UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2018

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
Commission file number 0-27782
Dime Community Bancshares, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
11-3297463
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
     
300 Cadman Plaza West, 8 th Floor, Brooklyn, NY
 
11201
( Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (718) 782-6200

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class
 
Name of exchange on which registered
Common Stock, par value $0.01 per share
 
The Nasdaq Stock Market, LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 ☒ NO ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES ☒ NO ☐

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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

Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
 
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No ☒

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2018 was approximately   $633.2 million based upon the $19.50 closing price on the NASDAQ National Market for a share of the registrant’s common stock on June   30, 2018.

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 March 14 , 2019
$0.01 Par Value
 
35,895,884

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be distributed on behalf of the Board of Directors of Registrant in connection with the Annual Meeting of Shareholders to be held on May 23, 2019 and any adjournment thereof, are incorporated by reference in Part III.

TABLE OF CONTENTS

   
Page
 
PART I
 
Item 1.
4
 
4
 
4
 
5
  7
 
9
 
10
 
11
 
12
 
12
 
12
  13
Item 1A.
22
Item 1B.
28
Item 2.
28
Item 3.
28
Item 4.
28
 
PART II
 
Item 5.
29
Item 6.
30
Item 7.
32
Item 7A.
49
Item 8.
51
Item 9.
51
Item 9A.
51
Item 9B.
51
 
PART III
 
Item 10.
52
Item 11.
52
Item 12.
52
Item 13.
52
Item 14.
52
 
PART IV
 
Item 15.
53
Item 16.
56
 
57

This Annual Report on Form 10-K contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by use of words such as “annualized,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “seek,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions.

Forward-looking statements are based upon various assumptions and analyses made by Dime Community Bancshares, Inc. together with its direct and indirect subsidiaries, the “Company”) in light of management’s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company’s control) that could cause actual conditions or results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on such statements. These factors include, without limitation, the following:


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

●
the net interest margin is subject to material short-term fluctuation based upon market rates;

●
changes in deposit flows, loan demand or real estate values may affect the business of Dime Community Bank (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 or results of operations;

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

●
legislative, regulatory or policy changes may adversely affect the Company’s business or results of operations;

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

●
success or consummation of new business initiatives or the integration of any acquired entities 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

·
other risks, as enumerated in the section entitled “Risk Factors.”

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

PART I

Item 1.
Business

General

Dime Community Bancshares, Inc. (the “Holding Company,” and together with its direct and indirect subsidiaries, the “Company”), is a Delaware corporation headquartered in the Brooklyn Heights neighborhood of Brooklyn, New York. The Company was organized in 1996 and is registered as a savings and loan holding company with the Board of Governors of the Federal Reserve System pursuant to section 10(l) of the Home Owners’ Loan Act, as amended. As of December 31, 2018, the Holding Company’s direct subsidiary was Dime Community Bank (the “Bank”), a banking subsidiary that engages in commercial banking and financial services. In 2004, the Company formed Dime Community Capital Trust I as a subsidiary, which issued $72.2 million of 7.0% trust preferred securities. During the year ended December 31, 2017, the Company fully redeemed the outstanding balance of $70.7 million, and dissolved the trust.  The Company’s common stock (“Common Stock”) is traded on the Nasdaq Global Market under the symbol “DCOM.”

Dime Community Bank, a New York State-chartered stock savings bank, formerly known as The Dime Savings Bank of Williamsburgh, was founded in 1864. As of December 31, 2018, the Bank operated twenty-nine full service retail banking offices located in the New York City (“NYC”) boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County and Suffolk County, New York. The Bank’s principal business is gathering deposits from customers within its market area and via the internet, and investing them primarily in multifamily residential, commercial real estate, and, to an increasing extent, commercial and industrial (“C&I”) loans and one-to-four family residential real estate loans, as well as mortgage-backed securities, obligations of the U.S. government and government- sponsored enterprises (“GSEs”), and corporate debt and equity securities. The substantial majority of the Bank’s lending occurs in the greater NYC metropolitan area. The Bank has four active subsidiaries, including two real estate investment trusts that hold one-to-four family loans and multifamily residential and commercial real estate loans; Dime Insurance Agency, which engages in general insurance agency activities; and Boulevard Funding Corporation, which holds and manages real estate.

The Company’s electronic filings with the Securities and Exchange Commission, including copies of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such filings, if any, are available, free of charge, as soon as practicable after they are filed with the Securities and Exchange Commission under the “Investor Relations” section of the Company’s website, www.dime.com . Information on this website is not and should not be considered to be a part of this Annual Report on Form 10-K.

Market Area and Competition

The Bank has historically operated as a community-oriented financial institution providing financial services, including various deposit related products, for its retail customer base and broker-sourced loans primarily for multifamily housing within its market areas. In early 2017, the Bank hired two seasoned executives to build out a relationship-banking platform that would provide both deposit products and directly-sourced loan products to business customers in its footprint.

The Bank maintains its headquarters in the borough of Brooklyn, New York, and as of December 31, 2018 operated twenty-nine full-service retail banking offices located in the NYC boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County and Suffolk County, New York. The Bank gathers deposits primarily from the communities and neighborhoods in close proximity to its branches, and via the internet. The Bank’s primary lending area is in the greater NYC metropolitan area, although its overall lending area is larger, extending approximately 50 miles in each direction from its corporate headquarters in Brooklyn. The majority of the Bank’s loans are secured by properties located in its primary lending area, with approximately 83% secured by real estate located in the NYC boroughs of Brooklyn, Queens and Manhattan as of December 31, 2018.

The NYC banking environment is extremely competitive. The Bank’s competition for loans exists principally from other savings banks, commercial banks, mortgage banks, and insurance companies and GSEs. The Bank continues to face sustained competition for the origination of multifamily residential and commercial real estate loans, which together comprised 93.4% of the Bank’s loan portfolio at December 31, 2018. Competition for C&I and one-to-four family loans also exists as the Bank develops these portfolios.

The Bank gathers deposits in direct competition with other savings banks, commercial banks and brokerage firms, many among the largest in the nation. It must additionally compete for deposit monies with the stock and bond markets, especially during periods of strong performance in those arenas. Over the previous decade, consolidation in the financial services industry, coupled with the emergence of Internet banking, has dramatically altered the deposit gathering landscape. Facing increasingly larger and more efficient competitors, the Bank’s strategy to attract depositors has utilized various marketing approaches, relationship-based lending funded by low cost deposits and the delivery of technology-enhanced, and customer-friendly banking services while controlling operating expenses.

Banking competition occurs within an economic and financial marketplace that is largely beyond the control of any individual financial institution. The interest rates paid to depositors and charged to borrowers, while affected by marketplace competition, are generally a function of various broader-based macroeconomic and financial factors, including the supply of, and demand for, loanable funds. Within this environment, Federal Open Market Committee (“FOMC”) monetary policy and governance of short-term rates also significantly influence the interest rates paid and charged by financial institutions.

The Bank’s success is additionally impacted by the overall condition of the economy, particularly in the NYC metropolitan area. As home to several national companies in the financial and business services industries, and as a popular destination for domestic and international travelers, the NYC economy is particularly sensitive to the health of both the national and global economies.

Lending Activities

The Bank historically focused on originating non-recourse loans, sourced by brokers, on multifamily and commercial real estate properties to limited liability companies. In early 2017, the Bank hired two seasoned executives to build out a relationship-banking platform that would provide both deposit products and directly-sourced loan products to business customers in its footprint. The Bank’s lending is subject to the Bank’s lending policies, which are approved by the Board’s Lending and Community Reinvestment Act (“CRA”) Committee on an annual basis. The types of loans the Bank may originate are subject to New York State (“NYS”) laws and regulations (See “Item 1. Business - Regulation – Regulation of New York State Chartered Savings Banks”).

The Board of Directors of the Bank establishes lending authority levels for the various loan products offered by the Bank. The Bank maintains a Loan Operating Committee which, as of December 31, 2018, consisted of the President and Chief Executive Officer, Senior Executive Vice President and Chief Operating Officer, Senior Executive Vice President and Chief Banking Officer, Executive Vice President and Chief Risk Officer, Executive Vice President and Chief Lending Officer, Senior Vice President and Senior Lending Officer of Commercial Lending, and Senior Vice President and Chief Credit Officer. The Loan Operating Committee has the authority to approve any portfolio loan origination. All loans approved by the Loan Operating Committee are presented to the Bank’s Board of Directors for its review.  Loans above $35 million must also be approved by the Executive Committee of the Board.

The Bank originates both adjustable-rate mortgages (“ARMs”) and fixed-rate loans, depending upon customer demand and market rates of interest.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Comparison of Financial Condition at December 31, 2018 and December 31, 2017 – Loan Portfolio Composition” for details on the Bank’s loan portfolio.

Multifamily Residential and Commercial Real Estate Lending

The majority of the Bank’s lending activities consist of originating adjustable- and fixed-rate multifamily residential (generally buildings possessing a minimum of five residential units) and commercial real estate loans. The properties securing these loans are generally located in the Bank’s primary lending area.

At December 31, 2018, multifamily residential loans (generally secured by buildings that contain between 5 and 100 apartments) and commercial real estate loans originated by the Bank were secured by three distinct property types: (1) fully residential apartment buildings; (2) “mixed-use” properties featuring a combination of residential and commercial units within the same building; and (3) fully commercial buildings. The underwriting procedures for each of these property types were substantially similar. The Bank classified loans secured by fully residential apartment buildings as multifamily residential loans in all instances. Loans secured by fully commercial real estate were classified as commercial real estate loans in all instances. Loans secured by mixed-use properties were classified as either residential mixed-use (a component of total multifamily residential loans) or commercial mixed-use (a component of total commercial real estate loans) based upon the percentage of the property’s rental income received from its residential as compared to its commercial tenants. If 50% or more of the rental income was received from residential tenants, the full balance of the loan was classified as multifamily residential. If less than 50% of the rental income was received from residential tenants, the full balance of the loan was classified as commercial real estate.

Multifamily residential loans in the Bank’s portfolio generally range in amount from $0.5 million to $5.0 million.  Commercial real estate loans in the Bank’s portfolio generally range in amount from $1.0 million to $5.0 million.

The typical multifamily residential and commercial real estate ARM carries a final maturity of 10 or 12 years, and an amortization period not exceeding 30 years. These loans generally have an interest rate that adjusts once after the fifth or seventh year, indexed to the 5-year Federal Home Loan Bank of New York (“FHLBNY”) advance rate plus a spread typically approximating 250 basis points, but generally may not adjust below the initial interest rate of the loan. Prepayment fees are assessed throughout the majority of the life of the loans. The Bank may also offer interest only loans, i.e. loans that do not amortize principal during part of the contractual maturity period. The Bank also offers fixed-rate, self-amortizing, multifamily residential and commercial real estate loans with maturities of up to fifteen years.

Multifamily residential real estate loans are either retained in the Bank’s portfolio, sold in the secondary market to other third-party financial institutions, or may be securitized. The Bank currently has no formal arrangement pursuant to which it sells multifamily residential or commercial real estate loans to the secondary market.

The Bank’s underwriting standards for multifamily residential and commercial real estate loans generally require: (1) a maximum loan-to-value ratio of 75% based upon an appraisal performed by an independent, state licensed appraiser, and (2) sufficient rental income from the underlying property to adequately service the debt, represented by a minimum debt service ratio of 1. 20x for multifamily residential and 1. 25x for commercial real estate loans. The weighted average loan-to-value and debt service ratios approximated 60% and 1. 52x, respectively, on all multifamily residential real estate loans originated during the year ended December 31, 2018, and 46% and 1. 97x, respectively, on commercial real estate loans originated during the year ended December 31, 2018. The Bank additionally requires all multifamily residential and commercial real estate borrowers to represent that they are unaware of any environmental risks directly related to the collateral. In instances where the Bank's property inspection procedures indicate a potential environmental risk on a collateral property, the Bank will require a Phase 1 environmental risk analysis to be completed, and will decline loans where any significant residual environmental liability is identified. The Bank further considers the borrower's experience in owning or managing similar properties, the Bank's lending experience with the borrower, and the borrower's credit history and business experience, as well as other criteria.

It is the Bank’s policy to require appropriate insurance protection at closing, including title, hazard, and when applicable, flood insurance, on all real estate loans. Borrowers generally are required to advance funds for certain expenses such as real estate taxes, hazard insurance and flood insurance.

Repayment of multifamily residential loans is dependent, in significant part, on cash flow from the collateral property sufficient to satisfy operating expenses and debt service. Future increases in interest rates, increases in vacancy rates on multifamily residential or commercial buildings, and other economic events which are outside the control of the borrower or the Bank could negatively impact the future net operating income of such properties. Similarly, government regulations, such as the existing NYC Rent Regulation and Rent Stabilization laws, could limit future increases in the revenue from these buildings. As a result, rental income might not rise sufficiently over time to satisfy increases in either the loan rate at repricing or in overhead expenses ( e.g. , utilities, taxes, and insurance).

Commercial real estate loans are generally viewed as exposing lenders to a greater risk of loss than both one-to-four family and multifamily residential real estate loans. Because payments on loans secured by commercial real estate are often dependent upon successful operation or management of the collateral properties, as well as the success of the business and retail tenants occupying the properties, repayment of such loans is generally more vulnerable to weak economic conditions. Further, the collateral securing such loans may depreciate over time, be difficult to appraise, or fluctuate in value based upon its rentability, among other commercial factors. This increased risk is partially mitigated in the following manners: (i) the Bank requires, in addition to the security interest in the commercial real estate, a security interest in the personal property associated with the collateral and standby assignments of rents and leases from the borrower; (ii) the Bank will generally favor investments in mixed-use commercial properties that derive some portion of income from residential units, which provide a more reliable source of cash flow and lower vacancy rates, and (iii) the interest rate on commercial real estate loans generally exceeds that on multifamily residential loans.

Included in commercial real estate loans are also certain Small Business Administration (“SBA”) loans in which the loan is secured by underlying real estate as collateral. The Bank may sell a portion of the loan, guaranteed by the SBA, to a third-party investor. The Bank will continue to service the loan after the sale.

As a NYS-chartered stock savings bank originating loans secured by real estate having a market value at least equal to the loan amount at the time of origination, the Bank is generally not subject to the regulations of its primary regulator, the New York State Department of Financial Services (“NYSDFS”) limiting individual loan or borrower exposures.

Commercial and Industrial (“C&I”) Loans

The C&I loan portfolio is primarily comprised of lines of credit, revolving lines of credit, and term loans. These loans are originated as part of the Bank’s relationship-based lending to borrowers who are either businesses or high net worth individuals. The lines of credit are generally secured by the assets of the business, though they may at times be issued on an unsecured basis. Generally speaking, they are subject to renewal on an annual basis based upon review of the borrower’s financial statements. Term loans are generally secured by either specific or general asset liens of the borrower’s business. These loans are granted based upon the strength of the cash generation ability of the borrower.

The Bank may originate adjustable- and fixed-rate C&I loans. C&I loans in the Bank’s portfolio vary in size depending on the type of product. As of December 31, 2018, the C&I portfolio primarily consisted of loans to the following industries: finance and insurance; healthcare and social assistance; accommodation and food services; real estate rental and leasing ; and generally high net worth individuals. As of December 31, 2018, the largest C&I loan was $18.2 million.

Included in C&I loans are also certain SBA loans in which the loan is secured by underlying assets of the business. The Bank may sell a portion of the loan, guaranteed by the SBA, to a third-party investor. The Bank will continue to service the loan after the sale.

One-to-four family Residential and Condominium / Cooperative Apartment Lending

Prior to February 2013, the Bank generally sold its newly originated one-to-four family fixed-rate residential loans in the secondary market. During the year ended December 31, 2013, the Bank ceased all one-to-four family fixed-rate residential lending in order to focus on its core multifamily residential and commercial real estate lending activities.

During the year ended December 31, 2018, the Bank resumed originations of one-to-four family loan products under a newly hired, experienced Residential Lending team.  This initiative is intended to offer more lending products to its borrowers across its branch locations and existing business clientele and to diversify the Bank’s lending portfolio. The Bank will continue to sell originations of one-to-four family fixed-rate residential loans in the secondary market, and retain non-conforming and adjustable rate loans on its balance sheet.   The Bank outsources the servicing of a portion of its one-to-four family loan portfolio, including one-to-four family loans serviced for other investors, to an unrelated third party under a sub-servicing agreement.

Home Equity and Home Improvement Loans

During the year ended December 31, 2013, the Bank ceased origination of home equity and home improvement loans.  The Bank may offer home equity and home improvement loan products under the Residential Lending team during 2019. In the existing portfolio, home equity loans and home improvement loans, the majority of which are included in one-to-four family loans, were originated to a maximum of $500,000. The combined balance of the first mortgage and home equity or home improvement loan was not permitted to exceed 75% of the appraised value of the collateral property at the time of origination of the home equity or home improvement loan. At the time of origination, interest rates offered on home equity and home improvement loans was initially at the prime interest rate, and after six months, the interest rate adjusts and ranges from the prime interest rate to 100 basis points above the prime interest rate in effect at the time. The interest rate on the loan can never fall below the rate at origination.

Equity Lines of Credit on Multifamily Residential and Commercial Real Estate Loans

Equity lines of credit are available on multifamily residential and commercial real estate loans. These loans are underwritten in the same manner as first mortgage loans on these properties, except that the combined first mortgage amount and equity line are used to determine the loan-to-value ratio and minimum debt service coverage ratio. The interest rate on multifamily residential and commercial real estate equity lines of credit adjusts regularly.

Acquisition, land development and construction (“ADC”) loans

ADC loans help finance the purchase of land intended for further development, including single-family homes, multi-family housing, and commercial income properties. In general, the maximum loan-to-value ratio for a land acquisition loan is 50% of the appraised value of the property. The maximum loan amount is generally limited to the cost of the improvements, plus limited approval of soft costs (i.e. architect and engineering fees), subject to an overall loan-to-value limitation.

Consumer Loans

Consumer loans in the Bank’s portfolio consist of depositor loans and other consumer installment products. The balances of these loans are generally small dollar balances.

Asset Quality

General

The Bank does not originate or purchase loans, either whole loans or loans underlying mortgage-backed securities (“MBS”), which would have been considered subprime loans at origination, i.e ., real estate loans advanced to borrowers who did not qualify for market interest rates because of problems with their income or credit history. See Note 6 to the Company’s Consolidated Financial Statements for a discussion of evaluation for 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 at each regularly scheduled Board meeting 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 multifamily residential, commercial real estate loans, and C&I loans, or fifteen days late in connection with one-to-four family or consumer loans. A second letter is sent to the borrower if payment has not been received within 30 days of the due date , or 32 days for one-to-four family loans serviced by the subservicer. Thereafter, periodic letters are mailed and phone calls 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 a loan that meets any of the following three criteria: (i) full payment of principal or interest is not expected; (ii) principal or interest has been in default for a period of 90 days or more (unless the loan is both deemed to be well secured and in the process of collection); or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the financial condition of the borrower. Such non-accrual determination practices are applied consistently to all loans regardless of their internal classification or designation. Upon entering non-accrual status, the Bank reverses all outstanding accrued interest receivable.

The Bank generally initiates foreclosure proceedings on real estate loans when a loan enters non-accrual status based upon non-payment, and typically does not accept partial payments once foreclosure proceedings have commenced. 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 transferred to Other Real Estate Owned (“OREO”) status. The Bank generally attempts to utilize all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans and OREO properties as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances. In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of at least six months.

The C&I portfolio is actively managed by the Bank’s lenders and underwriters. All credit facilities at a minimum require an annual review of the exposure and typically terms of the loan require annual and interim financial reporting and have financial covenants to indicate expected performance levels. Guarantors are also required to, at a minimum, annually update their financial reporting. All exposures are risk rated and those entering adverse ratings due to financial performance concerns of the borrower or material delinquency of any payments or financial reporting are subjected to added management scrutiny. Measures taken typically include amendments to the amount of the available credit facility, requirements for increased collateral, a request for a capital infusion, additional guarantor support or a material enhancement to the frequency and quality of financial reporting. Loans determined to reach adverse risk rating standards are subject to quarterly updating to Credit Administration and executive management. When warranted, loans reaching a Substandard rating could be reassigned to Credit Administration for direct handling.

Troubled Debt Restructured Loans (“TDRs”)

Under ASC 310-40-15, the measurement, de-recognition, disclosure, and implementation guidance issues concerning troubled debt restructurings focused on the creditor’s records, the Bank is required to recognize loans for which certain modifications or concessions have been made as TDRs. A TDR has been created in the event that, for economic or legal reasons, a concession has been granted that would not have otherwise been considered to a debtor experiencing financial difficulties. The following criteria are considered concessions:


1.
A reduction of interest rate has been made for the remaining term of the loan;

2.
The maturity date of the loan has been extended with a stated interest rate lower than the current market rate for new debt with similar risk; or

3.
The outstanding principal amount and/or accrued interest have been reduced.

In instances in which the interest rate has been reduced, management would not deem the modification a TDR in the event that the reduction in interest rate reflected either a general decline in market interest rates or an effort to maintain a relationship with a borrower who could readily obtain funds from other sources at the current market interest rate, and the terms of the restructured loan are comparable to the terms offered by the Bank to non-troubled debtors.

