the December 2008 quarter also contributed to the decline in net interest margin from the level experienced in the December 2008 quarter. Cost of deposits declined from 2.69% in the December 2008 quarter to 2.48% in the March 2009 quarter, which is a precursor to higher levels of net interest income going forward.

Net interest income exceeded the March 2008 quarterly level by $4.9 million, driven by growth of $534 million in average interest earning assets and an increase in the net interest margin of 19 basis points from the quarter ended March 31, 2008 to the quarter ended March 31, 2009. The growth in average interest earning assets reflected the significant loan origination volume and asset growth experienced by the Company in 2008.

PROVISION / ALLOWANCE FOR LOAN LOSSES AND PROBLEM PORTFOLIO LOANS

Non-performing loans, which were $3.1 million at March 31, 2008, rose to $7.4 million at December 31, 2008 and $13.1 million at March 31, 2009. In addition to the higher level of non-performing loans, there were approximately $19 million of loans that were over 30 days delinquent as of March 31, 2009, compared to $5 million at December 31, 2008.