Aug 21 - Fitch Ratings has affirmed Dime Community Bancshares, Inc.'s (DCOM) and Dime Savings Bank of Williamsburgh's long- and short-term Issuer Default Ratings (IDR) at 'BBB' and 'F2', respectively. The affirmation of DCOM's ratings reflects the institution's solid asset quality and consistent profitability as well its concentrated loan portfolio and undiversified earnings profile. The Rating Outlook is Stable which embodies management's continued strategic focus on multifamily lending and consistent operating results. Fitch believes DCOM's strategic focus on rent-regulated, multifamily lending has been a driver of solid asset quality. Typically, rent-regulated units have low vacancy rates and therefore very steady cash flows. Net charge-offs totaled just 0.17% of total loans in 2011 and have remained very low throughout multiple credit cycles due to conservative underwriting standards (53% portfolio weighted average loan to value) and a local market that is supported by favorable rent regulations. Fitch views DCOM's solid asset quality as a primary ratings driver for the institution. Although higher than historical levels, nonperforming loans (including troubled debt restructurings), remain low relative to peer institutions at 1.7% of total loans. TDRs increased significantly in 2011, primarily due to a FASB accounting update clarifying when banks should classify a TDR. Fitch believes the level of risk in the portfolio is flat, despite the rise in reported TDRs. Earnings are solid and remain at levels commensurate with similarly rated peers. Return on average assets finished at 1.1% at the end of second quarter, which is down 6bps from year-end 2011. However, Fitch believes it is unlikely that current operating results will persist in the current rate environment. DCOM's cost of funds has decreased significantly and is likely near the potential bottom, while multi-family loans continue to be refinanced into lower rates. Therefore, absent any large pre-payment fee income, margin pressure is expected in the current rate environment. Although multi-family loans have a strong history of performance, the size and geographic location poses significant concentration risk to the institution. Multifamily loans represent over 800% percent of capital, and the loan portfolio is almost entirely located in New York City. Changes to rent regulations or a sharp downturn in economic conditions in the New York metro area can have significant negative impact on DCOM's loan portfolio. DCOM is heavily reliant on real estate brokers for the majority of its new-loan originations which could become a concern if one of the larger brokers experiences problems or decides to direct business away from the company. While the broker model is predominant in the New York City real estate market, DCOM's size may put it at a disadvantage in relation to its larger competitors, especially as competition for multi-family loans has picked up. Capital ratios continue to steadily improve since reaching a trough in 2008, as asset growth decelerated and stock repurchase activity was curtailed. Fitch views DCOM's capital ratios as adequate for the current ratings, particularly given the institutions loss history. Further, proposed capital rules leave risk weightings for multi-family loans unchanged, which relieves some regulatory capital uncertainty going forward. Ratings Drivers and Sensitivities: Fitch believes DCOM's rating is solidly situated at current levels. Further ratings improvement is unlikely given the meaningful concentrations in the loan portfolio and undiversified income stream. However, negative ratings pressure could occur if there were a significant change to rent regulations in New York, a sharp increase in problem loans or a significant loss of business from DCOM's primary broker. Additionally, although not anticipated, any significant changes in the mix of business, either by product type or geography, would be carefully considered by Fitch to determine any potential ratings impact. Fitch has affirmed the following ratings with a Stable Outlook: Dime Community Bancshares, Inc. --Long-term IDR at 'BBB'; --Short-term IDR at 'F2'; --Viability rating at 'bbb'; --Support at '5'; --Support Floor at 'NF'. Dime Savings Bank of Williamsburgh --Long-term IDR at 'BBB'; --Long-term Deposits at 'BBB+'; --Short-Term IDR at 'F2'; --Short-Term Deposits at 'F2'; --Viability rating at 'bbb'. --Support at '5'; --Support Floor at 'NF'; Dime Community Capital Trust I --Trust Preferred at 'BB-'.