Accrual status for TDRs is determined separately for each TDR in accordance with the policies for determining accrual or non-accrual status that are outlined in the previous section titled “Monitoring and Collection of Delinquent Loans.” At the time an agreement is entered into between the Bank and the borrower that results in the Bank’s determination that a TDR has been created, the loan can be either on accrual or non-accrual status. If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months. Conversely, if at the time of restructuring the loan is performing (and accruing); it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under the Bank’s policy and agency regulations.

The Bank never accepts receivables or equity interests in satisfaction of TDRs.

For TDRs that demonstrate conditions sufficient to warrant accrual status, the present value of the expected net cash flows of the underlying property is utilized as the primary means of determining impairment. Any shortfall in the present value of the expected net cash flows calculated at each measurement period (typically quarter-end) compared to the present value of the expected net cash flows at the time of the original loan agreement was recognized as either an allocated reserve (in the event that it related to lower expected interest payments) or a charge-off (if related to lower expected principal payments). For TDRs on non-accrual status, an appraisal of the underlying real estate collateral is deemed the most appropriate measure to utilize when evaluating impairment, and any shortfall in valuation from the recorded balance is accounted for through a charge-off. In the event that either an allocated reserve or a charge-off is recognized on TDRs, the periodic loan loss provision is impacted.

Allowance for Loan Losses

U.S. generally accepted accounting principles (“GAAP”) require the Bank to maintain an appropriate allowance for loan losses. The Bank maintains a Loan Loss Reserve Committee consisting of the Senior Executive Vice President and Chief Operating Officer, Executive Vice President and Chief Risk Officer, Senior Vice President and Controller, Senior Vice President and Chief Accounting Officer, Senior Vice President and Chief Credit Officer, First Vice President - Loan Servicing, and Director of Credit Administration, charged with, among other functions, responsibility for monitoring the appropriateness of the loan loss reserve.

To assist the Loan Loss Reserve Committee in carrying out its assigned duties, the Bank engages the services of an independent, experienced third-party loan review firm to perform a review of the loan portfolio. The 2018 review program covered 50% of the non-one-to-four family and consumer loan portfolio, 100% of ADC loans, 100% of SBA loans, 100% of C&I loans greater than $0.25 million, and 100% of owner-occupied non-farm non-residential loans. Included within the annual 50% target of the non-one-to-four family and consumer loan portfolio were:

 
(1)
twenty largest loan relationships;
 
(2)
twenty largest loans;
 
(3)
ten largest multifamily residential real estate loans;
 
(4)
ten largest multifamily mixed-use real estate loans;
 
(5)
ten largest pure commercial real estate loan portfolio;
 
(6)
ten largest commercial mixed-use real estate loans;
 
(7)
50% of loans over $500,000 that were collateralized by properties located in New Jersey;
 
(8)
all loans over $500,000 that were scheduled to reprice during the year;
 
(9)
30% of all new loan originations during the year;
 
(10)
70% of all commercial real estate loans;
 
(11)
internally criticized and classified loans over $250,000 plus additionally identified loans; and
 
(12)
all commercial loans over $1.5 million that were in the lowest three categories of pass loan grade (including Watch list loans).

The Loan Loss Reserve Committee’s findings, along with recommendations for changes to loan loss reserve provisions, if any, are reported directly to certain members of the Bank’s executive management and the Board of Directors.

The Loan Loss Reserve Committee evaluates the loan portfolio on a quarterly basis in order to maintain its allowance for loan losses at a level it believes appropriate to absorb probable losses incurred within the Bank’s loan portfolio as of the balance sheet dates. Factors considered in determining the appropriateness of the allowance for loan losses include the Bank’s past loan loss experience, known and inherent risks in the portfolio, existing adverse situations which may affect a borrower’s ability to repay, estimated value of underlying collateral and current economic conditions in the Bank’s lending area. Although management uses available information to estimate losses on loans, future additions to, or reductions in, the allowance may be necessary based on changes in economic conditions or other factors beyond management’s control. In addition, the Bank’s regulators, as an integral part of their examination processes, periodically review the Bank’s allowance for loan losses, and may require the Bank to recognize additions to, or reductions in, the allowance based upon judgments different from those of management.

The Bank’s periodic evaluation of its allowance for loan losses is comprised of different components, each of which is discussed in Note 8 to the Company’s Consolidated Financial Statements.

The Bank also maintains a reserve associated with unfunded loan commitments accepted by the borrower. This reserve is determined based upon the outstanding volume of loan commitments at each period end. Any increases or reductions in this reserve are recognized in periodic non-interest expense.

Investment Activities

Investment strategies are implemented by the Asset and Liability Committee ("ALCO"), which is comprised of the President and Chief Executive Officer, Senior Executive Vice President and Chief Operating Officer, Senior Executive Vice President and Chief Banking Officer, Executive Vice President and Chief Risk Officer, Executive Vice President and Chief Financial Officer, Executive Vice President and Chief Retail Officer, and other senior officers. The strategies take into account the overall composition of the Bank's balance sheet, including loans and deposits, and are intended to protect and enhance the Bank's earnings and market value, and effectively manage both interest rate risk and liquidity. The strategies are reviewed periodically by the ALCO and reported to the Board of Directors.

Investment Policy of the Bank

The investment policy of the Bank, which is approved by its Board of Directors, is designed to help achieve the Bank’s overall asset/liability management objectives while complying with applicable regulations. Generally, when selecting investments for the Bank’s portfolio, the policy emphasizes principal preservation, liquidity, diversification, short maturities and/or repricing terms, and a favorable return on investment. The policy permits investments in various types of liquid assets, including obligations of the U.S. Treasury and federal agencies, various types of MBS, municipal securities, corporate debt securities, commercial paper, certificates of deposit (“CDs”) and when applicable, overnight federal funds sold to financial institutions. The Bank’s Board of Directors periodically approves all financial institutions to which the Bank may sell federal funds.

The Bank’s investment policy allows for new investments in corporate debt to companies rated “investment grade” according to the investment policy at the time of purchase, and limits investments in any one corporate entity to the lesser of 2% of total assets or 20% of the Bank’s total capital. The investment policy limits a combined investment in securities issued by any one entity, with the exception of obligations of the U.S. Government, federal agencies and GSEs, to an amount not exceeding: 1% of total assets and 5% of the Bank’s total capital for municipal securities with a single “A” rating, 2% of total assets and 10% of total capital for municipal securities with a triple “A” rating, 1% of total assets and 15% of the Bank’s total capital for MBS and CMO securities with single “A” ratings, and 2% of total assets and 20% of total capital for MBS and CMO securities with triple “A” ratings. The Bank was in compliance with this policy limit at both December 31, 2018 and 2017. The Bank may engage in hedging transactions utilizing derivative instruments with Board approval. During the years ended December 31, 2018 and 2017, the Bank did not hold any derivative instruments or embedded derivative instruments that required bifurcation.

Federal Agency Obligations and Corporate Securities

Federal agency obligations and corporate securities are purchased from time to time in order to provide the Bank a favorable yield in comparison to overnight investments. Federal Agency Obligations possess sound credit ratings, and are readily accepted as collateral for the Bank’s borrowings. The Bank reviews the financials of the issuer of corporate note securities to assess the financial health and quality, as defined by the Bank’s investment policy, of the issuer at the time of purchase, and on annual basis.

MBS

The Bank’s investment policy calls for the purchase of only priority tranches when investing in MBS, and typically possess the highest credit rating from at least one nationally recognized rating agency. MBS provide the portfolio with investments offering desirable repricing, cash flow and credit quality characteristics. MBS yield less than the loans that underlie the securities as a result of the cost of payment guarantees and credit enhancements which reduce credit risk to the investor. Although MBS guaranteed by federally sponsored agencies carry a reduced credit risk compared to whole loans, such securities remain subject to the risk that fluctuating interest rates, along with other factors such as the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of such loans and thus affect the value of such securities. MBS, however, are more liquid than individual real estate loans and may readily be used to collateralize borrowings. MBS also provide the Company with important interest rate risk management features, as the entire portfolio provides monthly cash flow for re-investment at current market interest rates.

Investment Strategies of the Holding Company

The Holding Company’s investment policy generally calls for investments in relatively short-term, liquid securities similar to those permitted by the securities investment policy of the Bank. The investment policy allows for new investments in corporate debt to companies rated “investment grade” according to the investment policy at the time of purchase, and limits investments in any one corporate entity to the lesser of 2% of total assets or 20% of the Company’s total capital. The investment policy limits a combined investment in securities issued by any one entity, with the exception of obligations of the U.S. Government, federal agencies and GSEs, to an amount not exceeding: 1% of total assets and 5% of the Company’s total capital for municipal securities with a single “A” rating, 2% of total assets and 10% of total capital for municipal securities with a triple “A” rating, 1% of total assets and 15% of the Company’s total capital for MBS and CMO securities with single “A” ratings, and 2% of total assets and 20% of total capital for MBS and CMO securities with Triple “A” ratings. The Holding Company may, with Board approval, engage in hedging transactions utilizing derivative instruments. During the years ended December 31, 2018 and 2017 , the Holding Company did not hold any derivative instruments or embedded derivative instruments that required bifurcation.

Holding Company investments are generally intended primarily to provide future liquidity which may be utilized for general business activities, including, but not limited to: (1) purchases of Common Stock into treasury; (2) repayment of principal and interest on the Holding Company’s subordinated notes payable; (3) subject to applicable restrictions, the payment of dividends on the Common Stock; and/or (4) investments in the equity securities of other financial institutions and other investments not permitted to the Bank.

The Holding Company cannot assure that it will engage in these investment activities in the future. At December 31, 2018 , the Holding Company’s principal asset was its $689.5 million investment in the Bank’s common stock. This investment in its subsidiary is not actively managed and falls outside of the Holding Company investment policy and strategy discussed above.

GAAP requires that investments in debt securities be classified in one of the following three categories and accounted for accordingly: trading securities, securities available-for-sale or securities held-to-maturity. Unrealized gains and losses on available-for-sale securities are reported as a separate component of stockholders’ equity referred to as accumulated other comprehensive loss, net of deferred taxes.  GAAP requires investments in equity securities that have readily determinable fair values be classified as marketable equity securities, with changes in fair value recognized through the Company’s consolidated results of operations.

Sources of Funds

General

The Bank’s primary sources of funding for its lending and investment activities include deposits, loan and MBS payments, investment security principal and interest payments, and advances from the FHLBNY. The Bank may also sell or securitize selected multifamily 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 the Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and the State of New York Mortgage Agency (“SONYMA”). 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 real estate loans and MBS are influenced by interest rates, economic conditions and competition.

Deposits

The Bank offers a variety of deposit accounts possessing a range of interest rates and terms, including savings, money market, interest bearing and non-interest bearing checking accounts, and CDs. The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, and competition from other financial institutions and investment products. The Bank relies upon direct and general marketing, customer service, convenience and long-standing relationships with customers or borrowers to generate deposits. The communities in which the Bank maintains branch offices have historically provided the great majority of its deposits.

The Bank also participates in various brokered deposits programs to obtain brokered deposits, such as Certificate of Deposit Account Registry Service (“CDARS”), through which it can either purchase or sell CDs, and Insured Cash Sweep (“ICS”), through which it can either purchase or sell money market accounts. Purchases of brokered deposits are limited by Bank policy to an aggregate of 6.5% of total assets.

Borrowings

In June 2017, the Company issued $115.0 million of fixed-to-floating rate subordinated notes due June 2027, which will become callable commencing in June 2022. Interest will be paid semi-annually in arrears on each June 15 and December 15 at a fixed annual interest rate equal to 4.50%, until June 2022, at which point the interest rate will reset quarterly to an annual interest rate equal to the then current three-month LIBOR plus 266 basis points. The notes will mature on June 15, 2027. The Company used part of the net proceeds from the offering to redeem its $70.7 million of trust preferred securities, which had a 7.00% annual coupon in July 2017.

The Bank has been a member and shareholder of the FHLBNY since 1980. One of the privileges offered to FHLBNY shareholders is the ability to secure advances from the FHLBNY under various lending programs at competitive interest rates.

In December 2018, the Bank became a member of the American Financial Exchange, through which it may either borrow or lend funds on an overnight or short-term basis with other member institutions. The availability of funds changes daily.

Subsidiary Activities

In addition to the Bank, the Holding Company’s indirect subsidiaries consist of seven corporations, which are wholly-owned by the Bank. The following table presents an overview of the Holding Company’s indirect subsidiaries, other than the Bank, as of December 31, 2018:

Direct Subsidiaries of the Bank
 
Year / State of
Incorporation
 
Primary Business Activities
Boulevard Funding Corp.
 
1981 / New York
 
Management and ownership of real estate
Dime Insurance Agency Inc. ( f/k/a Havemeyer Investments, Inc.)
 
1997 / New York
 
Sale of non-FDIC insured investment products
DSBW Preferred Funding Corp.
 
1998 / Delaware
 
Real Estate Investment Trust investing in multifamily residential and commercial real estate loans
DSBW Residential Preferred Funding Corp.
 
1998 / Delaware
 
Real Estate Investment Trust investing in one- to- four family real estate loans
Dime Reinvestment Corporation
 
2004 / Delaware
 
Community Development Entity. Currently inactive.
195 Havemeyer Corp.
 
2008 / New York
 
Management and ownership of real estate. Currently inactive.
DSB Holdings NY, LLC
 
2015 / New York
 
Management and ownership of real estate. Currently inactive.

Personnel

As of December 31, 2018, the Company had 403 full-time and 40 part-time employees. The employees are not represented by a collective bargaining unit, and the Holding Company and all of its subsidiaries consider their relationships with their employees to be good.

Federal, State and Local Taxation

The following is a general description of material tax matters and does not purport to be a comprehensive review of the tax rules applicable to the Company.

Federal Taxation

For federal income tax purposes, the Company files a consolidated income tax return on a December 31st calendar year basis using the accrual method of accounting and is subject to federal income taxation in the same manner as other corporations with some exceptions, including, particularly, the Bank’s tax reserve for bad debts.

The Bank, as a “large bank” under Internal Revenue Service classifications ( i.e. , one with assets having an adjusted basis in excess of $500 million), is: (i) unable to make additions to its tax bad debt reserve, (ii) permitted to deduct bad debts only as they occur, and (iii) required to recapture ( i.e. , take into taxable income) the balance of its “base year tax bad debt reserve” ( i.e. , its tax bad debt reserve as of December 31, 1987) under certain distribution scenarios discussed below. The Bank’s accumulated bad debt reserves totaled $15.2 million, for which no provision for income tax was required to be recorded for the tax liability that would result upon the recapture of the base year tax bad debt reserve. The amount of tax liability that would result from a full recapture of the base year tax bad debt reserve is $5.0 million, as additional income tax expense. These bad debt reserves could be subject to recapture into taxable income under certain circumstances, including a distribution of the bad debt benefits to the Holding Company or the failure of the Bank to qualify as a bank for federal income tax purposes. The Bank does not anticipate making any distributions that would result in a full or partial recapture of the base year tax bad debt reserve.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and business. For businesses, the Tax Act reduces the corporate federal tax rate from a maximum rate of 35% to a flat rate of 21%. The rate reduction took effect January 1, 2018.

Under GAAP, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. As of a result of the reduction in the corporate income tax rate from 35% to 21% pursuant to the Tax Act, the Company recorded tax expense of $3.1 million during the year ended December 31, 2017.

State and Local Taxation

The Company is subject to NYS franchise tax on a consolidated basis.   NYS enacted several reforms in 2014 (the “Tax Reform Package”) to its tax structure, including changes to the franchise, sales, estate and personal income taxes. These changes generally became effective for tax years beginning on or after January 1, 2015. The Tax Reform Package is intended to simplify the existing corporate tax code for NYS businesses while remaining relatively neutral in relation to corporate tax receipts.

The Company is subject to NYC franchise tax on a consolidated basis. NYC generally conforms its tax law to NYS tax law, and adopted conforming Tax Reform Package provisions similar to those described above for NYS purposes, with only a few minor differences. For tax years beginning on or after January 1, 2015, the NYC income tax rate applied to the Company apportioned NYC taxable income is 8.85%.

State of Delaware

As a Delaware holding company not conducting business in Delaware, the Holding Company is exempt from Delaware corporate income tax. However, it is required to file an annual report and pay an annual franchise tax to the State of Delaware based upon the assumed par value capital method.

Regulation

General

The Bank is a NYS-chartered stock savings bank. The Bank’s primary regulator is the NYSDFS, and the Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (“FDIC”), which regulates and examines state-chartered banks that are not members of the Federal Reserve System (“State Nonmember Banks”). The FDIC also administers laws and regulations applicable to all FDIC-insured depository institutions. The Holding Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“FRB”) and, more specifically, the Federal Reserve Bank of Philadelphia. The Bank has elected to be treated as a “savings association” under Section 10(l) of the Home Owners’ Loan Act, as amended (“HOLA”), for purposes of the regulation of the Holding Company. The Holding Company is therefore regulated as a savings and loan holding company by the FRB as long as the Bank continues to satisfy the requirements to remain a “qualified thrift lender” (“QTL”) under HOLA. If the Bank fails to remain a QTL, the Holding Company must register with the FRB, and be treated as, a bank holding company. The Holding Company does not expect that regulation as a bank holding company rather than a savings and loan holding company would be a significant change.

The Bank’s deposit accounts are insured up to applicable limits by the FDIC under the Deposit Insurance Fund (“DIF”). The Bank is required to file reports with both the NYSDFS and the FDIC concerning its activities and financial condition, and to obtain regulatory approval prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions. Both the NYSDFS and the FDIC conduct periodic examinations to assess the Bank’s safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a state-chartered savings bank may engage and is intended primarily for the protection of the DIF and depositors and generally is not intended for the protection of shareholders, investors or creditors other than insured depositors. As a publicly-held unitary savings bank holding company, the Holding Company is also required to file certain reports with, and otherwise comply with the rules and regulations of, both the SEC, under the federal securities laws, and the Federal Reserve Bank of Philadelphia.

The NYSDFS and the FDIC possess significant discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the NYSDFS, the FDIC or through legislation, could have a material adverse impact on the operations of either the Bank or Holding Company.

The following discussion is intended to be a summary of the material statutes and regulations applicable to NYS chartered savings banks and savings and loan holding companies. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations discussed.

Regulation of New York State Chartered Savings Banks

Business Activities. The Bank derives its lending, investment, and other authority primarily from the New York Banking Law (“NYBL”) and the regulations of the NYSDFS, subject to limitations under applicable FDIC laws and regulations. Pursuant to the NYBL, the Bank may invest in real estate loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities (including certain corporate debt securities and obligations of federal, state, and local governments and agencies), and certain other assets. The lending powers of NYS-chartered savings banks and commercial banks are not generally subject to percentage-of-assets or capital limitations, although there are limits applicable to loans to individual borrowers. The Bank may also establish service corporations that may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage activities.

Recent Financial Regulatory Reforms

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”), which became law in 2010, was intended to address perceived weaknesses in the U.S. financial regulatory system and prevent future economic and financial crises. Many of the provisions of the Reform Act are subject to delayed effective dates and/or require the issuance of implementing regulations. Implementation is ongoing and the Reform Act has, at a minimum, resulted in increased regulatory burden, compliance costs and other costs for the Bank and Holding Company.

Basel III Capital Rules

On January 1, 2015, the Bank and the Holding Company became subject to a new comprehensive capital framework for U.S. banking organizations that was issued by the FDIC and FRB in July 2013 (the “Basel III Capital Rules”), subject to phase-in periods for certain components and other provisions.

The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios as of January 1, 2015: a) 4.5% based upon common equity tier 1 capital (“CET1”); b) 6.0% based upon tier 1 capital; and c) 8.0% based upon total regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of average consolidated assets) of 4.0% is also required under the Basel III Capital Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer, composed entirely of CET1, of 2.5% above these required minimum capital ratio levels. Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. Restrictions would begin phasing in where the banking organization’s capital conservation buffer was below 2.5% at the beginning of a quarter, and distributions and discretionary bonus payments would be completely prohibited if no capital conservation buffer exists. As of January 1, 2019, the capital conservation buffer was fully phased in, and the Holding Company and the Bank are subject to the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based upon tier 1 capital; and c) 10.5% based upon total regulatory capital.

The Basel III Capital Rules provide for a number of deductions from, and adjustments to, CET1. These include, for example, the requirement that servicing right assets (“SRA”), deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1.

Implementation of the deductions from, and other adjustments to, CET1 began on January 1, 2015 and were phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and increased by 0.625% each subsequent January 1, until reaching 2.5% on January 1, 2019. The Basel III Capital Rules also revised the definitions and components of regulatory capital, and addressed other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address asset risk weights and other matters affecting the denominator in banking institutions’ regulatory capital ratios.

With respect to the Bank, the Basel III Capital Rules revise the “prompt corrective action” (“PCA”) regulations adopted pursuant to the Federal Deposit Insurance Act (“FDIA”) by: (i) introducing a CET1 ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum tier 1 capital ratio for well-capitalized status being 8.0% (as compared to the previous 6.0%); and (iii) eliminating the provision that a bank with a composite supervisory rating of 1 may have a 3.0% leverage ratio and still be adequately capitalized. The Basel III Capital Rules do not change the total risk-based capital requirement for any PCA category.

The Basel III Capital Rules increased the required capital levels of the Bank and subjected the Holding Company to consolidated capital rules. The Bank and Company made the one-time, permanent election to continue to exclude the effects of accumulated other comprehensive income or loss items included in stockholders’ equity for the purposes of determining the regulatory capital ratios. See Note 24 to the consolidated financial statements for a discussion of regulatory matters.

FDIC Guidance on Managing Market Risk

In October 2013, the FDIC published guidance entitled “Managing Sensitivity to Market Risk in a Challenging Interest Rate Environment”. This guidance notes the FDIC’s ongoing supervisory concern that certain institutions may be insufficiently prepared or positioned for sustained increases in, or volatility of, interest rates. The guidance emphasizes a series of best practices to ensure that State Nonmember Banks, such as the Bank, have adopted a comprehensive asset-liability and interest rate risk management process. These practices include: (i) effective board governance and oversight; (ii) a sound policy framework and prudent exposure limits; (iii) well-developed risk measurement tools for effective measurement and monitoring of interest rate risk and; (iv) effective risk mitigation strategies. The Bank continues to comply with this guidance.

FDIC Real Estate Lending Standards

FDIC regulations prescribe standards for extensions of credit that (i) are secured by liens on or interests in real estate, or (ii) are made for the purpose of financing construction or improvements on real estate. FDIC regulations require nonmember banks to establish and maintain written real estate lending policies that are consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its real estate lending activities. The policies must also be consistent with accompanying interagency guidelines, which include loan-to-value limitations for different types of real estate loans. Under certain circumstances, institutions are also permitted to make a limited amount of loans that do not conform to the loan-to-value limitations. In addition, the federal banking agencies (the “Agencies”) consider as part of their ongoing supervisory monitoring processes whether an institution is exposed to significant commercial real estate concentration risk. Institutions that (i) have experienced rapid growth in their commercial real estate lending, (ii) have notable exposure to a specific type of commercial real estate or (iii) are approaching or have exceeded the following concentration thresholds may become subject to additional regulatory review: (a) total reported loans for construction, land development, and other land represent 100% or more of the institution’s total capital; or (b) total commercial real estate loans, excluding owner occupied properties, represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.

Limitations on Individual Loans and Aggregate Loans to One Borrower

As a NYS-chartered savings bank originating loans secured by real estate having a market value at least equal to the loan amount at the time of origination, the Bank is generally not constrained by NYSDFS regulations limiting individual loan or borrower exposures.

QTL Test

In order for the Holding Company to be regulated by the FRB as a savings and loan holding company rather than a bank holding company, the Bank must remain a QTL. To satisfy this requirement, the Bank must maintain at least 65% of its ‘'portfolio assets'' in certain ''qualified thrift investments'' during at least nine of the most recent twelve months. ''Portfolio assets'' mean, in general, the Bank's total assets less the sum of: (i) specified liquid assets up to 20% of total assets, (ii) certain intangibles, including goodwill, credit card relationships and purchased SRA, and (iii) the value of property used to conduct the Bank's business. ''Qualified thrift investments'' include various types of loans made for residential and housing purposes; investments related to such purposes, including certain mortgage-backed and related securities; and small business, education, and credit card loans. At December 31, 2018 , t he Bank maintained 77.8% of its portfolio assets in qualified thrift investments. The Bank also satisfied the QTL test in each month during 2018, and, therefore, was a QTL.

A savings association that fails the QTL test will generally be prohibited from (i) engaging in any new activity not permissible for a national bank, (ii) paying dividends, unless the payment would be permissible for a national bank, is necessary to meet obligations of a company that controls the savings bank, and is specifically approved by the FDIC and the FRB, and (iii) establishing any new branch office in a location not permissible for a national bank in the association's home state. A savings association that fails to satisfy the QTL test may be subject to FDIC enforcement action. In addition, within one year of the date a savings association ceases to satisfy the QTL test, any company controlling the association must register under, and become subject to the requirements of, the Bank Holding Company Act of 1956, as amended ("BHCA"). A savings association that has failed the QTL test may requalify under the QTL test and be relieved of the limitations; however, it may do so only once. If the savings association does not requalify under the QTL test within three years after failing the QTL test, it will be required to terminate any activity, and dispose of any investment, not permissible for a national bank. These provisions remain in effect under the Reform Act.

Advisory on Interest Rate Risk Management

In January 2010, the Agencies released an Advisory on Interest Rate Risk (“IRR”) Management (the "IRR Advisory") to remind institutions of the supervisory expectations regarding sound practices for managing IRR. While some degree of IRR is inherent in the business of banking, the Agencies expect institutions to have sound risk management practices in place to measure, monitor and control IRR exposures, and IRR management should be an integral component of an institution’s risk management infrastructure. The Agencies expect all institutions to manage their IRR exposures using processes and systems commensurate with their earnings and capital levels, complexity, business model, risk profile and scope of operations. The IRR Advisory further reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the IRR exposures of institutions.

The IRR Advisory encourages institutions to use a variety of techniques to measure IRR exposure, which include simple maturity gap analysis, income measurement and valuation measurement for assessing the impact of changes in market rates as well as simulation modeling to measure IRR exposure. Institutions are encouraged to use the full complement of analytical capabilities of their IRR simulation models. The IRR Advisory also reminds institutions that stress testing, which includes both scenario and sensitivity analysis, is an integral component of IRR management. The IRR Advisory indicates that institutions should regularly assess IRR exposures beyond typical industry conventions, including changes in rates of greater magnitude ( e.g. , up and down 300 and 400 basis points as compared to the generally used up and down 200 basis points) across different tenors to reflect changing slopes and twists of the yield curve.

The IRR Advisory emphasizes that effective IRR management not only involves the identification and measurement of IRR, but also provides for appropriate actions to control the risk. The adequacy and effectiveness of an institution’s IRR management process and the level of its IRR exposure are critical factors in the Agencies’ evaluation of an institution’s sensitivity to changes in interest rates and capital adequacy.

Limitation on Capital Distributions

The NYBL and the New York banking regulations, as well as   FDIC and FRB regulations impose limitations upon capital distributions by state-chartered savings banks, such as cash dividends, payments to purchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger, and other distributions charged against capital.

Under the NYBL and the New York banking regulations, NYS-chartered stock savings banks may declare and pay dividends out of net profits, unless there is an impairment of capital, however, approval of the New York State Superintendent of Financial Services (''Superintendent'') is required if the total of all dividends declared by the bank in a calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years less prior dividends paid.

As the subsidiary of a savings and loan holding company, the Bank is required to file a notice with the FRB at least 30 days prior to each capital distribution. The FRB can prohibit a proposed capital distribution if it determines that the bank would be ''undercapitalized'', as defined in the FDIA, following the distribution or that a proposed distribution would constitute an unsafe or unsound practice. Further, under FDIC PCA regulations, the Bank would be prohibited from making a capital distribution if, after the distribution, the Bank would fail to satisfy its minimum capital requirements, as described above (See "Part I - Item 1. Business - Regulation - Regulation of New York State Chartered Savings Banks – PCA").

Liquidity

Pursuant to FDIC regulations , the Bank is required to maintain sufficient liquidity to ensure its safe and sound operation.

Assessments

NYS-chartered savings banks are required by the NYBL to pay annual assessments to the NYSDFS in connection with its regulation and supervision (including examination) of the Bank. This annual assessment is based primarily on the asset size of the Bank, among other factors determined by the NYSDFS. The Bank is not required to pay additional assessments to the FDIC for its regulation and supervision (including examination) of the Bank as a State Nonmember Bank, however, the Bank is required to pay assessments to the FDIC as an insured depository institution. (See “Insurance of Deposit Accounts”).

Branching

Subject to certain limitations, NYS and federal law permit NYS-chartered savings banks to establish branches in any state of the United States. In general, federal law allows the FDIC, and the NYBL allows the Superintendent, to approve an application by a state banking institution to acquire interstate branches by merger. The NYBL authorizes NYS-chartered savings banks to open and occupy de novo branches outside the State of New York. Pursuant to the Reform Act, the FDIC is authorized to approve the establishment by a state bank of a de novo interstate branch if the intended host state allows de novo branching within that state by banks chartered by that state.

Community Reinvestment

Under the CRA, as implemented by FDIC regulations, an insured depository institution possesses a continuing and affirmative obligation, consistent with its safe and sound operation, to help satisfy the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services it believes are most appropriate to its particular community. The CRA requires the FDIC, in connection with its examination of a State Nonmember Bank, to assess the bank's record of satisfying the credit needs of its community and consider such record in its evaluation of certain applications by the bank. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA rating in its most recent examination. Regulations additionally require that the Bank publicly disclose certain agreements that are in fulfillment of the CRA. The Bank has no such agreements.

The Bank is also subject to provisions of the NYBL that impose continuing and affirmative obligations upon a NYS-chartered savings bank to serve the credit needs of its local community (the ''NYCRA''). Such obligations are substantially similar to those imposed by the CRA. The NYCRA requires the NYSDFS to make a periodic written assessment of an institution’s compliance with the NYCRA, utilizing a four-tiered rating system, and to make such assessment available to the public. The NYCRA also requires the Superintendent to consider the NYCRA rating when reviewing an application to engage in certain transactions, including mergers, asset purchases and the establishment of branch offices or ATMs, and provides that such assessment may serve as a basis for the denial of any such application. The Bank’s most recent rating under the NYCRA was “Satisfactory”.

Transactions with Related Parties

The Bank's authority to engage in transactions with its ''affiliates'' is limited by FDIC regulations, Sections 23A and 23B of the Federal Reserve Act (''FRA''), and Regulation W issued by the FRB. FDIC regulations regarding transactions with affiliates generally conform to Regulation W. These provisions, among other matters, prohibit, limit or place restrictions upon a depository institution extending credit to, purchasing assets from, or entering into certain transactions (including securities lending, repurchase agreements and derivatives activities) with, its affiliates, which, for the Bank, would include the Holding Company and any other subsidiary of the Holding Company.

As a “savings association” under Section 10(l) of the HOLA, the Bank is additionally subject to the rules governing transactions with affiliates for savings associations under HOLA Section 11. These rules prohibit, subject to certain exemptions, a savings association from: (i) advancing a loan to an affiliate engaged in activities that are not permitted for non-bank holding companies; and (ii) purchasing or investing in securities issued by an affiliate that is not a subsidiary.

The Bank's authority to extend credit to its directors, executive officers, and stockholders owning 10% or more of the outstanding Common Stock, as well as to entities controlled by such persons, is additionally governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the FRB enacted thereunder. Among other matters, these provisions require that extensions of credit to insiders: (i) be made on terms substantially the same as, and follow credit underwriting procedures not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and (ii) not exceed certain amount limitations individually and in the aggregate, which limits are based, in part, on the amount of the bank's capital. Regulation O additionally requires that extensions of credit in excess of certain limits be approved in advance by the bank's board of directors.

New York banking regulations impose certain limits and requirements on various transactions with "insiders," as defined in the New York banking regulations to include certain executive officers, directors and principal stockholders.

Historically, the Bank prohibited loans to its directors and executive officers. In April 2018, the Bank approved a policy permitting loans to directors and executive officers secured by their primary residences substantially on the same terms and conditions the Bank extends credit to its borrowers. The Holding Company presently prohibits loans to directors and executive officers.

Enforcement

Under the NYBL, the Superintendent possesses enforcement power over NYS-chartered savings banks. The NYBL gives the Superintendent authority to order a NYS-chartered savings bank to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices and to maintain prescribed books and accounts. Upon a finding by the Superintendent that a director, trustee or officer of a savings bank has violated any law, or has continued unauthorized or unsafe practices in conducting its business after having been notified by the Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after notice and an opportunity to be heard. The Superintendent also has authority to appoint a conservator or receiver, such as the FDIC, for a savings bank under certain circumstances.

Under the FDIA, the FDIC possesses enforcement authority for FDIC insured depository institutions and has the authority to bring enforcement action, including civil monetary penalties, against all ''institution-affiliated parties,'' including any controlling stockholder or any shareholder, attorney, appraiser or accountant who knowingly or recklessly participates in any violation of applicable law or regulation, breach of fiduciary duty or certain other wrongful actions that cause, or are likely to cause, more than minimal loss to or other significant adverse effect on an insured depository institution. Under HOLA and the FDIA, the FRB possesses similar authority to bring enforcement actions and impose civil monetary penalties against savings and loan holding companies for violations of applicable law or regulation. In addition, regulators possess substantial discretion to take enforcement action against an institution that fails to comply with the law, particularly with respect to capital requirements. Possible enforcement actions range from informal enforcement actions, such as a memorandum of understanding, to formal enforcement actions, such as a written agreement, cease and desist order or civil money penalty, the imposition of a capital plan and capital directive to receivership, conservatorship, or the termination of deposit insurance.

Standards for Safety and Soundness

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the FDIC, together with the other federal bank regulatory agencies, has adopted guidelines prescribing safety and soundness standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other features, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the FDIC has adopted regulations pursuant to FDICIA that authorize, but do not require, the FDIC to order an institution that has been given notice by the FDIC that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so ordered, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the FDIC must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized bank is subject under the PCA provisions of FDICIA (See "Part I - Item 1. Business - Regulation - Regulation of New York State Chartered Savings Banks – PCA"). If an institution fails to comply with such an order, the FDIC may seek enforcement in judicial proceedings and the imposition of civil money penalties.

Insurance of Deposit Accounts

The standard maximum amount of FDIC deposit insurance is $250,000 per depositor. Insured depository institutions are required to pay quarterly deposit insurance assessments to the DIF. Assessments are based on average total assets minus average tangible equity. The assessment rate is determined through a risk-based system, with institutions deemed most risky paying higher assessments. For depository institutions with less than $10 billion in assets, such as the Bank, the assessments are now primarily based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years. The initial base assessment rate currently ranges from 3 to 30 basis points on an annualized basis. After the effect of potential base-rate adjustments, the total base assessment rate could range from 1.5 to 40 basis points on an annualized basis.

As a result of the failures of a number of banks and thrifts in previous years, there has been a significant increase in the loss provisions of the DIF. This resulted in a decline in the DIF reserve ratio during 2008 below the then minimum designated reserve ratio of 1.15%. In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Reform Act. In March 2016, the FDIC adopted a final rule increasing the reserve ratio for the DIF to 1.35% of total insured deposits. The rule imposed a surcharge on the assessments of depository institutions with $10 billion or more in assets beginning the third quarter of 2016 and continuing through the earlier of the quarter that the reserve ratio first reached or exceeded 1.35% and December 31, 2018. As a depository institution with less than $10 billion in assets, this rule did not apply to the Bank. The FDIC indicated in November 2018 that the 1.35% DIF ratio has been exceeded and that institutions of less than $10 billion of assets would receive credits for the portion of their assessments that contributed to raising the reserve ratios from 1.15% to 1.35%, beginning when the reserve ratio reaches 1.38%.  The FDIC has established a long-term target for the reserve ratio of 2.0%. At least semi-annually, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking if required.

In addition, the Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose assessments on DIF insured deposits in order to service the interest on FICO’s bond obligations from deposit insurance fund assessments. The amount assessed on individual institutions by FICO is in addition to the amount, if any, paid for deposit insurance according to the FDIC’s risk-related assessment rate schedules. FICO assessment rates may be adjusted quarterly to reflect a change in assessment base. These payments amounted to 0.32 basis points of assets less tangible equity during the fourth quarter of 2018.  Payments will continue until the FICO bonds mature in 2019.

Acquisitions

Under the Federal Bank Merger Act, prior approval of the FDIC is required for the Bank to merge with or purchase the assets or assume the deposits of another insured depository institution. In reviewing applications seeking approval of merger and acquisition transactions, the FDIC will consider, among other factors, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the CRA (see “Community Reinvestment”) and its compliance with fair housing and other consumer protection laws and the effectiveness of the subject organizations in combating money laundering activities.

Privacy and Security Protection

The federal banking agencies have adopted regulations for consumer privacy protection that require financial institutions to adopt procedures to protect customers and their "non-public personal information." The regulations require the Bank to disclose its privacy policy, including identifying with whom it shares "non-public personal information," to customers at the time of establishing the customer relationship, and annually thereafter if there are changes to its policy. In addition, the Bank is required to provide its customers the ability to "opt-out" of: (1) the sharing of their personal information with unaffiliated third parties if the sharing of such information does not satisfy any of the permitted exceptions; and (2) the receipt of marketing solicitations from Bank affiliates.

The Bank is additionally subject to regulatory guidelines establishing standards for safeguarding customer information. The guidelines describe the federal banking agencies' expectations for the creation, implementation and maintenance of an information security program, including administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, and protect against anticipated threats or hazards to the security or integrity of such records and unauthorized access to or use of such records or information that could result in substantial customer harm or inconvenience.

Federal law additionally permits each state to enact legislation that is more protective of consumers' personal information. There are periodically privacy bills considered by the New York legislature. Management of the Company cannot predict the impact, if any, of these bills if enacted.

Cybersecurity more broadly has become a focus of federal and state regulators. In March 2015, federal regulators issued two statements regarding cybersecurity to reiterate regulatory expectations regarding cyberattacks compromising credentials and business continuity planning to ensure the rapid recovery of an institution’s operations after a cyberattack involving destructive malware. In October 2016, federal regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision. Once established, the enhanced cyber risk management standards would help to reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system. The advance notice of proposed rulemaking addresses five categories of cyber standards: (1) cyber risk governance; (2) cyber risk management; (3) internal dependency management; (4) external dependency management; and (5) incident response, cyber resilience, and situational awareness. In March 2017, the NYSDFS made effective regulations that require financial institutions regulated by the NYSDFS, including the Bank, to, among other things, (i) establish and maintain a cyber security program designed to ensure the confidentiality, integrity and availability of their information systems; (ii) implement and maintain a written cyber security policy setting forth policies and procedures for the protection of their information systems and nonpublic information; and (iii) designate a Chief Information Security Officer. The Company will continue to monitor any developments related to these proposed rulemakings as part of its ongoing cyber risk management. See "Item 1A - Risk Factors" for a further discussion of cybersecurity risks.

Consumer Protection and Compliance Provisions

The Bank is subject to various consumer protection laws and regulations. The Bank may be subject to potential liability for material violations of these laws and regulations, in the form of litigation by governmental and consumer groups, the FDIC and other federal regulatory agencies including the Department of Justice. Moreover, the Consumer Financial Protection Bureau (“CFPB”) has broad rule-making authority for a wide range of consumer protection laws that apply to all depository institutions, as well as the authority to prohibit "unfair, deceptive or abusive" acts and practices.

Insurance Activities

As a NYS-chartered savings bank,   the Bank is generally permitted to engage in certain insurance activities: (i) directly in places where the population does not exceed 5,000 persons, or (ii) in places with larger populations through subsidiaries if certain conditions are satisfied. Federal agency regulations prohibit depository institutions from conditioning the extension of credit to individuals upon either the purchase of an insurance product or annuity or an agreement by the consumer not to purchase an insurance product or annuity from an entity not affiliated with the depository institution. The regulations additionally require prior disclosure of this prohibition if such products are offered to credit applicants. Compliance with these regulations has not had a material impact upon the Bank's financial condition or results of operations.

Federal Home Loan Bank ("FHLB") System

The Bank is a member of the FHLBNY, which is one of the eleven regional FHLBs composing the FHLB System. Each FHLB provides a central credit facility primarily for its member institutions. Any advances from the FHLBNY must be secured by specified types of collateral, and long-term advances may be obtained only for the purpose of providing funds for residential housing finance. The Bank, as a member of the FHLBNY, is currently required to acquire and hold shares of FHLBNY Class B stock as a membership requirement and must hold additional stock based on its FHLB borrowing and certain other activities. The Bank was in compliance with these requirements with an investment in FHLBNY Class B stock of $57.6 million at December 31, 2018 . The FHLBNY can adjust the specific percentages and dollar amount periodically within the ranges established by the FHLBNY capital plan.

Federal Reserve System

The Bank is subject to FRA and FRB regulations requiring state-chartered depository institutions to maintain cash reserves against their transaction accounts (primarily NOW and regular checking accounts). Because required reserves must be maintained in the form of vault cash, a low-interest-bearing account at a Federal Reserve Bank, or a pass-through account as defined by the FRB, the effect of this reserve requirement is to reduce the Bank's interest-earning assets. The balances maintained to satisfy the FRB reserve requirements may be used to satisfy liquidity requirements imposed by the FDIC.

The Federal Reserve Banks pay interest on depository institutions’ required and excess reserve balances. The interest rate paid on required reserve balances and excess balances as of December 31, 2018 was 2.40%.

Depository institutions are additionally authorized to borrow from the Federal Reserve ''discount window,'' however, FRB regulations require such institutions to hold reserves in the form of vault cash or deposits with Federal Reserve Banks in order to borrow.

Anti-Money Laundering and Customer Identification

Financial institutions are subject to Bank Secrecy Act amendments and specific federal agency guidance in relation to implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("PATRIOT Act"). The PATRIOT Act provides the federal government with powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the PATRIOT Act enacted measures intended to encourage information sharing among bank regulatory and law enforcement agencies. In addition, certain provisions of Title III and the FDIC guidance impose affirmative obligations on a broad range of financial institutions, including banks and thrifts. Title III imposes the following requirements, among others, with respect to financial institutions: (i) establishment of anti-money laundering programs; (ii) establishment of procedures for obtaining identifying information from customers opening new accounts, including verifying their identity within a reasonable period of time; (iii) establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and (iv) prohibition on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks. In addition, the NYSDFS issued a final regulation in June 2016 that sets forth, for financial institutions chartered or licensed under the New York Banking Law, the attributes of certain compliance programs such institutions must have to ensure compliance with Bank Secrecy Act/Anti-Money Laundering laws and regulations and sanctions administered by the Office of Foreign Assets Control (“OFAC”). The regulation requires the board of directors or a senior officer of an institution to make an annual finding as to an institution’s compliance with the requirements of the regulation.

Finally, bank regulators are directed to consider an organization’s effectiveness in preventing money laundering when reviewing and acting on regulatory applications.

OFAC Regulation

OFAC administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals, and others. Failure to comply with these sanctions could have serious legal and reputational consequences.

Regulation of the Holding Company

The Bank has made an election under Section 10(l) of the HOLA to be treated as a “savings association” for purposes of regulation of the Holding Company. As a result, the Holding Company is registered with the FRB as a non-diversified unitary savings and loan holding company within the meaning of the HOLA. The Holding Company is currently subject to FRB regulations, examination, enforcement and supervision, as well as reporting requirements applicable to savings and loan holding companies. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the safety, soundness or stability of a subsidiary depository institution. In addition, the FRB has enforcement authority over the Holding Company’s non-depository institution subsidiaries. If the Bank does not continue to satisfy the QTL test, the Holding Company must change its status with the FRB as a savings and loan holding company and register as a bank holding company under the BHCA. (See "Regulation of New York State-Chartered Savings Banks – QTL Test").

HOLA prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring another savings association or holding company thereof, without prior written approval of the FRB; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings association, non-subsidiary holding company, or non-subsidiary company engaged in activities other than those permitted by HOLA; or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating an application by a holding company to acquire a savings association, the FRB must consider the financial and managerial resources and future prospects of the company and savings association involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community, and competitive factors.

The Gramm-Leach Bliley Act of 1999 (“Gramm-Leach”) additionally restricts the powers of certain unitary savings and loan holding companies. A unitary savings and loan holding company that is "grandfathered," i.e. , became a unitary savings and loan holding company pursuant to an application filed with the Office of Thrift Supervision (the regulator of savings and loan holding companies prior to the FRB) prior to May 4, 1999, such as the Holding Company, retains the authority it possessed under the law in existence as of May 4, 1999. All other savings and loan holding companies are limited to financially related activities permissible for bank holding companies, as defined under Gramm-Leach. Gramm-Leach also prohibits non-financial companies from acquiring grandfathered savings and loan holding companies.

Upon any non-supervisory acquisition by the Holding Company of another savings association or a savings bank that satisfies the QTL test and is deemed to be a savings association and that will be held as a separate subsidiary, the Holding Company will become a multiple savings and loan holding company and will be subject to limitations on the types of business activities in which it may engage. HOLA limits the activities of a multiple savings and loan holding company and its non-insured subsidiaries primarily to activities permissible under Section 4(c) of the BHCA, subject to prior approval of the FRB, or the activities permissible for financial holding companies under Section 4(k) of the BHCA, if the company meets the requirements to be treated as a financial holding company, and to other activities authorized by federal agency regulations.

Federal agency regulations prohibit regulatory approval of any acquisition that would result in a multiple savings and loan holding company controlling savings associations in more than one state, subject to two exceptions: an acquisition of a savings association in another state (i) in a supervisory transaction, or (ii) pursuant to authority under the laws of the state of the association to be acquired that specifically permit such acquisitions. The conditions imposed upon interstate acquisitions by those states that have enacted authorizing legislation vary.

The Reform Act extended the “source of strength” doctrine to savings and loan holding companies. The FRB has issued regulations implementing the “source of strength” policy that requires holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The FRB has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may also be restricted if a subsidiary bank becomes undercapitalized. The policy statement also specifies that a holding company should consult with FRB supervisory staff prior to redeeming or repurchasing common or perpetual preferred stock when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock such that the repurchase or redemption would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurs. More recently, FRB staff has been interpreting the Basel III capital rules to require holding companies to receive approval prior to redeeming or repurchasing any common stock.  These regulatory policies could affect the ability of the Company to pay dividends, repurchase common stock or otherwise engage in capital distributions.

Restrictions on the Acquisition of the Holding Company

Under the Federal Change in Bank Control Act ("CIBCA") and implementing regulations, a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the shares of outstanding Common Stock, unless the FRB has found that the acquisition will not result in a change in control of the Holding Company. Under CIBCA and implementing regulations, the FRB generally has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer; the convenience and needs of the communities served by the Holding Company, the Bank; and the anti-trust effects of the acquisition. Under HOLA, any company would be required to obtain approval from the FRB before it may obtain "control" of the Holding Company within the meaning of HOLA. Control is generally defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Holding Company or the ability to control in any manner the election of a majority of the Holding Company’s directors, although a person or entity may also be determined to “control” the Holding Company without satisfying these requirements if it is determined that he, she or it directly or indirectly exercises a controlling influence over the management or policies of the Holding Company. In addition, an existing bank holding company or savings and loan holding company would, under federal banking laws and regulations, generally be required to obtain FRB approval before acquiring more than 5% of the Holding Company’s voting stock.

In addition to the applicable federal laws and regulations, NYS Banking Law generally requires prior approval of the Superintendent before any action is taken that causes any company to acquire direct or indirect control of a banking institution organized in New York.

Federal Securities Laws

The Common Stock is registered with the SEC under Section 12(g) of the Exchange Act. It is subject to the periodic reporting, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Delaware Corporation Law

The Holding Company is incorporated under the laws of the State of Delaware, and, therefore, is subject to regulation by the State of Delaware, and the rights of its shareholders are governed by the Delaware General Corporation Law.

Item 1A.  Risk Factors

The continued expansion of the Bank’s Business Banking division may subject the Bank to increased lending risks.

During the year ended December 31, 2018 , the Business Banking division originated $178.5 million of C&I loans and $303.0 million of direct-sourced commercial real estate loans, and the Bank intends to increase such originations. Strategic plans for the year ended December 31 , 2019 a lso include increased originations of ADC loans and SBA loans. Such loans generally carry a greater risk of loss than one-to-four family and multifamily residential real estate loans. Since the repayment of commercial loans depends on the successful operation of the borrower’s business or properties, repayment of such loans can be affected by adverse conditions in the real estate market or local economy, or mismanagement of the business. As the Bank’s C&I loans are relatively unseasoned, it is difficult to assess the future performance of recently originated loans because of their limited payment history from which to judge future collectability. These loans may experience higher delinquency or charge-off levels than our historical loan portfolio experience, which could adversely affect our future performance. Because the Bank plans to continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for loan losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for loan losses would adversely affect our earnings.

The Bank’s 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. As part of the Company’s strategic plan, it originates loans secured by commercial real estate that are generally viewed as exposing lenders to a greater risk of loss than both one-to-four family and multifamily residential real estate loans. Because payments on loans secured by commercial real estate are often dependent upon successful operation or management of the collateral properties, as well as the success of the business and retail tenants occupying the properties, repayment of such loans are generally more vulnerable to weak economic conditions. Further, the collateral securing such loans may depreciate over time, be difficult to appraise, or fluctuate in value based upon the rentability, among other commercial factors.

The performance of Bank's multifamily and mixed-use loans could be adversely impacted by regulation or a weakened economy.

Multifamily and mixed-use loans generally involve a greater risk than one-to-four family residential loans because 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 ( e.g. , 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.

If bank regulators impose limitations on the Bank’s commercial real estate lending activities, earnings could be adversely affected.

In 2006, the federal bank regulatory agencies issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. The Company’s level of non-owner occupied commercial real estate equaled 703% of total risk-based capital at December 31, 2018 . Inclu ding owner-occupied commercial real estate, the ratio of commercial real estate loans to total risk-based capital ratio would be 734% at Dece mber 31, 2018 .

In December 2016, the federal bank regulatory agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”). In the 2015 Statement, the federal bank regulatory agencies express concerns about easing commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that the federal bank regulatory agencies will continue “to pay special attention” to commercial real estate lending activities and concentrations going forward. If the NYSDFS or FRB were to impose restrictions on the amount of commercial real estate loans the Bank can hold in its portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, the Bank’s earnings could be adversely affected.

Changes in interest rates could affect the Bank’s profitability.

The Bank’s ability to earn a profit depends primarily on net interest income, which is the difference between the interest income that the Bank earns on its interest-earning assets, such as loans and investments, and the interest expense that the Bank pays on its interest-bearing liabilities, such as deposits and borrowings. The Bank’s profitability depends on its ability to manage its assets and liabilities during periods of changing market interest rates.

In a period of increased interest rates, the interest income earned on the Bank’s assets may not increase as rapidly as the interest paid on its liabilities. In such an environment, the Bank’s cost of funds is expected to increase more rapidly than interest earned on its loan and investment portfolio, as its primary source of funds is deposits with generally shorter maturities than those on its loans and investments. This makes the balance sheet more liability sensitive in the short term. Such an increase in the cost of funds, without a corresponding increase in the yield of the Bank’s loan portfolio, could reduce the Bank’s profitability.

A sustained decrease in market interest rates could also adversely affect the Bank’s earnings. When interest rates decline, borrowers tend to refinance higher rate loans at lower rates. Under those circumstances, the Bank would not be able to reinvest those prepayments in assets earning interest rates as high as the rates on those prepaid loans. Additionally, changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. A decrease in high-yielding loans or fluctuations in the securities portfolio could reduce the Bank’s profitability.

The Company's business may be adversely affected by conditions in the financial markets and economic conditions generally and in the areas in which it conducts its business.

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, particularly in the local NYC metropolitan area where the Company conducts substantially all of its business. Conditions in the marketplace for the Bank's property collateral types (mainly multifamily and commercial real estate) remained stronger than most other parts of the country throughout the years of the financial crisis, and have since rebounded to healthy pre-crisis levels. However, a return to prolonged deteriorating economic conditions could significantly affect the markets in which the Bank does business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and unemployment levels may result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations.

The Company’s information technology systems may be subject to failure, interruption or security breaches.

The Company’s information technology systems, as well as those of third party service providers, are critical to the Company’s business. The Company uses various technology systems to manage its customer relationships, general ledger, securities investments, deposits, loans, electronic funds transfers, Internet and mobile banking, ATMs and security systems. The Company collects, processes and stores sensitive customer data by utilizing computer systems and telecommunications networks operated by it and third party service providers.  We handle a substantial volume of customer and other financial transactions every day.

Financial services institutions have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer viruses, malicious or destructive code, phishing attacks, distributed denial of service, and other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its employees or customers or of third parties, or otherwise materially disrupt network access or business operations.  For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers.  Although the Company takes protective measures, the security of its computer systems, software, and networks may be vulnerable. Because the techniques used to cause security breaches change frequently, the Company may be unable to proactively address these techniques or to implement adequate preventative measures.

Misconduct by employees could also result in fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. The Company may not be able to prevent employee errors or misconduct, and the precautions the Company takes to detect this type of activity might not be effective in all cases.  Employee errors or misconduct could subject the Company to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

The Company has established policies and procedures, installed security systems and implemented backup systems, in order to prevent or limit the impact of any human error, misconduct, malfeasance, system failure or interruption, or security breach.  We continuously update these systems to support our operations and growth. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones.  However, system failure or breaches may still occur and may not be adequately addressed if they do occur.

Any system failure or breach could adversely affect our ability to process transactions and provide services.  The occurrence of any system failures, interruption, or breach of security could also damage our reputation, result in a loss of customers and business, subject us to additional regulatory scrutiny, result in a violation of applicable privacy and other law, expose us to litigation, and result in financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

In addition, the Company outsources a majority of its data processing to certain third-party providers. If these third-party providers encounter difficulties, or if the Company has difficulty communicating with them, the Company’s ability to adequately process and account for transactions could be affected, and its business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

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 probable incurred 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 will be sufficient to satisfy actual loan losses should such losses be realized.

Additionally, the Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard that will be effective for us for the fiscal year beginning January 1, 2020. This standard, referred to as “Current Expected Credit Loss” (“CECL”), will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which may require the Bank to increase its allowance for loan losses and to greatly increase the types of data it collects and reviews to determine the appropriate level of the allowance for loan losses. The Company is currently evaluating the effect that the CECL model will have on its consolidated financial statements, but the extent of the effect is indeterminable at this time as it will be dependent on the nature and characteristics of the Bank’s loan portfolio at the adoption date, as well as economic conditions and forecasts at that date. Any increases in the allowance for loan losses will result in a decrease in net income and capital, and may have a material adverse effect on the Bank’s financial condition and results of operations.

The Company operates in a highly regulated industry and 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 legislation, as well supervision, regulation and examination by the NYSDFS (the Bank's primary regulator), the FRB (the Holding Company's primary regulator) and the FDIC, as the Bank's deposit insurer. Such laws and regulations limit the manner in which the Holding Company and Bank conduct business, undertake new investments and activities and obtain financing. 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. This regulatory scheme is designed primarily for the protection of the deposit insurance funds and the Bank’s depositors, and not to benefit shareholders or creditors.

Failure to comply with applicable laws and regulations could subject the Holding Company and Bank to regulatory enforcement actions, including administrative orders that may be judicially enforced, the imposition of capital requirements, restrictions on the growth of the Holding Company and the Bank, the removal of officers or directors, or the assessment of significant civil money penalties against the Holding Company and the Bank. If the Holding Company or the Bank becomes subject to any regulatory actions, it could have a material adverse effect on our business, results of operations, financial condition and growth prospects.

Expansion, growth and acquisitions could negatively impact earnings if not successful.

The Company may grow organically, by geographic expansion, through business line expansion, and through acquisitions of branches or other financial institutions or financial services companies. The success of any expansion endeavor depends on the Company's ability to continue to maintain and develop an infrastructure appropriate to support and integrate such growth, as well as the Company’s ability to successfully introduce new products and services to its customers or to enter new markets.

Merger and acquisition activities are subject to a number of risks, including lending, operating, and integration risks. Acquisitions may disrupt the Company’s business by diverting management’s time and attention, and may expose the Company to unknown or contingent liabilities, or asset quality problems, of the target company. Such growth requires careful due diligence, evaluation of risks, and projections of future operations and financial conditions. Actual results may differ from expectations and could have a material adverse effect on the Company's financial condition and results of operations. Acquisitions often involve the negotiation and execution of extensive merger agreements, which may lead to litigation risks or operating constraints.

Additionally, as the Company grows, its total assets will approach the $10 billion threshold for additional Dodd Frank regulatory requirements. These regulations affect revenues and operating costs, and introduce additional compliance requirements. If additional investments in growth are not sufficiently profitable, some profitability metrics may be reduced.

Competition from other financial institutions or government agencies in originating loans and attracting deposits may limit our growth and adversely affect profitability.

The Bank operates in a highly competitive industry and market area, which could become even more competitive as a result of legislative, regulatory and technological changes, and continued consolidation. The Bank competes with numerous commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Recently, new market entrants such as government sponsored agencies have also begun to compete in our marketplace. The Bank faces sustained competition for the origination of multifamily residential and commercial real estate loans, which may inhibit the Bank’s ability to maintain its current level and pricing of such loans. Customers may also be persuaded to pursue alternatives to the Bank's deposits, causing the Bank to lose a historically less expensive source of funding. Any loss of business to the Bank’s competitors would adversely affect its profitability.

The Holding Company’s depends on the success and growth of the Bank.

The Holding Company’s primary business activity is to act as the holding company of the Bank. Therefore, the Holding Company’s future profitability will depend on the success and growth of this subsidiary. The continued and successful implementation of the Holding Company’s growth strategy will require, among other things that the Bank increases its market share by attracting new customers that currently bank at other financial institutions in the Bank’s market area.

Additionally, the Holding Company’s principal source of funds to make payments on its subordinated debt securities and pay dividends on the Common Stock are the dividends and other distributions it receives from the Bank. The Holding Company’s ability to receive dividends and other distributions from the Bank is contingent on a number of factors, including the Bank’s ability to meet applicable regulatory capital requirements and the Bank’s profitability and earnings and strength of its balance sheet.

The Bank is subject to stringent capital requirements.

Effective January 1, 2015, the federal banking agencies adopted the Basel III Capital Rules, which apply to both the Bank and Holding Company. These rules were subject to phase-in periods until January 1, 2019 for certain of their components. The Basel III Capital Rules will result in significantly higher capital requirements and more restrictive leverage and liquidity ratios for the Bank than those previously in effect. The Basel III Capital Rules also apply to the Holding Company, which, as a savings and loan holding company, was not previously subject to consolidated risk-based capital requirements. As of December 31, 2018, the Bank satisfied the requirements of the Basel III Capital Rules, inclusive of the capital conservation buffer, as phased in by the FRB.

However, higher required capital levels could have a negative impact on the Bank’s ability to lend, grow deposit balances, make acquisitions and make capital distributions in the form of increased dividends or share repurchases. Higher capital levels could also lower the Company’s consolidated return on equity.

The Company's accounting estimates and risk management processes rely on analytical and forecasting models.

The processes the Company uses to estimate its probable incurred loan losses and to measure the fair value of some financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on the Company’s financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models the Company uses for interest rate risk and asset-liability management are inadequate, the Company may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models the Company uses for determining its probable incurred loan losses are inadequate, the allowance for loan losses may not be sufficient to support future charge-offs. If the model the Company uses to measure the fair value of financial instruments is inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what the Company could realize upon sale or settlement of such financial instruments. Any such failure in the Company’s analytical or forecasting models could have a material adverse effect on the Company’s business, financial condition and results of operations.

The value of the Company’s goodwill and other intangible assets may decline in the future.

As of December 31, 2018, the Company had $55.6 million of goodwill and other intangible assets. A significant decline in the Company’s expected future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of the Common Stock could result in impairment to goodwill. If the Company identified impairment to goodwill, it would be required to record the appropriate charge to its earnings, which could have an adverse effect on the Company’s business, financial condition and results of operations.

The Company’s controls and procedures may fail or be circumvented.

The Company's internal controls, disclosure controls and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are satisfied. Any failure or circumvention of the Company's controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company's risk management practices may not be effective in mitigating the risks to which it is subject or in reducing the potential for losses in connection with such risks.

As a financial institution, the Company is subject to a number of risks, including credit, interest rate, liquidity, market, operational, legal/compliance, reputational, and strategic. The Company's risk management framework is designed to minimize the risks to which it is subject, as well as any losses resulting from such risks. Although the Company seeks to identify, measure, monitor, report, and control the Company's exposure to such risks, and employ a broad and diversified set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited because they cannot anticipate the existence or development of risks that are currently unknown and unanticipated.

For example, recent economic conditions, heightened legislative and regulatory scrutiny of the financial services industry, and increases in the overall complexity of the Company's operations, among other developments, have resulted in the creation of a variety of risks that were previously unknown and unanticipated, highlighting the intrinsic limitations of the Company's risk monitoring and mitigation techniques. As a result, the further development of previously unknown or unanticipated risks may result in the Company incurring losses in the future that could adversely impact its financial condition and results of operations.

The Company's operations rely on certain external vendors.

The Company relies on certain external vendors to provide products and services necessary to maintain its day-to-day operations. Accordingly, the Company’s operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements. The failure of an external vendor to perform in accordance with the contracted arrangements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services, or strategic focus, or for any other reason, could be disruptive to the Company’s operations, which could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.

The Company is subject to environmental liability risk associated with lending activities.

A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability. Environmental reviews of real property before initiating foreclosure may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s business, financial condition and 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 retain clients and can expose the Company to litigation and regulatory action. 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.

The trading volume in the Common Stock is less than that of other larger financial services companies.

Although the Common Stock is listed for trading on the Nasdaq National Exchange, the trading volume in its Common Stock is less than that of other, larger financial services companies. This means that the Common Stock has less liquidity than the trading market for many other larger financial services companies. General market declines or market volatility in the future, especially in the financial institutions sector of the economy, could adversely affect the price of the Common Stock, and the current market price may not be indicative of future market prices. Accordingly, stockholders may not be able to sell their shares of Common Stock at the volume, prices or times that they desire.

The Holding Company may reduce or eliminate dividends on its Common Stock in the future.

Although the Holding Company has historically declared cash dividends on its Common Stock, it is not required to do so and may reduce or eliminate its Common Stock dividend in the future. In addition, the Holding Company is a savings and loan holding company, and its ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve Board regarding capital adequacy and dividends. A reduction or elimination of dividend payments could adversely affect the market price of the Common Stock.

We may be required to transition away from the use of the London interbank offered rate (“LIBOR”) in the future.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next several years. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally.

The market transition away from LIBOR to an alternative reference could:


·
adversely affect the interest rates paid or received on, and the revenue and expenses associate with, the Company’s floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;


·
adversely affect the value of the Company’s floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;

·
prompt inquiries or other actions from regulators in respect of the Company’s preparation and readiness for the replacement of LIBOR with an alternative reference rate;

·
result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based loans, deposits, and securities; and

·
require the transition to or development of appropriate systems and analytics to effectively transition the Company’s risk management processes from LIBOR-based products to those based on the applicable alternative pricing benchmark, such as the Federal Reserve Bank of New York’s Secured Overnight Finance Rate (“SOFR”).

The manner and impact of this transition, as well as the effects of these developments on the Company’s funding costs, loan and investment and trading securities portfolios, asset-liability management, and business, are uncertain.

A change in the Bank’s charter may have tax implications.

The Bank has applied to change its charter from a savings bank charter to a commercial bank charter. There are tax benefits the Bank receives as a savings bank charter that may not be available following a charter change.

Item 1B.
Unresolved Staff Comments

Not applicable.

Item 2.
Properties

The Holding Company neither owns nor leases any property, but instead uses the premises and equipment of the back office of the Bank. The Bank leases commercial office space for its corporate and administrative office located at 300 Cadman Plaza West, 8 th Floor, Brooklyn, New York 11201. The Bank maintains its principal office in the Williamsburg section of the borough of Brooklyn. As of December 31 , 2018 , the Bank conducted its business through twenty-nine full-service retail banking offices and two corporate offices located throughout Brooklyn, Queens, the Bronx and Nassau County and Suffolk County, New York. The Bank also has one operations office located in New Jersey. As of December 31, 2018 , the Bank owned eight of these offices, and leased twenty-four.

Item 3.
Legal Proceedings

In the ordinary course of business, the Holding Company and the Bank are 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 as of Dece mber 31, 2018 , neither the Holding Company nor the Bank were involved in any actions or proceedings that were likely to have a material adverse impact on t he Company's consolidated financial condition and results of operations.

Item 4.
Mine Safety Disclosures

Not applicable.

PART II

Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Common Stock is traded on the Nasdaq National Market and quoted under the symbol "DCOM."

As of March 1, 2019, the Company had approximately 6,500 holders of record of its common stock.

The Holding Company is subject to the requirements of Delaware law, which generally limits dividends to an amount equal to the excess of net assets ( i.e., the amount by which total assets exceed total liabilities) over statutory capital, or if no such excess exists, to net profits for the current and/or immediately preceding fiscal year.

During the year ended December 31 , 2018 , the Holding Company paid cash dividends totaling $20.8 million, representing $0.56 per outstanding common share. During the year ended December 31, 2017 , the Holding Company paid cash dividends totaling $21.0 million, representing $0.56 per outstanding common share.

Issuer Purchases of Equity Securities

The following table summarizes information regarding purchases of Common Stock during the fourth quarter of 2018 in accordance with the approved stock repurchase plan:

Period
 
Total
Number
of Shares
Purchased
   
Average
Price Paid
Per Share
   
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs (1)
   
Maximum Number
of Shares that may
Yet be Purchased
Under the Programs (1)
 
October 2018
   
141,349
   
$
17.81
     
141,349
     
1,814,040
 
November 2018
   
96,400
   
$
16.94
     
96,400
     
1,717,640
 
December 2018
   
256,500
   
$
16.89
     
256,500
     
1,467,140
 

(1)
The twelfth stock repurchase program was publicly announced in June 2007, authorizing the purchase of up to 1,787,665 shares of Common Stock, and has no expiration. The shares from this plan were fully re-purchased in October 2018. The thirteenth stock repurchase program was publicly announced in October 2018, authorizing the purchase of up to 1,824,040 shares of Common Stock, and has no expiration date.

Performance Graph

The graph below compares the Holding Company's stock performance with that of the total return for the U.S. Nasdaq Stock Market and an index of all thrift stocks as reported by S&P Global Market Intelligence from January 1, 2013 through December 31, 2018. The graph assumes the reinvestment of dividends in additional shares of the same class of equity securities as those listed below.


   
Year Ended December 31,
 
Index
 
2013
   
2014
   
2015
   
2016
   
2017
   
2018
 
Dime Community Bancshares, Inc.
 
$
100.00
   
$
99.73
   
$
110.88
   
$
131.73
   
$
141.14
   
$
118.04
 
NASDAQ Composite
 
$
100.00
   
$
114.75
   
$
122.74
   
$
133.62
   
$
173.22
   
$
168.30
 
SNL Thrift Index
 
$
100.00
   
$
107.55
   
$
120.94
   
$
148.14
   
$
147.06
   
$
123.87
 

Item 6.
Selected Financial Data

The consolidated financial and other data of the Company as of and for the years ended December 31, 2018 , 2017 , 2016 , 2015 and 2014 set forth below is derived in part from, and should be read in conjunction with, the Company's audited Consolidated Financial Statements and Notes thereto. Certain amounts as of and for the years ended December 31, 2015 and 2014 have been reclassified to conform to the December 31, 2018 , 2017 and 2016 presentation. These reclassifications were not material.

   
At or for the Year Ended December 31,
 
   
2018
   
2017
   
2016
   
2015
   
2014
 
   
(Dollars in thousands, except per share data)
 
Selected Financial Condition Data:
                             
Total assets
 
$
6,320,578
   
$
6,403,460
   
$
6,005,430
   
$
5,032,872
   
$
4,497,107
 
Loans and loans held for sale (net of deferred costs or fees and the allowance for loan losses)
   
5,373,133
     
5,581,084
     
5,615,886
     
4,678,262
     
4,100,747
 
MBS
   
466,605
     
351,384
     
3,558
     
431
     
26,409
 
Investment securities (including FHLBNY capital stock)
   
99,498
     
66,417
     
60,670
     
77,912
     
76,139
 
Federal funds sold and other short-term investments
   
—
     
—
     
—
     
—
     
250
 
Goodwill
   
55,638
     
55,638
     
55,638
     
55,638
     
55,638
 
Deposits
   
4,356,754
     
4,403,447
     
4,395,426
     
3,184,310
     
2,659,792
 
Borrowings
   
1,239,109
     
1,283,612
     
901,805
     
1,237,405
     
1,244,405
 
Stockholders' equity
   
602,081
     
598,567
     
565,868
     
493,947
     
459,725
 
Selected Operating Data:
                                       
Interest income
 
$
221,710
   
$
212,096
   
$
195,627
   
$
174,791
   
$
172,952
 
Interest expense
   
75,384
     
59,366
     
52,141
     
46,227
     
48,416
 
Net interest income
   
146,326
     
152,730
     
143,486
     
128,564
     
124,536
 
Provision (credit) for loan losses
   
2,244
     
520
     
2,118
     
(1,330
)
   
(1,872
)
Net interest income after provision (credit) for loan losses
   
144,082
     
152,210
     
141,368
     
129,894
     
126,408
 
Non-interest income
   
9,523
     
21,514
     
75,934
     
8,616
     
9,038
 
Non-interest expense
   
86,890
     
84,986
     
83,831
     
62,493
     
61,076
 
Income before income tax
   
66,715
     
88,738
     
133,471
     
76,017
     
74,370
 
Income tax expense
   
15,427
     
36,856
     
60,957
     
31,245
     
30,124
 
Net income
 
$
51,288
   
$
51,882
   
$
72,514
   
$
44,772
   
$
44,246
 

   
At or for the Year Ended December 31,
 
   
2018
   
2017
   
2016
   
2015
   
2014
 
SELECTED FINANCIAL RATIOS AND OTHER DATA (1):
                             
Return on average assets
   
0.82
%
   
0.84
%
   
1.31
%
   
0.96
%
   
1.03
%
Return on average stockholders' equity
   
8.44
     
8.94
     
13.40
     
9.40
     
9.83
 
Stockholders' equity to total assets at end of period
   
9.53
     
9.35
     
9.42
     
9.81
     
10.22
 
Loans to deposits at end of period
   
123.80
     
127.22
     
128.23
     
147.50
     
154.87
 
Loans to interest-earning assets at end of period
   
87.01
     
89.20
     
95.92
     
95.98
     
94.68
 
Net interest spread (2)
   
2.20
     
2.38
     
2.52
     
2.72
     
2.84
 
Net interest margin (3)
   
2.41
     
2.54
     
2.68
     
2.89
     
3.03
 
Average interest-earning assets to average interest-bearing liabilities
   
117.47
     
116.55
     
116.85
     
116.64
     
115.98
 
Non-interest expense to average assets
   
1.38
     
1.37
     
1.51
     
1.34
     
1.42
 
Efficiency ratio (4)
   
56.25
     
53.24
     
55.48
     
45.98
     
46.28
 
Effective tax rate
   
23.12
     
41.53
     
45.67
     
41.10
     
40.51
 
Dividend payout ratio
   
40.58
     
40.58
     
28.43
     
45.53
     
45.53
 
Per Share Data:
                                       
Diluted earnings per share
 
$
1.38
   
$
1.38
   
$
1.97
   
$
1.23
   
$
1.23
 
Cash dividends paid per share
   
0.56
     
0.56
     
0.56
     
0.56
     
0.56
 
Book value per share (5)
   
16.68
     
16.00
     
15.11
     
13.22
     
12.47
 
Asset Quality Ratios and Other Data (1):
                                       
Net charge-offs (recoveries)
 
$
1,495
   
$
23
   
$
97
   
$
(1,351
)
 
$
(212
)
Total non-performing loans
   
2,345
     
533
     
4,237
     
1,611
     
6,198
 
OREO
   
—
     
—
     
—
     
148
     
18
 
Non-performing pooled trust preferred securities ("TRUP CDOs")
   
—
     
—
     
1,270
     
1,236
     
904
 
Total non-performing assets
   
2,345
     
533
     
5,507
     
2,995
     
7,120
 
Non-performing loans to total loans
   
0.04
%
   
0.01
%
   
0.08
%
   
0.03
%
   
0.15
%
Non-performing assets to total assets
   
0.04
     
0.01
     
0.09
     
0.06
     
0.16
 
Allowance for Loan Losses to:
                                       
Non-performing loans
   
928.87
%
   
3,946.15
%
   
484.68
%
   
1,149.22
%
   
298.37
%
Total loans (6)
   
0.40
     
0.38
     
0.36
     
0.39
     
0.45
 
Regulatory Capital Ratios: (Bank only) (1)(7)
                                       
Tier 1 common equity ratio
   
13.34
%
   
12.38
%
   
11.60
%
   
11.55
%
   
12.33
%
Tier 1 capital ratio
   
13.34
     
12.38
     
11.60
     
11.55
     
12.33
 
Total risk-based ratio
   
13.80
     
12.83
     
12.05
     
12.03
     
12.89
 
Tier 1 leverage ratio
   
10.31
     
9.32
     
8.95
     
9.17
     
9.64
 
Full Service Branches
   
29
     
28
     
25
     
25
     
25
 

(1)
With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods. Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
(2)
The net interest spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.
(3)
The net interest margin represents net interest income as a percentage of average interest-earning assets.
(4)
The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income and non-interest income, excluding any gains or losses on sales of assets.
(5)
Book value per share equals total stockholders' equity divided by shares outstanding at each period end.
(6)
Total loans represent loans, net of deferred fees and costs and unamortized premiums, and excluding (thus not reducing the aggregate balance by) the allowance for loan losses.
(7)
Regulatory capital ratios are calculated based upon the Basel III capital rules that became effective on January 1, 2015. Pro forma ratios computed as of December 31, 2015 have been provided, however, periods prior to December 31, 2015 are not provided.

Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

The Holding Company’s primary business is the ownership 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, mortgage banking related income, and income associated with bank owned life insurance (“BOLI”). Non-interest expense primarily consists of employee compensation and benefits, federal deposit insurance premiums, data processing costs, 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 deposit strategy is generally to increase its product and service utilization for each depositor, and to increase its household and deposit market shares in the communities that it serves. In recent years, particular emphasis has been placed upon growing individual and small business commercial checking account balances. The Bank also actively strives to obtain checking account balances affiliated with the operation of the collateral underlying its real estate and C&I loans, as well as personal deposit accounts from its borrowers.  Historically, the Bank’s primary lending strategy included the origination of, and investment in, real estate loans secured by multifamily and mixed-use properties, and, to a lesser extent, real estate loans secured by commercial real estate properties, primarily located in the greater NYC metropolitan area. As part of its strategic plan for 2018 and beyond, the Bank is investing in the development of its Business Banking division, by adding products and services to serve both the credit and business banking needs in its footprint.

The Business Banking division is focused on total relationship banking and will enable the Bank to diversify its loan portfolio into areas such as C&I loans, Small Business Administration (“SBA”) loans (a portion of which is guaranteed by the SBA), ADC loans, finance loans and leases, one-to-four family loans and consumer loans. These business lines are intended to supplement core deposit growth and provide greater funding diversity. In the first quarter of 2017, the Bank hired seasoned executives, and bolstered its lending and credit and administrative staff. In the third quarter of 2017, the Bank was approved by the SBA as a lender, and in December 2018 the Bank received “Preferred Lender” status from the SBA, thus better positioning the Business Banking division for future expansion.

Additionally, during the year ended December 31, 2018, the Bank resumed offering one-to-four family loan products.

The Bank also purchases securities primarily for liquidity purposes as defined by the Bank's investment policy. The Bank seeks to maintain the asset quality of its loans and other investments, and uses portfolio and asset/liability management techniques in an effort to manage the effects of interest rate volatility on its profitability and capital.

Recent Events

In June 2017, the Company issued $115.0 million of fixed-to-floating rate subordinated notes due June 2027, which will become callable commencing in June 2022. Interest will be paid semi-annually in arrears on each June 15 and December 15 at a fixed annual interest rate equal to 4.50%, until June 2022, at which point the interest rate will reset quarterly to an annual interest rate equal to the then current three-month LIBOR plus 266 basis points. The notes will mature on June 15, 2027. The Company used part of the net proceeds from the offering to redeem its $70.7 million of trust preferred securities, which had a 7.00% annual coupon, in July 2017. See Notes 16 and 17 to the Company’s Condensed Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for details of the subordinated notes payable and trust preferred securities payable, respectively.

In December 2017, the Bank completed a securitization of $280.0 million of its multifamily loans through a Freddie Mac sponsored “Q-deal” securitization (“Loan Securitization”). The Structured Pass-Through Certificates that were issued by Freddie Mac were purchased by the Bank as available-for-sale securities to enhance balance sheet liquidity. The Bank will continue to maintain the borrower relationships as the sub-servicer of the loans. See Note 9 to the Company’s Condensed Consolidated Financial Statements for details of the transaction.

In January 2019, the Bank filed an application with the NYSDFS seeking approval to convert from a New York stock savings bank to a New York commercial bank (the “Charter Conversion”).  Simultaneously with the Charter Conversion application to NYSDFS, the Holding Company filed an application with the FRB to delist as a savings and loan holding company and elect to become a bank holding company. By letter from the Federal Reserve Bank of Philadelphia, dated March 7, 2019, the Company was informed that the Holding Company’s application to convert from a savings and loan holding company to a bank holding company was approved, subject to receipt of all required regulatory approvals.  The Bank has not yet received all required regulatory approvals; therefore, the Charter Conversion and conversion to a bank holding company are not yet effective.

Critical Accounting Policies

The Company’s accounting and reporting policies are prepared in accordance with GAAP and conform to general practices within the banking industry. See Note 2 to the Company’s Consolidated Financial Statements for the year ended December 31, 2018 , which contains the Company’s significant accounting policies.

The Company’s policies with respect to (1) the methodologies it uses to determine the allowance for loan losses (including reserves for loan commitments), and (2) 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 management to make difficult and subjective judgments which often necessitate assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions or 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

The allowance for loan losses is provided to reflect probable incurred losses inherent in the loan portfolio. Management reviews the adequacy of the allowance for loan losses by reviewing all impaired loans on an individual basis. The remaining portfolio is segmented and evaluated on a pooled basis. Factors considered in determining the appropriateness of the allowance for loan losses include the Bank's past loan loss experience, known and inherent risks in the portfolio, existing adverse situations which may affect a borrower's ability to repay, the estimated value of underlying collateral and current economic conditions in the Bank's lending area. Judgment is required to determine the appropriate historical loss experience period, as well as the manner in which to quantify probable losses associated with the additional factors noted above. This evaluation is inherently subjective, as estimates are susceptible to significant revisions as more information becomes available.

Although management uses available information to estimate losses on loans, future additions to, or reductions in, the allowance may be necessary based on changes in economic conditions or other factors beyond management's control. In addition, the Bank's regulators, as an integral part of their examination processes, periodically review the Bank's allowance for loan losses, and may require the Bank to recognize additions to, or reductions in, the allowance based upon judgments different from those of management.

The Bank's methods and assumptions utilized to periodically determine its allowance for loan losses are summarized in Note 8 to the Company's Consolidated Financial Statements.

Analysis of Net Interest Income

The Company's profitability, like that of most banking institutions, is dependent primarily upon net interest income. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rate earned or paid on them. The following tables set forth certain information relating to the Company's consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods indicated. Average balances are derived from daily balances. The yields and costs include fees and charges that are considered adjustments to yields and costs. All material changes in average balances and interest income or expense are discussed in the section entitled "Net Interest Income" in the comparisons of operating results commencing on page 35 .

   
For the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
   
(Dollars in Thousands)
 
   
Average
Balance
   
Interest
   
Average
Yield/
Cost
   
Average
Balance
   
Interest
   
Average
Yield/
Cost
   
Average
Balance
   
Interest
   
Average
Yield/
Cost
 
Assets:
                                                     
Interest-earning assets:
                                                     
Real estate loans (1)
 
$
5,280,735
   
$
194,842
     
3.69
%
 
$
5,778,459
   
$
204,487
     
3.54
%
 
$
5,210,984
   
$
191,856
     
3.68
%
C&I Loans
   
172,231
     
9,741
     
5.66
     
63,840
     
3,072
     
4.81
     
624
     
41
     
6.57
 
Other loans
   
1,162
     
74
     
6.37
     
1,110
     
75
     
6.76
     
1,121
     
74
     
6.60
 
MBS
   
411,437
     
10,794
     
2.62
     
24,381
     
542
     
2.22
     
1,216
     
20
     
1.64
 
Investment securities
   
11,905
     
363
     
3.05
     
12,404
     
577
     
4.64
     
18,489
     
880
     
4.76
 
Other
   
182,820
     
5,896
     
3.23
     
127,368
     
3,343
     
2.62
     
118,576
     
2,756
     
2.32
 
Total interest-earning assets
   
6,060,290
   
$
221,710
     
3.66
%
   
6,007,562
   
$
212,096
     
3.53
%
   
5,351,010
   
$
195,627
     
3.66
%
Non-interest earning assets
   
219,192
                     
204,083
                     
203,758
                 
Total assets
 
$
6,279,482
                   
$
6,211,645
                   
$
5,554,768
                 
                                                                         
Liabilities and Stockholders' Equity:
                                                                       
Interest-bearing liabilities:
                                                                       
Interest-bearing checking accounts
 
$
120,094
   
$
226
     
0.19
%
 
$
113,226
   
$
237
     
0.21
%
 
$
89,197
   
$
230
     
0.26
%
Money Market accounts
   
2,294,883
     
28,383
     
1.24
     
2,648,909
     
23,866
     
0.90
     
2,063,787
     
17,293
     
0.84
 
Savings accounts
   
349,989
     
212
     
0.06
     
364,341
     
187
     
0.05
     
367,311
     
182
     
0.05
 
CDs
   
1,263,256
     
21,568
     
1.71
     
989,319
     
14,101
     
1.43
     
1,015,615
     
14,669
     
1.44
 
Borrowed Funds
   
1,130,904
     
24,995
     
2.21
     
1,038,497
     
20,975
     
2.02
     
1,043,515
     
19,767
     
1.89
 
Total interest-bearing liabilities
   
5,159,126
   
$
75,384
     
1.46
%
   
5,154,292
   
$
59,366
     
1.15
%
   
4,579,425
   
$
52,141
     
1.14
%
Non-interest bearing checking accounts
   
349,217
                     
301,492
                     
263,527
                 
Other non-interest-bearing liabilities
   
163,787
                     
175,431
                     
170,569
                 
Total liabilities
   
5,672,130
                     
5,631,215
                     
5,013,521
                 
Stockholders' equity
   
607,352
                     
580,430
                     
541,247
                 
Total liabilities and stockholders' equity
 
$
6,279,482
                   
$
6,211,645
                   
$
5,554,768
                 
Net interest income
         
$
146,326
                   
$
152,730
                   
$
143,486
         
Net interest spread (2)
                   
2.20
%
                   
2.38
%
                   
2.52
%
Net interest-earning assets
 
$
901,164
                   
$
853,270
                   
$
771,585
                 
Net interest margin (3)
                   
2.41
%
                   
2.54
%
                   
2.68
%
Ratio of interest-earning assets to interest-bearing liabilities
           
117.47
%
                   
116.55
%
                   
116.85
%
       

(1)
In computing the average balance of real estate loans, non-performing loans have been included. Interest income on real estate loans includes loan fees. Interest income on real estate loans also includes applicable prepayment fees and late charges totaling $8.2 million, $5.0 million and $9.0 million during the years ended December 31, 2018 , 2017 and 2016 , respectively.
(2)
Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(3)
Net interest margin represents net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis

The following table represents the extent to which variations in interest rates and the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) variances attributable to fluctuations in volume (change in volume multiplied by prior rate), (ii) variances attributable to rate (changes in rate multiplied by prior volume), and (iii) the net change. Variances attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

   
Years Ended December 31,
 
  

  

2018 over 2017
Increase/(Decrease) Due to
  

  

2017 over 2016
Increase/(Decrease) Due to
  

   
Volume
   
Rate
   
Total
   
Volume
   
Rate
   
Total
 
Interest-earning assets:
 
(Dollars in Thousands)
 
Real Estate Loans
 
$
(17,963
)
 
$
8,318
   
$
(9,645
)
 
$
20,410
   
$
(7,779
)
 
$
12,631
 
C&I loans
   
5,672
     
996
     
6,668
     
3,599
     
(567
)
   
3,032
 
Other loans
   
4
     
(5
)
   
(1
)
   
(1
)
   
2
     
1
 
MBS
   
9,379
     
873
     
10,252
     
(286
)
   
(18
)
   
(304
)
Investment securities
   
(20
)
   
(193
)
   
(213
)
   
448
     
74
     
522
 
Other
   
1,615
     
938
     
2,553
     
218
     
369
     
587
 
Total
 
$
(1,313
)
 
$
10,927
   
$
9,614
   
$
24,388
   
$
(7,919
)
 
$
16,469
 
Interest-bearing liabilities:
                                               
Interest-bearing checking accounts
 
$
13
   
$
(24
)
 
$
(11
)
 
$
57
   
$
(50
)
 
$
7
 
Money market accounts
   
(3,840
)
   
8,357
     
4,517
     
5,119
     
1,454
     
6,573
 
Savings accounts
   
(9
)
   
34
     
25
     
2
     
3
     
5
 
CDs
   
4,301
     
3,166
     
7,467
     
(423
)
   
(145
)
   
(568
)
Borrowed funds
   
1,957
     
2,063
     
4,020
     
(122
)
   
1,330
     
1,208
 
Total
 
$
2,422
   
$
13,596
   
$
16,018
   
$
4,633
   
$
2,592
   
$
7,225
 
Net change in net interest income
 
$
(3,735
)
 
$
(2,669
)
 
$
(6,404
)
 
$
19,755
   
$
(10,511
)
 
$
9,244
 

Comparison of Operating Results for the Years Ended December 31, 2018 , 2017 , and 2016

Net income was $51.3 million in 2018 , compared to $51.9 million in 2017 , and $72.5 million in 2016 . During 2018 , net interest income decreased $6.4 million, the provision for loan losses increased by $1.7 million, non-interest income decreased by $12.0 million and non-interest expense increased by $1.9 million. Income tax expense decreased $21.4 million in 2018 , as a result of $22.0 million of lower pre-tax income primarily as a result of the lower tax rates for 2018 from the Tax Act enacted in December 2017. During 2017 , net interest income increased $9.2 million, the provision for loan losses decreased by $1.6 million, non-interest income decreased by $54.4 million and non-interest expense increased by $1.2 million. Income tax expense decreased $24.1 million in 2017 , as a result of $44.7 million of lower pre-tax income which was partially offset by the re-evaluation of the Company’s deferred tax assets and liabilities due to the change in tax rates for 2018 enacted in December 2017.

Net Interest Income

The discussion of net interest income for 2018 , 2017 , and 2016 below should be read in conjunction with the tables presented on pages 34 and 35 , which set forth certain information related to the 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.

Net interest margin (“NIM”) was 2.41% during 2018 , compared to 2.54% in 2017 , and 2.68% in 2016 . NIM was negatively impacted in 2018 compared to 2017 as a result of the increasing interest rate environment and the Company’s decision to increase rates in order to remain competitive on its deposit product offerings.  NIM was impacted in 2017 by lower income recognized from loan prepayment activity of $5.0 million, benefiting NIM by 8 basis points, compared to $9.0 million, or 17 basis points in 2016 .

Interest income was $221.7 million in 2018 , $212.1 million in 2017 , and $195.6 million in 2016 . During 2018 , interest income increased $9.6 million from 2017 , primarily reflecting increases in interest income of $6.7 million on C&I loans and $10.3 million on MBS, offset by a decrease in interest income of $9.6 million on real estate loans. The growth in interest income was driven by an increase of $52.7 million in average interest-earning assets and a 13 basis point increase in average yield. The increased interest income on C&I loans reflected growth of $108.4 million in their average balance during the comparative period as a result of the Company’s Business Banking initiative to shift the loan portfolio mix and grow the C&I loan portfolio. The increased interest income on MBS reflected growth of $387.1 million in their average balance during the comparative period primarily as a result of the Loan Securitization that was completed in December 2017. During 2017 , interest income increased $16.5 million from 2016 , primarily reflecting increases in interest income of $12.6 million on real estate loans and $3.0 million on C&I loans. The growth in interest income was driven by an increase of $656.6 million in average interest-earning assets, which more than offset the 13 basis point decline in average yield. The increased interest income on real estate loans reflected growth of $567.5 million in their average balance during the comparative period, as new originations exceeded amortization and satisfactions during 2017 due to lower prepayment volume. The increase in interest income on C&I loans reflected an increase of $63.2 million in their average balance as a result of the Company’s Business Banking initiative to shift the loan portfolio mix and grow the C&I loan portfolio.

Interest expense was $75.4 million in 2018 , $59.4 million in 2017 , and $52.1 million in 2016 . During 2018 , interest expense increased $16.0 million from 2017 , primarily reflecting increases in expense of $4.5 million on money market accounts, $7.5 million on CDs, and $4.0 million in interest expense on borrowed funds. The increases of $4.5 million and $7.5 million in interest expense on money market deposits and CDs, respectively, was the result of the Company’s decision to increase rates in order to remain competitive on its deposit product offerings. Interest expense on borrowings increased $4.0 million due to an increase on their average balance of $92.4 million and an increase of 19 basis points in their average cost, as the Company increased the borrowings portfolio to include longer term advances, greater than 2 years. During 2017 , interest expense increased $7.2 million from 2016 , primarily reflecting increases in expense of $6.6 million on money market accounts and $1.2 million in interest expense on borrowed funds. The increase of $6.6 million in interest expense on money market deposits reflected activities of the DimeDirect internet banking channel that increased their average balance by $585.1 million and their average cost by 6 basis points in 2016. Interest expense on borrowings increased $1.2 million due to an increase of 13 basis points in their average cost, resulting from the re-pricing of lower interest rate borrowings during the period.

Provision (Credit) for Loan Losses

The Company recognized a provision for loan losses of $2.2 million, $0.5 million and $2.1 million in 2018 , 2017 , and 2016 , respectively. The $2.2 million provision for loan losses recognized during 2018 resulted mainly from growth in the C&I portfolio in connection with the Company’s growth strategy and charge-offs of $1.2 million on two C&I loans, offset by a reduction of $148.6 million multifamily real estate loans. The $0.5 million provision for loan losses recognized during 2017 resulted mainly from growth in the real estate and C&I portfolio in connection with the Company’s growth strategy, offset by a reduction of $280.0 million multifamily real estate loans due to the Loan Securitization in December 2017 , and continued improvement in the overall credit quality of the loan portfolio. The $2.1 million provision for loan losses recognized during 2016 resulted mainly from growth in the real estate portfolio in connection with the Company’s growth strategy, offset by continued improvement in the overall credit quality of the loan portfolio.

The following table sets forth activity in the Bank's allowance for loan losses at or for the dates indicated:

     
At or for the Year Ended December 31,
 
     
2018
   
2017
   
2016
   
2015
   
2014
 
Allowance for loan losses:
   
(Dollars in Thousands)
 
Balance at beginning of period
   
$
21,033
   
$
20,536
   
$
18,514
   
$
18,493
   
$
20,153
 
Provision (credit) for loan losses
     
2,244
     
520
     
2,118
     
(1,330
)
   
(1,872
)
Charge-offs:
                                         
Multifamily residential
     
(1
)
   
(104
)
   
(92
)
   
(48
)
   
(87
)
Commercial real estate
     
(7
)
   
—
     
(12
)
   
(44
)
   
(336
)
One-to-four family including condominium and cooperative apartment
     
(169
)
   
(16
)
   
(79
)
   
(115
)
   
(46
)
Construction
     
—
     
—
     
—
     
—
     
—
 
C& I

   
(1,329
)
   
—
     
—
     
—
     
—
 
Consumer
     
(5
)
   
(4
)
   
(3
)
   
(2
)
   
(9
)
Total charge-offs
     
(1,511
)
   
(124
)
   
(186
)
   
(209
)
   
(478
)
Recoveries
     
16
     
101
     
90
     
1,560
     
690
 
Balance at end of period
   
$
21,782
   
$
21,033
   
$
20,536
   
$
18,514
   
$
18,493
 

Non-Interest Income

Total   non-interest income was $9.5 million in 2018 , $21.5 million in 2017 , and $75.9 million in 2016 . During 2018 , non-interest income decreased $12.0 million from 2017 due primarily to a gain of $10.4 million recognized on the sale of real estate during the year ended December 31, 2017 . During 2017 , non-interest income increased $54.4 million from 2016 , due primarily to a gain of $68.2 million recognized on the sale of real estate during the year ended December 31, 2016 . Partially offsetting these increases were a $2.7 million gain on the sale of pooled bank trust preferred securities and a $1.5 million gain on the sale of loans recognized in 2017 .
 
Non-Interest Expense

Non-interest expense was $86.9 million in 2018 , $85.0 million in 2017 , and $83.8 million in 2016 . During 2018 , the Company recognized non-recurring expenses of $0.7 million for expenses related to a workforce reduction. During 2017 , the Company recognized non-recurring expenses of $1.3 million for loss on extinguishment of debt related to the redemption of trust preferred securities and $1.7 million related to de-conversion costs associated with the planned change in the Bank’s core processor. During 2016 , the Company recognized a non-cash, non-tax deductible, and non-recurring expense of $11.3 million on the prepayment of the Employee Stock Ownership Plan share acquisition loan by the plan (the "ESOP Charge") . Excluding these items, non-interest expense was $86.2 million in 2018 , $82.0 million in 2017 , and $72.5 million in 2016 . The increase of $4.2 million during 2018 compared to 2017 was primarily the result of increases of salaries and benefits expense of $7.1 million and occupancy expense of $1.0 million, offset by a decrease in marketing expense of $2.6 million and a lower FDIC insurance premiums of $1.0 million. The remaining decrease was experienced in other operating expenses. The $7.1 million increase in salaries and benefits expense was attributable to the continued build out of the Business Banking division, and the Residential Lending group. The $1.0 million increase in occupancy expense was attributable to a full year of expense related to two additional office locations opened during 2017. The $2.6 million of lower marketing expense was related to reduced marketing initiatives for DimeDirect, our internet banking channel. The lower FDIC insurance premiums of $1.0 million was mainly the result of lower FDIC assessment rates. The increase in non-interest expense of $9.5 million during 2017 compared to 2016 was primarily the result of increases of salaries and benefits expense of $2.5 million, occupancy expense of $2.1 million, data processing expense of $3.1 million, marketing expense of $1.7 million, accelerated consulting expenses of $1.4 million, higher FDIC insurance premiums of $0.5 million, and recognition of the bank’s first loss guarantee for the Loan Securitization totaling $0.4 million. The remaining increase was experienced in other operating expenses. The $2.5 million increase in salaries and benefits expense was attributable to the build out of the Business Banking division. The $2.1 million increase in occupancy expense was attributable to the new corporate office, and the addition of two additional office locations. The $3.1 million of additional data processing expense was the result of various technology enhancement initiatives related to customer banking services. The $1.7 million of additional marketing expense was related to deposit gathering initiatives as the market continues to experience elevated levels of competition. The additional consulting expense of $1.4 million was related to an earlier-than-anticipated completion of such services.

Non-interest expense as a percentage of average assets was 1.38%, 1.37%, and 1.51% in 2018 , 2017 , and 2016 , respectively. Excluding the non-recurring items mentioned above, the ratio was 1.37% in 2018 , higher than 1.32% in 2017 , and 1.31% in 2016 . The increase during 2018 compared to 2017 was primarily due to the growth in non-interest expense outweighing $67.8 million of growth in average assets.

Income Tax Expense

Income tax expense was $15.4 million in 2018 , $36.9 million in 2017 , and $60.9 million in 2016 . Income tax expense decreased $21.4 million during 2018 compared to 2017 primarily as a result of $22.0 million of lower pre-tax income during 2018 and lower tax rates as a result of the passage of the Tax Act. The $22.0 million decrease in pre-tax income was attributable to lower net interest income by $6.4 million and the $10.4 million gain on sale of real estate during 2017 , offset by increases of $1.7 million of provision expense and $1.9 million of non-interest expense compared to 2017 . During 2017 , income tax expense decreased $24.1 million compared to 2016 , primarily as a result of $44.7 million of lower pre-tax income during 2017 , and an income tax benefit of $1.5 million for a discrete item related to distributions of retirement benefits from the Company’s Benefit Maintenance Plan (the “BMP”), offset by $3.1 million of tax expense from the re-valuation of the Company’s deferred tax assets and liabilities due to the passage of the Tax Act. The $44.7 million decrease in pre-tax income was attributable to the one-time $68.2 million gain on sale of real estate during 2016 , partially offset by a one-time $10.4 million gain on sale of real estate during 2017 and the $11.3 million ESOP Charge that occurred during 2016 .

The Company’s consolidated tax rate was 23.1%, 41.5%, and 45.7% in 2018 , 2017 , and 2016 , respectively.

Comparison of Financial Condition at December 31, 2018 and December 31, 2017

Assets totaled $6.32 billion at December 31, 2018 , $82.9 million below their level at December 31, 2017 .

Real estate loans decreased $300.9 million during the year ended December 31, 2018 , primarily due to $885.7 million of aggregate amortization of real estate loans (including refinancing of existing loans). These decreases exceeded the $579.7 million of originations of such loans (also including refinancing of existing loans). C&I loans increased $92.8 million during the year ended December 31, 2018 , in line with the Bank’s strategic plans to grow the C&I loan portfolio.

Total securities increased $150.4 million during the year ended December 31, 2018 , as a result of holding increased on-balance sheet liquidity, which will be based on monetary policy, interest rates, the Bank’s funding needs, and periodic stress testing analysis.

Total liabilities decreased $86.4 million during the year ended December 31, 2018 , primarily as a result of a decrease in deposits of $46.7 million and a decrease in FHLBNY advances of $44.7 million. Please refer to "Part II – Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a discussion of the decrease in borrowings during the year ended December 31, 2018 .

Stockholders' equity increased $3.5 million during the year ended December 31, 2018 , due primarily to net income of $51.3 million, which added to the cumulative balance of stockholders' equity. Offsetting this item was $20.8 million in cash dividends paid during the period, $25.9 million of repurchases of Common Stock, and $2.7 million other comprehensive loss reducing the cumulative balance of stockholders’ equity. The increase in accumulated other comprehensive loss was due to comprehensive loss of $2.7 million, which was primarily the result of $2.1 million from changes in unrealized loss on available-for-sale securities and $1.0 million from changes in unrealized loss on derivatives, offset by $0.3 million from changes in retirement plan obligations.

Loan Portfolio Composition

The Bank’s loan portfolio totaled $5.38 billion at December 31, 2018 , consisting primarily of real estate loans secured by multifamily residential apartment buildings, including buildings organized under a cooperative form of ownership; commercial properties; and one-to-four family residential and individual condominium or cooperative apartments. The following table sets forth the composition of the Bank’s real estate and other loan portfolios (including loans held for sale) in dollar amounts and percentages at the dates indicated:

   
At December 31,
 
   
2018
   
Percent
of Total
   
2017
   
Percent
of Total
   
2016
   
Percent
of Total
   
2015
   
Percent
of Total
   
2014
   
Percent
of Total
 
Real Estate loans:
 
(Dollars in Thousands)
 
Multifamily residential
 
$
3,859,996
     
71.69
%
 
$
4,374,073
     
78.23
%
 
$
4,592,282
     
81.59
%
 
$
3,752,328
     
80.02
%
 
$
3,292,753
     
80.05
%
Commercial real estate
   
1,167,415
     
21.68
     
1,008,299
     
18.03
     
958,459
     
17.03
     
863,184
     
18.41
     
745,463
     
18.12
 
One-to-four family, including condominium and cooperative apartment
   
96,092
     
1.78
     
62,709
     
1.12
     
74,022
     
1.32
     
72,095
     
1.54
     
73,500
     
1.79
 
Construction and land acquisition
   
29,386
     
0.55
     
9,115
     
0.16
     
—
     
—
     
—
     
—
     
—
     
—
 
Total real estate loans
   
5,152,889
     
95.71
     
5,454,196
     
97.54
     
5,624,763
     
99.94
     
4,687,607
     
99.97
     
4,111,716
     
99.96
 
C&I loans
   
229,890
     
4.27
     
135,660
     
2.43
     
2,058
     
0.03
     
—
     
—
     
—
     
—
 
Consumer loans:
                                                                               
Depositor loans
   
556
     
0.01
     
489
     
0.01
     
445
     
0.01
     
557
     
0.01
     
677
     
0.01
 
Consumer installment and other
   
636
     
0.01
     
890
     
0.02
      912
     
0.02
     
1,033
     
0.02
     
1,152
     
0.03
 
Total consumer loans
   
1,192
     
0.02
     
1,379
     
0.03
     
1,357
     
0.03
     
1,590
     
0.03
     
1,829
     
0.04
 
Gross loans
   
5,383,971
     
100.00
%
   
5,591,235
     
100.00
%
   
5,630,236
     
100.00
%
   
4,689,197
     
100.00
%
   
4,113,545
     
100.00
%
Net unearned costs
   
10,944
             
10,882
             
8,244
             
7,579
             
5,695
         
Allowance for loan losses
   
(21,782
)
           
(21,033
)
           
(20,536
)
           
(18,514
)
           
(18,493
)
       
Loans, net
 
$
5,373,133
           
$
5,581,084
           
$
5,617,944
           
$
4,678,262
           
$
4,100,747
         
Loans serviced for others:
                                                                               
One-to-four family, including condominium and cooperative apartment
 
$
5,277
           
$
2,664
           
$
3,453
           
$
4,374
           
$
5,215
         
Multifamily residential
   
306,508
             
334,819
             
17,625
             
18,735
             
19,038
         
Commercial real estate
   
912
             
—
             
—
             
—
             
—
         
C&I
   
887
             
—
             
—
             
—
             
—
         
Total loans serviced for others
 
$
313,584
           
$
337,483
           
$
21,079
           
$
23,109
           
$
24,253
         

The following table sets forth the composition of the Bank’s loan portfolios (including loans held for sale and consumer loans) by ARM or fixed-rate repayment type:

   
For the Year Ended December 31,
 
   
2018
   
Percent
of Total
   
2017
   
Percent
of Total
   
2016
   
Percent
of Total
   
2015
   
Percent
of Total
   
2014
   
Percent
of Total
 
   
(Dollars in Thousands)
 
Real Estate loans:
                                                           
ARM
 
$
4,328,268
     
80.41
%
 
$
4,691,101
     
83.92
%
 
$
4,746,112
     
84.35
%
 
$
3,692,014
     
78.73
%
 
$
2,981,135
     
72.50
%
Fixed-rate
   
824,621
     
15.32
     
763,095
     
13.65
     
878,651
     
15.62
     
997,183
     
21.27
     
1,130,581
     
27.50
 
Total real estate loans
   
5,152,889
     
95.73
     
5,454,196
     
97.57
     
5,624,763
     
99.97
     
4,689,197
     
100.00
     
4,111,716
     
100.00
 
C&I loans:
                                                                               
ARM
   
174,721
     
3.25
     
93,330
     
1.67
     
2,058
     
0.03
     
—
     
—
     
—
     
—
 
Fixed-rate
   
55,169
     
1.02
     
42,330
     
0.76
     
—
     
—
     
—
     
—
     
—
     
—
 
Total C&I loans
   
229,890
     
4.27
     
135,660
     
2.43
     
2,058
     
0.03
     
—
     
—
     
—
     
—
 
Total real estate and C&I loans
 
$
5,382,779
     
100.00
%
 
$
5,589,856
     
100.00
%
 
$
5,626,821
     
100.00
%
 
$
4,689,197
     
100.00
%
 
$
4,111,716
     
100.00
%

At December 31, 2018 , the Bank had $150.1 million of loan commitments that were accepted by the borrowers. All of these commitments are expected to close during the year ending December 31, 2019 .

At December 31, 2018 , the Bank’s portfolio of whole loans or loan participations that it originated and sold to other financial institutions with servicing retained totaled $313.6 million, all of which were sold without recourse.

Loan Originations, Purchases, Sales and Servicing

For the year ended December 31, 2018 , total loan originations were $579.7 million. The following table sets forth the Bank's loan originations (including loans held for sale), sales, purchases and principal repayments for the periods indicated:

   
For the Year Ended December 31,
 
   
2018
   
2017
   
2016
   
2015
   
2014
 
Gross loans:
 
(Dollars in Thousands)
 
At beginning of period
 
$
5,591,235
   
$
5,628,178
   
$
4,689,197
   
$
4,113,545
   
$
3,694,349
 
Real estate loans originated:
                                       
Multifamily residential
   
262,527
     
558,764
     
1,321,242
     
1,098,841
     
748,067
 
Commercial real estate
   
247,815
     
183,701
     
204,720
     
236,320
     
191,944
 
One-to-four family, including condominium and cooperative apartment (1)
   
39,985
     
1,268
     
2,468
     
5,316
     
2,302
 
Equity lines of credit on multifamily residential or commercial properties
   
7,491
     
5,034
     
5,547
     
3,389
     
4,657
 
Construction and land acquisition
   
21,883
     
9,115
     
—
     
—
     
—
 
Total real estate loans originated
   
579,701
     
757,882
     
1,533,977
     
1,343,866
     
946,970
 
C&I loans originated
   
174,042
     
138,643
     
—
     
—
     
—
 
Other loans originated
   
845
     
1,070
     
3,073
     
1,334
     
1,263
 
Total loans originated
   
754,588
     
897,595
     
1,537,050
     
1,345,200
     
948,233
 
Loans purchased
   
7,800
     
—
     
157,782
     
99,745
     
225,604
 
Less:
                                       
Principal repayments (including satisfactions and refinances)
   
963,594
     
601,176
     
755,851
     
859,721
     
737,776
 
Loans sold (2)
   
6,058
     
332,362
     
—
     
9,572
     
16,865
 
Gross loans at end of period
 
$
5,383,971
   
$
5,591,235
   
$
5,628,178
   
$
4,689,197
   
$
4,113,545
 

(1)
Includes one-to-four family home equity and home improvement loans.
(2)
Includes $1.5 million, $4.5 million, $9.6 million and $3.9 million of note sales on problem loans from portfolio during the years ended December 31, 2018, 2017, 2015 and 2014 , respectively.

In the event that the Bank were to sell loans in the secondary market or through securitization, it generally retains servicing rights on the loans sold. These fees are typically derived based upon the difference between the actual origination rate and contractual pass-through rate of the loans at the time of sale. At December 31, 2018 , the Bank had recorded servicing right assets ("SRAs") of $1.3 million associated with the sale of loans to third party institutions in which the Bank retained the servicing of the loan. The Bank outsources the servicing of a portion of our one-to-four family mortgage loan portfolio to an unrelated third party under a sub-servicing agreement. Fees paid under the sub-servicing agreement are reported as a component of occupancy, equipment and systems expense in the consolidated statements of income.

At December 31, 2018, the Bank had $38.9 million in unfunded construction loan commitments.

Loan Maturity and Repricing

As of December 31, 2018 , $4.77 billion, or 88.5% of the loan portfolio was scheduled to mature or reprice within five years. In addition at December 31, 2018 , loans totaling $600.1 million were required to make only monthly interest payments on their outstanding principal balance. The great majority of these loans commence principal amortization prior to their contractual maturity date.

The following table distributes the Bank’s real estate, C&I, and consumer loan portfolios at December 31, 2018 by the earlier of the maturity or next repricing date. ARMs are included in the period during which their interest rates are next scheduled to adjust. The table does not include scheduled principal amortization.

   
Real Estate
Loans
   
C&I
Loans
   
Consumer
Loans
   
Total
 
Amount due to Mature or Reprice During the Year Ending:
 
(Dollars in Thousands)
 
December 31, 2019
 
$
1,555,822
   
$
173,248
   
$
1,192
   
$
1,730,262
 
December 31, 2020
   
909,274
     
5,816
     
—
     
915,090
 
December 31, 2021
   
1,027,277
     
518
     
—
     
1,027,795
 
December 31, 2022
   
843,562
     
24,941
     
—
     
868,503
 
December 31, 2023
   
209,800
     
13,629
     
—
     
223,429
 
Sub-total (within 5 years)
   
4,545,735
     
218,152
     
1,192
     
4,765,079
 
December 31, 2024 and beyond
   
607,154
     
11,738
     
—
     
618,892
 
Total
 
$
5,152,889
   
$
229,890
   
$
1,192
   
$
5,383,971
 

Asset Quality

Non-accrual Loans

Within the Bank’s loan portfolio (excluding deposit overdraft loans), sixteen non-accrual loans totaled $2.3 million at December 31, 2018 and eight non-accrual loans totaled $0.5 million December 31, 2017 . During the year ended December 31, 2018 , eighteen loans totaling $6.0 million were placed on non-accrual status, five non-accrual loans totaling $1.3 million were fully satisfied according to their contractual terms, three non-accrual loan totaling $1.3 million were fully charged-off, two non-accrual loans totaling $1.5 million were sold and principal amortization of $0.07 million was recognized on five non-accrual loans. The remaining two non-accrual loans had no activity.

TDRs

At both December 31, 2018 and 2017 , all TDRs were collateralized by real estate that generated rental income. For TDRs that demonstrated conditions sufficient to warrant accrual status, the present value of the expected net cash flows of the underlying property was utilized as the primary means of determining impairment. Any shortfall in the present value of the expected net cash flows calculated at each measurement period (typically quarter-end) compared to the present value of the expected net cash flows at the time of the original loan agreement was recognized as either an allocated reserve (in the event that it related to lower expected interest payments) or a charge-off (if related to lower expected principal payments). For TDRs on non-accrual status, an appraisal of the underlying real estate collateral is deemed the most appropriate measure to utilize when evaluating impairment and any shortfall in valuation from the recorded balance is accounted for through a charge-off. In the event that either an allocated reserve or a charge-off is recognized on TDRs, the periodic loan loss provision is impacted. There were no TDRs on non-accrual status at December 31, 2018 or  2017 .

There were no loans modified in a manner that met the criteria of a TDR during the twelve-month period ended December 31, 2018 or 2017 .

Impaired Loans

The recorded investment in loans deemed impaired (as defined in Note 8 to the Company’s Consolidated Financial Statements) was $6.0 million, consisting of thirteen loans, at December 31, 2018 , compared to $8.2 million, consisting of seven loans, at December 31, 2017 . During the year ended December 31, 2018 , twelve loans totaling $5.1 million were added to impaired loans, two impaired loans totaling $4.4 million were fully satisfied according to their contractual terms, two impaired loans totaling $1.3 million were fully charged-off, two impaired loans totaling $1.5 million were sold, and principal amortization totaling $0.2 million was recognized on five impaired loans.

The following is a reconciliation of non-accrual, TDR, and impaired loans as of the dates indicated:

     
At December 31,
 
     
2018
   
2017
   
2016
   
2015
   
2014
 
Non-accrual loans (1) :
   
(Dollars in Thousands)
 
One-to-four family residential, including condominium and cooperative apartment
   
$
712
   
$
436
   
$
1,012
   
$
1,113
   
$
1,310
 
Multifamily residential and residential mixed-use
     
280
     
—
     
2,675
     
287
     
167
 
Commercial real estate and commercial mixed-use
     
1,041
     
93
     
549
     
207
     
4,717
 
C& I

   
309
     
—
     
—
     
—
     
—
 
Consumer
     
3
     
4
     
1
     
4
     
4
 
Total non-accrual loans
     
2,345
     
533
     
4,237
     
1,611
     
6,198
 
Non-accrual one-to-four family and consumer loans deemed homogeneous loans (2)
     
(715
)
   
(440
)
   
(1,013
)
   
(1,116
)
   
(1,314
)
TDRs (1) :
                                         
One-to-four family residential, including condominium and cooperative apartment
     
14
     
22
     
407
     
598
     
605
 
Multifamily residential and residential mixed-use
     
271
     
619
     
658
     
696
     
1,105
 
Commercial real estate and commercial mixed-use
     
4,084
     
7,470
     
7,624
     
7,772
     
13,390
 
Total TDRs
     
4,369
     
8,111
     
8,689
     
9,066
     
15,100
 
Impaired loans
   
$
5,999
   
$
8,204
   
$
11,913
   
$
9,561
   
$
19,984
 

(1)
Total non-accrual loans include some loans that were modified in a manner that met the criteria for a TDR. There were no non-accruing TDRs at December 31, 2018 , 2017 or 2016. There were non-accruing TDRs which totaled $0.2 million and $4.7 million at December 31, 2015 and 2014 , respectively, which are included in the non-accrual loans total.
(2)
Smaller balance homogeneous loans, such as condominium or cooperative apartment and one-to-four family residential real estate loans with balances less than or equal to the FNMA conforming loan limits for high-cost areas such as the Bank’s primary lending area (“FNMA Limits”) and consumer loans, are collectively evaluated for impairment, and accordingly, not separately identified for impairment disclosures.

OREO

Property acquired by the Bank, or a subsidiary, as a result of foreclosure on a real estate loan or a deed in lieu of foreclosure is classified as OREO. Upon entering OREO status, the Bank obtains a current appraisal on the property and reassesses the likely realizable value (a/k/a fair value) of the property quarterly thereafter. OREO is carried at the lower of the fair value or book balance, with any write downs recognized through a provision recorded in non-interest expense. Only the appraised value, or either contractual or formal marketed values that fall below the appraised value, is used when determining the likely realizable value of OREO at each reporting period. The Bank typically seeks to dispose of OREO properties in a timely manner. As a result, OREO properties have generally not warranted subsequent independent appraisals.

There were no OREO properties as of December 31, 2018 or 2017 . The Bank did not recognize any provisions for losses on OREO properties during the years ended December 31, 2018 or 2017 .

The following table sets forth information regarding non-accrual loans and certain other non-performing assets (including OREO) at the dates indicated:

   
At December 31,
 
   
2018
   
2017
   
2016
   
2015
   
2014
 
   
(Dollars in Thousands)
 
Total non-accrual loans
 
$
2,345
   
$
533
   
$
4,237
   
$
1,611
   
$
6,198
 
Non-performing assets:
                                       
TRUP CDOs
   
—
     
—
     
1,270
     
1,236
     
904
 
OREO
   
—
     
—
     
—
     
148
     
18
 
Total non-performing assets
   
2,345
     
533
     
5,507
     
2,995
     
7,120
 
Ratios:
                                       
Total non-accrual loans to total loans
   
0.04
%
   
0.01
%
   
0.08
%
   
0.03
%
   
0.15
%
Total non-performing assets to total assets
   
0.04
     
0.01
     
0.09
     
0.06
     
0.16
 

Other Potential Problem Loans

(19)
Accruing Loans 90 Days or More Past Due

The Bank continued accruing interest on one loan with an aggregate outstanding balance of $0.1 million at December 31, 2018 , and fourteen loans with an aggregate outstanding balance of $14.1 million at December 31, 2017 , all of which were 90 days or more past due on their respective contractual maturity dates. These loans continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments due at maturity. These loans were well secured and were expected to be refinanced, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.

(ii) Loans Delinquent 30 to 89 Days

The Bank had three real estate loans totaling $0.31 million that were delinquent between 30 and 89 days at December 31, 2018 , compared to three such loans totaling $0.03 million at December 31, 2017 . The 30 to 89 day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans. There were two C&I loans totaling $0.1 million that were delinquent between 30 and 89 days at December 31, 2018 . There were no delinquent C&I loans between 30 and 89 days at December 31, 2017 .

(iii) Temporary Loan Modifications

There were no temporary modifications (modifications that were either sufficiently minor or temporary in nature so as to not meet the criteria of a TDR) entered into during the years ended December 31, 2018 or 2017 . Temporary modifications previously entered into performed according to their contractual terms during the years ended December 31, 2018 and 2017 .

Allowance for Loan Losses

The following table sets forth the Bank’s allowance for loan losses allocated by underlying collateral type and the percent of each to total loans at the dates indicated. Prior to December 31, 2016, any allocated allowance associated with loans both deemed impaired and internally graded as Special Mention or Substandard was reflected on the impaired loan line. Please refer to Notes 7 and 8 to the Company’s Consolidated Financial Statements for a description of impaired, substandard, special mention and pass graded loans.

   

At December 31,

 

 

 

2018

   

2017

   

2016

   

2015

   

2014

 

 
Allocated
Amount
   
Percent
of Loans
in Each
Category
to Total
Loans
   
Allocated
Amount
   
Percent
of Loans
in Each
Category
to Total
Loans
   
Allocated
Amount
   
Percent
of Loans
in Each
Category
to Total
Loans
   
Allocated
Amount
   
Percent
of Loans
in Each
Category
to Total
Loans
   
Allocated
Amount
   
Percent
of Loans
in Each
Category
to Total
Loans
 

 

(Dollars in Thousands)

 

Impaired loans

 

$

—

     

—

   

$

—

     

0.15

%

 

$

—

     

0.21

%

 

$

—

     

0.20

%

 

$

19

     

0.49

%

Substandard loans not deemed impaired (1)

   

n/a

     

n/a

     

n/a

     

n/a

     

n/a

     

n/a

     

348

     

0.37

     

371

     

0.44

 

Special Mention loans (1)

   

n/a

     

n/a

     

n/a

     

n/a

     

n/a

     

n/a

     

88

     

0.37

     

228

     

0.81

 

Pass graded loans:

                                                                               

Multifamily residential

   

13,446

     

71.69

     

15,219

     

78.20

     

16,555

     

81.56

     

13,942

     

79.69

     

13,600

     

79.38

 

Commercial real estate

   

3,777

     

21.69

     

3,535

     

17.90

     

3,816

     

16.86

     

3,902

     

17.88

     

4,156

     

17.15

 

One-to-four family including condominium and cooperative apartment

   

198

     

1.80

     

116

     

1.13

     

145

     

1.31

     

214

     

1.46

     

95

     

1.68

 

Construction and land acquisition

   

397

     

0.55

     

123

     

0.16

     

—

     

—

     

—

     

—

     

—

     

—

 

C&I

   

3,946

     

4.25

     

2,021

     

2.44

     

—

     

—

     

—

     

—

     

—

     

—

 

Consumer

   

18

     

0.02

     

19

     

0.02

     

20

     

0.06

     

20

     

0.03

     

24

     

0.05

 

Total

 

$

21,782

     

100.00

%

 

$

21,033

     

100.00

%

 

$

20,536

     

100.00

%

 

$

18,514

     

100.00

%

 

$

18,493

     

100.00

%


(1) During the year ended December 31, 2016, the allowance methodology was refined such that there was not a component for Substandard and Special Mention loans. All non-impaired loans as of December 31, 2018 , 2017 , and 2016 were considered Pass graded loans.

The following table sets forth information about the Bank’s allowance for loan losses at or for the dates indicated:

   
At or for the Year Ended December 31,
 
   
2018
   
2017
   
2016
   
2015
   
2014
 
   
(Dollars in Thousands)
 
Total loans outstanding at end of period (1)
 
$
5,394,915
   
$
5,602,117
   
$
5,636,422
   
$
4,696,776
   
$
4,119,240
 
Average total loans outstanding during the period (1)
   
5,454,128
     
5,843,409
     
5,212,729
     
4,328,977
     
3,964,520
 
Allowance balance at end of period
   
21,782
     
21,033
     
20,536
     
18,514
     
18,493
 
Allowance for loan losses to total loans at end of period
   
0.40
%
   
0.38
%
   
0.36
%
   
0.39
%
   
0.45
%
Allowance for loan losses to total non-performing loans at end of period
   
928.87
     
3,946.15
     
484.68
     
1,149.22
     
298.37
 
Allowance for loan losses to total non-performing loans and TDRs at end of period
   
363.09
     
243.32
     
158.87
     
170.10
     
71.09
 
Ratio of net charge-offs to average loans outstanding during the period
   
0.03
   
NM
   
NM
     
(0.03
)
   
(0.01
)

(1) Total loans represent gross loans (including loans held for sale), inclusive of deferred loan fees and discounts.
NM = not meaningful

Reserve for Loan Commitments

At December 31, 2018 , the Bank maintained a reserve of $0.03 million associated with unfunded loan commitments accepted by the borrower. This reserve is determined based upon the outstanding volume of loan commitments at each period end. Any increases or reductions in this reserve are recognized in periodic non-interest expense.

Investment Activities

The following table sets forth the amortized/historical cost and fair value of the total portfolio of investment securities and MBS by accounting classification and type of security that were owned by either the Bank or Holding Company at the dates indicated:

   
At December 31,
 
   
2018
   
2017
   
2016
 
   
Amortized/
Historical
Cost
   
Fair
Value
   
Amortized/
Historical
Cost
   
Fair
Value
   
Amortized/
Historical
Cost (1)
   
Fair
Value
 
   
(Dollars in Thousands)
 
MARKETABLE EQUITY SECURITIES
                                   
Mutual funds
  $
5,713
   
$
5,667
    $
—
    $
—
    $
—
    $
—
 
Total marketable equity securities
   
5,713
     
5,667
     
—
     
—
     
—
     
—
 
                                                 
DEBT SECURITIES
                                               
Available-for-Sale:
                                               
Agency notes
   
25,110
     
25,145
     
—
     
—
     
—
     
—
 
Corporate securities
   
11,167
     
11,135
     
—
     
—
     
—
     
—
 
MBS
                                               
FHLMC pass through certificates
 
95,683
   
95,347
   
8,969
   
8,968
   

—
   

—
 
FNMA pass through certificates
   
208,582
     
208,081
     
30,693
     
30,516
     
—
     
—
 
Government National Mortgage Association (“GNMA”) pass through certificates
   
—
     
—
      33,276       33,145       360       372  
Agency issued CMOs
   
113,470
     
111,992
     
278,251
     
278,755
     
3,247
     
3,186
 
Total debt securities available-for-sale
   
505,786
     
502,885
     
351,189
     
351,384
     
3,607
     
3,558
 
                                                 
INVESTMENT SECURITIES
                                               
TRUP CDOs held-to-maturity
   
—
     
—
     
—
     
—
     
5,378
     
7,296
 
Total investment securities held-to-maturity
   
—
     
—
     
—
     
—
     
5,378
     
7,296
 
Available-for-Sale:
                                               
Mutual funds
   
—
     
—
     
3,779
     
4,006
     
4,011
     
3,895
 
Total investment securities available-for-sale
   
—
     
—
     
3,779
     
4,006
      4,011      
3,895
 
Trading:
                                               
Mutual funds
   
—
     
—
     
2,648
     
2,715
     
7,015
     
6,953
 
Total trading securities
   
—
     
—
     
2,648
     
2,715
     
7,015
     
6,953
 
TOTAL SECURITIES
 
$
511,499
   
$
508,552
   
$
357,616
   
$
358,105
   
$
20,011
   
$
21,702
 

(1) Amount is net of cumulative credit related Other than Temporary Impairment (“OTTI”) on TRUP CDOs held-to-maturity totaling $8.6 million at December 31, 2016 .

MBS

The Company’s consolidated investment in MBS totaled $466.6 million at December 31, 2018 . The average duration of these securities was 3.3 years as of December 31, 2018 .

The Company typically classifies MBS as available-for-sale in recognition of the prepayment uncertainty associated with these securities, and carries them at fair market value. The fair value of MBS available-for-sale was $2.9 million below their amortized cost at December 31, 2018 .

The following table sets forth activity in the MBS portfolio for the periods indicated:

   
For the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
   
(Dollars in Thousands)
 
Amortized cost at beginning of period
 
$
351,189
   
$
3,607
   
$
418
 
(Sales) Purchases, net
   
195,481
     
348,644
     
3,267
 
Principal repayments
   
(76,217
)
   
(957
)
   
(59
)
Premium amortization, net
   
(944
)
   
(105
)
   
(19
)
Amortized cost at end of period
 
$
469,509
   
$
351,189
   
$
3,607
 

The increase in the MBS portfolio during the year ended December 31, 2017 was primarily due to the purchase of FHLMC guaranteed structured pass-through certificates that were issued in connection with the Loan Securitization transaction that closed in December 2017 and purchased entirely by the Bank.

The following table presents the amortized cost, fair value and weighted average yield of the Company’s consolidated MBS at December 31, 2018 , categorized by remaining period to contractual maturity:

   
Amortized
Cost
   
Fair
Value
   
Weighted
Average Yield
 
   
(Dollars in Thousands)
 
Due within 1 year
 
$
—
   
$
—
     
—
%
Due after 1 year but within 5 years
   
4,669
     
4,583
     
2.79
 
Due after 5 years but within 10 years
   
266,560
     
263,905
     
2.73
 
Due after ten years
   
198,280
     
198,117
     
3.21
 
Total
 
$
469,509
   
$
466,605
     
2.93
%

With respect to MBS, the entire carrying amount of each security at December 31, 2018 is reflected in the above table in the maturity period that includes the final security payment date and, accordingly, no effect has been given to periodic repayments or possible prepayments. As mentioned previously, the investment policies of both the Holding Company and the Bank call for the purchase of only priority tranches when investing in MBS. As a result, the weighted average duration of the Company's MBS approximated 3.3 years as of December 31, 2018 when giving consideration to anticipated repayments or possible prepayments, which is significantly less than their weighted average maturity.

Equity Investments

The Holding Company's investment in mutual funds totaled $5.7 million at December 31, 2018 , $0.05 million below their cost basis.

Sources of Funds

Deposits

The following table sets forth the Bank's deposit accounts and the related weighted average interest rates at the dates indicated:

   
At December 31, 2018
   
At December 31, 2017
   
At December 31, 2016
 
   
Amount
   
Percent
of Total
Deposits
   
Weighted
Average
Rate
   
Amount
   
Percent
of Total
Deposits
   
Weighted
Average
Rate
   
Amount
   
Percent
of Total
Deposits
   
Weighted
Average
Rate
 
   
(Dollars in Thousands)
 
Savings accounts
 
$
336,669
     
7.7
%
   
0.06
%
 
$
362,092
     
8.2
%
   
0.07
%
 
$
366,921
     
8.3
%
   
0.05
%
CDs
   
1,410,037
     
32.4
     
1.97
     
1,091,887
     
24.8
     
1.47
     
1,048,465
     
23.9
     
1.47
 
Money market accounts
   
2,098,599
     
48.2
     
1.43
     
2,517,439
     
57.2
     
0.96
     
2,576,081
     
58.6
     
0.86
 
Interest-bearing checking accounts
   
115,972
     
2.7
     
0.30
     
124,283
     
2.8
     
0.08
     
106,525
     
2.4
     
0.08
 
Non-interest-bearing checking accounts
   
395,477
     
9.1
     
—
     
307,746
     
7.0
     
—
     
297,434
     
6.8
     
—
 
Totals
 
$
4,356,754
     
100.00
%
   
1.33
%
 
$
4,403,447
     
100.00
%
   
0.91
%
 
$
4,395,426
     
100.00
%
   
0.86
%

The following table presents the deposit activity of the Bank for the periods indicated:

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
   
(Dollars in Thousands)
 
Deposits
 
$
8,670,507
   
$
10,142,501
   
$
8,674,460
 
Withdrawals
   
(8,767,589
)
   
10,172,871
     
7,495,718
 
Deposits greater than Withdrawals
 
$
(97,082
)
 
$
(30,370
)
 
$
1,178,742
 
Interest credited
   
50,389
     
38,391
     
32,374
 
Total (decrease) increase in deposits
 
$
(46,693
)
 
$
8,021
   
$
1,211,116
 

The weighted average maturity of the Bank's CDs at December 31, 2018 was 10.0   months, compared to 12.7 months at December 31, 2017 . The following table presents, by interest rate ranges, the dollar amount of CDs outstanding at the dates indicated and the period to maturity of the CDs outstanding at December 31, 2018 :

   
Period to Maturity at December 31, 2018
   
Total at December 31,
 
Interest Rate Range
 
One Year
or Less
   
Over One
Year to
Three Years
   
Over Three
Years to
Five Years
   
Over
Five Years
   
2018
   
2017
   
2016
 
   
(Dollars in Thousands)
   
(Dollars in Thousands)
 
1.00% and below
 
$
47,640
   
$
12,583
   
$
—
   
$
—
   
$
60,223
   
$
155,360
   
$
159,367
 
1.01% to 2.00%
   
344,751
     
101,241
     
24,143
     
4,847
     
474,982
     
805,344
     
708,028
 
2.01% to 3.00%
   
640,833
     
197,781
     
36,173
     
—
     
874,787
     
111,322
     
160,725
 
3.01% and above
   
—
     
—
     
45
     
—
     
45
     
19,861
     
20,345
 
Total
 
$
1,033,224
   
$
311,605
   
$
60,361
   
$
4,847
   
$
1,410,037
   
$
1,091,887
   
$
1,048,465
 

At December 31, 2018 , the Bank had $924.4 million in CDs with a minimum denomination of $100,000 as follows:

Maturity Date
 
Amount
   
Weighted
Average Rate
 
   
(Dollars in Thousands)
 
Within three months
 
$
190,153
     
1.87
%
After three but within six months
   
218,222
     
1.95
 
After six but within twelve months
   
221,943
     
3.01
 
After 12 months
   
294,122
     
1.57
 
Total
 
$
924,440
     
2.07
%

The Bank is authorized to accept brokered deposits up to an aggregate limit of 6.5% of total assets. At December 31, 2018 , brokered deposits consisted of $243.7 million, which include purchased CDs from the CDARS program and purchased MMAs from the ICS program. At December 31, 2017 , total brokered deposits consisted of $190.4 million, which include purchased CDs from the CDARS program and also purchased MMAs from the ICS program.

Borrowings

The Bank's total borrowing line with FHLBNY equaled $2.15 billion at December 31, 2018 . The Bank had $1.13 billion of FHLBNY advances outstanding at December 31, 2018 , and $1.17 billion at December 31, 2017 . The Bank maintained sufficient collateral, as defined by the FHLBNY (principally in the form of real estate loans), to secure such advances.

The following table presents information for FHLBNY advances as of the periods indicated:

   
At or for the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
   
Amount
   
Average
Cost
   
Amount
   
Average
Cost
   
Amount
   
Average
Cost
 
   
(Dollars in Thousands)
 
Balance outstanding at end of period
 
$
1,125,350
     
2.27
%
 
$
1,170,000
     
1.67
%
 
$
831,125
     
1.57
%
Weighted average balance outstanding during the period
   
1,016,812
     
1.93
     
939,185
     
1.63
     
972,179
     
1.45
 
Maximum balance outstanding at month end during period
   
1,177,450
             
1,222,500
             
1,277,125
         

The Company had no securities sold under agreements to repurchase at December 31, 2018 or 2017 .

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 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, appropriate 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. Reports detailing the Bank's liquidity reserves and forecasted cash flows are presented to appropriate senior management on a monthly basis, and the Board of Directors at each of its meetings. 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 principal and interest payments and advances from the FHLBNY. The Bank may also sell or securitize selected multifamily residential, mixed-use or one-to-four family residential real estate loans to private sector secondary market purchasers, and has in the past sold such loans to FNMA and FHLMC. 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 real estate loans and MBS are influenced by interest rates, economic conditions and competition.

In December 2018, the Bank became a member of the American Financial Exchange, through which it may either borrow or lend funds on an overnight or short-term basis with other member institutions.  The availability of funds changes daily.  At December 31, 2018, the Bank did not utilize funds available through American Financial Exchange .

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.

Total deposits decreased $46.7 million during the year ended December 31, 2018 , compared to an increase of $8.0 million during the year ended December 31, 2017 . Within deposits, core deposits (i.e., non-CDs) decreased $364.8 million during the year ended December 31, 2018 and decreased $35.4 million during the year ended December 31, 2017 . The decrease during 2018 and  2017 was primarily driven by of outflows from the bank’s online channel, DimeDirect, as the bank’s posted rate during both years lagged many of its online competitors, which was offset by an increase of $318.2 million and $43.3 million in CDs during 2018 and 2017, respectively.

The Bank decreased its outstanding FHLBNY advances by $44.7 million during the year ended December 31, 2018 , as the Bank reduced its reliance on FHLBNY advances. The Bank increased its outstanding FHLBNY advances by $338.9 million during the year ended December 31, 2017 , as the Bank utilized FHLBNY advances to offset declines in online money market deposits. Additionally, the Company took advantage of lower borrowing rates on longer term borrowings (with initial terms of two years and more).

During the year ended December 31, 2018 , principal repayments totaled $885.7 million on real estate loans (including refinanced loans) compared to $595.9 million during the year ended December 31, 2017 . The increase resulted primarily from higher prepayment volume.

Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs and CMOs totaled $158.8 million during the year ended December 31, 2018 , resulting in a net gain of $1.4 million. Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $15.0 million during the year ended December 31, 2017 , resulting in a net loss of $0.04 million.. There were no sales of agency CMO securities available-for-sale during the years ended December 31, 2017 .

The Company holds registered mutual funds (as investment securities available-for-sale) as the underlying investments of the BMP, held in a rabbi trust. The Company may sell registered mutual funds on a periodic basis in order to pay retirement benefits to plan retirees. Aggregate proceeds from the sales of registered mutual funds totaled $1.1 million and $5.0 million during the years ended December 31, 2018 and 2017 , respectively. There are no gains or losses recognized from the sales of registered mutual funds.

In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of funds is available through use of its borrowing line at the FHLBNY. At December 31, 2018 , the Bank had an additional potential borrowing capacity of $1.02 billion through the FHLBNY, subject to customary minimum common stock ownership requirements imposed by the FHLBNY ( i.e. , 4.5% of the Bank's outstanding FHLBNY borrowings).

The Bank is subject to minimum regulatory capital requirements imposed by its primary federal regulator. As a general matter, these capital requirements are based on the amount and composition of an institution's assets. At December 31, 2018 , 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 Common Stock into treasury, the payment of quarterly cash dividends to holders of the Common Stock and the payment of quarterly interest to holders of its outstanding subordinated debt. During the years ended December 31, 2018 and 2017 , real estate loan originations totaled $579.7 million and $757.9 million, respectively. The decrease from the year ended December 31, 2017 to the year ended December 31, 2018 reflected the Company's election to shift the loan portfolio mix and develop the C&I loan portfolio. C&I originations totaled $174.0 million during the year ended December 31, 2018 . Purchases of available-for-sale pass-through MBS totaled $352.9 million and $363.7 million during the year ended December 31, 2018 and 2017 , respectively, as the Company grew its on-balance sheet liquidity.

During the year ended December 31, 2018 , the Holding Company repurchased 1,467,449 shares of its Common Stock, at a weighted average price of $17.64. The Holding Company did not repurchase any of its Common Stock during the year ended December 31, 2017 . As of December 31, 2018 , up to 1,467,140 shares remained available for purchase under authorized share purchase programs.

During the year ended December 31, 2018 , the Holding Company paid $20.8 million in cash dividends on its Common Stock, down from $21.0 million during the year ended December 31, 2017 , reflecting a decrease of 1,337,615 common shares outstanding shares from January 1, 2018 to December 31, 2018 .

Contractual Obligations

The Bank generally has outstanding at any time significant borrowings in the form of FHLBNY advances, as well as customer CDs with fixed contractual interest rates. During the year ended December 31, 2017, the Holding Company issued $115.0 million of fixed-to-floating rate subordinated notes due June 2027, which become callable at any time commencing in June 2022. Proceeds from the issuance of subordinated debt were used to redeem the Company’s $70.7 million of callable trust preferred securities outstanding in July 2017. In addition, the Bank is obligated to make rental payments under leases on certain of its branches and equipment.

The table below summarizes contractual obligations for CDs, borrowings and lease obligations at December 31, 2018 :

   
Payments Due By Period
 
   
CDs
   
Weighted
Average
Rate
   
Borrowings
   
Weighted
Average
Rate
   
Operating
Lease
Obligations
 
Less than one year
 
$
1,033,224
     
1.95
%
 
$
613,150
     
2.36
%
 
$
6,960
 
One year to three years
   
311,605
     
1.98
     
474,250
     
2.11
     
13,658
 
Over three years to five years
   
60,361
     
2.31
     
37,950
     
2.98
     
12,006
 
Over five years
   
4,847
     
1.59
     
115,000
     
4.50
     
23,853
 
Total
 
$
1,410,037
     
1.97
%
 
$
1,240,350
     
2.48
%
 
$
56,477
 

Off-Balance Sheet Arrangements

As part of its loan origination business, the Bank generally has outstanding commitments to extend credit to third parties, which are granted pursuant to its regular underwriting standards. Available lines of credit may not be drawn on or may expire prior to funding, in whole or in part, and amounts are not estimates of future cash flows.

The following table presents off-balance sheet arrangements as of December 31, 2018 :

   
Less than
One Year
   
One Year to
Three Years
   
Over Three
Years to
Five Years
   
Over
Five Years
   
Total
 
Credit Commitments:
                             
Available lines of credit
 
$
102,110
   
$
—
   
$
—
   
$
—
   
$
102,110
 
Other loan commitments
   
150,058
     
—
     
—
     
—
     
150,058
 
Stand-by letters of credit
   
1,968
     
—
     
—
     
—
     
1,968
 
Total Off-Balance Sheet Arrangements
 
$
254,136
   
$
—
   
$
—
   
$
—
   
$
254,136
 

Additionally, in connection with the Loan Securitization, the Bank executed a reimbursement agreement with FHLMC that obligates the Company to reimburse FHLMC for any contractual principal and interest payments on defaulted loans, not to exceed 10% of the original principal amount of the loans comprising the aggregate balance of the loan pool at securitization. The maximum exposure under this reimbursement obligation is $28.0 million. The Bank has pledged $27.2 million of available-for-sale pass-through MBS issued by GSEs as collateral.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased costs of operations. Unlike industrial companies, nearly all of the Company's consolidated assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on the Company's consolidated performance than do the effects of general levels of inflation. Interest rates do not necessarily fluctuate in the same direction or to the same extent as the price of goods and services.

Recently Issued Accounting Standards

For a discussion of the impact of recently issued accounting standards, please see Note 1 to the Company's Consolidated Financial Statements that commence on page 65.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

As a depository financial institution, the Bank's primary source of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the level of interest income recorded on, and the market value of, a significant portion of the Bank's assets. Fluctuations in interest rates will also ultimately impact the level of interest expense recorded on, and the market value of, a significant portion of the Bank's liabilities. In addition, the Bank's real estate and C&I loan portfolios, concentrated primarily within the NYC metropolitan area, are subject to risks associated with the local economy.

Real estate loans, the largest component of the Bank's interest-earning assets, traditionally derive their interest rates primarily from either the five- or seven-year constant maturity Treasury index. As a result, the Bank's interest-earning assets are most sensitive to these benchmark interest rates. Since the majority of the Bank's interest-bearing liabilities mature within one year, its interest-bearing liabilities are most sensitive to fluctuations in short-term interest rates.

Neither the Holding Company nor the Bank is subject to foreign currency exchange or commodity price risk. In addition, the Company did not engage in hedging transactions utilizing derivative instruments (such as interest rate swaps and caps) or embedded derivative instruments that required bifurcation during the years ended December 31, 2018 or 2017 . In the future, the Company may, with appropriate Board approval, engage in hedging transactions utilizing derivative instruments. Marketable equity and trading securities owned by the Company were nominal at both December 31, 2018 and 2017 .

Since a majority of the Company's consolidated interest-earning assets and interest-bearing liabilities are located at the Bank, virtually all of the interest rate risk exposure exists at the Bank level. As a result, all of the significant interest rate risk management procedures are performed at the Bank level. The Bank's interest rate risk management strategy is designed to limit the volatility of net interest income and preserve capital over a broad range of interest rate movements and has the following three primary components:

Assets. The Bank's largest single asset type is the adjustable-rate multifamily residential loan. Multifamily residential loans typically carry shorter average terms to maturity tha n one-to-four family residential loans, thus significantly reducing the overall level of interest rate risk. Approximately 99% of multifamily residential loans originated by the Bank during both years ended December 31, 2018 and 2017 were adjustable - rate, with repricing typically occurring after five or seven years.   In addition, a t December 31, 2018, the Bank has sought to include in its portfolio various types of adjustable-rate one-to-four family loans and adjustable investment securities, with annual repricing terms after a fixed period of one to three years. At December 31, 2018, adjustable-rate real estate loans totaled $4.33 billion, or 68.5% of total assets. At December 31, 2017, adjustable-rate real estate loans totaled $4.69 billion, or 73.3% of total assets.

Deposit Liabilities. As a traditional community-based savings bank, the Bank is largely dependent upon its base of competitively priced core deposits to provide stability on the liability side of the balance sheet. The Bank has retained many loyal customers over the years through a combination of quality service, convenience, and a stable and experienced staff. Core deposits at December 31, 2018 were $2.95 billion, or 67.6% of total deposits. The balance of CDs as of December 31, 2018 was $1.41 billion, or 32.4% of total deposits, of which $1.03 billion, or 73.3% of total CDs, was to mature within one year. The weighted average maturity of the Bank's CDs at December 31, 2018 was 10.0 months, compared to 12.7   months at December 31, 2017 . During the years ended December 31, 2018 and 2017 , the Bank generally priced its CDs in an effort to encourage the extension of the average maturities of deposit liabilities beyond one year.

Wholesale Funds . The Bank is a member of the FHLBNY, which provided the Bank with a borrowing line of up to $2.15 billion at December 31, 2018 .   The Bank borrows from the FHLBNY for various purposes. At December 31, 2018 , the Bank had outstanding advances of $1.13 billion from the FHLBNY, all of which were secured by a blanket lien on the Bank's loan portfolio, and none of which were callable. Wholesale funding provides the Bank opportunities to extend the overall duration of its interest bearing liabilities, thus helping manage interest rate risk.

Interest Rate Risk Exposure Analysis

Economic Value of Equity ("EVE") Analysis

In accordance with agency regulatory guidelines, the Bank simulates the impact of interest rate volatility upon EVE using several interest rate scenarios.  EVE is the difference between the present value of the expected future cash flows of the Bank's assets and liabilities and the value of any off-balance sheet items, such as derivatives, if applicable.

Traditionally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates. Increases in interest rates thus result in decreases in the fair value of interest-earning assets, which could adversely affect the Company's consolidated results of operations in the event they were to be sold, or, in the case of interest-earning assets classified as available-for-sale, reduce the Company's consolidated stockholders' equity, if retained.  The changes in the value of assets and liabilities due to fluctuations in interest rates measure the interest rate sensitivity of those assets and liabilities.

In order to measure the Bank's sensitivity to changes in interest rates, EVE is calculated under market interest rates prevailing at a given quarter-end ("Pre-Shock Scenario"), and under various other interest rate scenarios ("Rate Shock Scenarios") representing immediate, permanent, parallel shifts in the term structure of interest rates from the actual term structure observed in the Pre-Shock Scenario. An increase in the EVE is considered favorable, while a decline is considered unfavorable.  The changes in EVE between the Pre-Shock Scenario and various Rate Shock Scenarios due to fluctuations in interest rates reflect the interest rate sensitivity of the Bank's assets, liabilities, and off-balance sheet items that are included in the EVE. Management reports the EVE results to the Bank's Board of Directors on a quarterly basis. The report compares the Bank's estimated Pre-Shock Scenario EVE to the estimated EVEs calculated under the various Rate Shock Scenarios.

The Bank's valuation model makes various estimates regarding cash flows from principal repayments on loans and 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 in relation to 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 deposit decay rates, the Bank tracks and analyzes the decay rate of its deposits over time, with the assistance of a reputable third party, and over various interest rate scenarios.  Such results are utilized in determining estimates of deposit decay rates in the valuation model.  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 it considers 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.  No matter the care and precision with which the estimates are derived, however, actual cash flows could differ significantly from the Bank's estimates, resulting in significantly different EVE calculations.

The analysis that follows presents, as of December 31, 2018 and December 31, 2017, the estimated EVE at both the Pre-Shock Scenario and the +200 Basis Point Rate Shock Scenario. The +200 scenario models the majority of any balance sheet optionality affected by interest rates, which may not be true in the +100 scenario. The analysis additionally presents the percentage change in EVE from the Pre-Shock Scenario to the +200 Basis Point Rate Shock Scenario at both December 31, 2018 and December 31, 2017.

   
At December 31, 2018
   
At December 31, 2017
 
   
EVE
   
Dollar
Change
   
Percentage
Change
   
EVE
   
Dollar
Change
   
Percentage
Change
 
Rate Shock Scenario
 
(Dollars in Thousands)
 
+ 200 Basis Points
 
$
643,531
   
$
(27,967
)
   
(4.2
)%
 
$
572,782
   
$
(93,677
)
   
(14.1
)%
Pre-Shock Scenario
   
671,498
     
—
     
—
     
666,459
     
—
     
—
 

The Bank's Pre-Shock Scenario EVE increased from $666.5 million at December 31, 2017 to $671.5 million at December 31, 2018. The primary factors contributing to the more favorable valuation at December 31, 2018 was a decrease in the value of the Bank's core deposit liability and a decrease in the level of the Bank's borrowings.

The Bank's EVE in the +200 basis point Rate Shock Scenario increased from $572.8 million at December 31, 2017 to $643.5 million at December 31, 2018.  The factors contributing to the more favorable valuation included an increase in the valuation of the loan portfolio due to a slightly lower duration; the increase in the duration of the borrowing portfolio; and the previously noted decrease in the value of the Bank's core deposit liability .

Income Simulation Analysis.   As of the end of each quarterly period, the Bank also monitors the impact of interest rate changes through a net interest income simulation model.  This model estimates the impact of interest rate changes on the Bank's net interest income over forward-looking periods typically not exceeding 36 months (a considerably shorter period than measured through the EVE analysis).  Management reports the net interest income simulation results to the Bank's Board of Directors on a quarterly basis. The following table discloses the estimated changes to the Bank's net interest income over the 12-month period beginning December 31, 2018 assuming gradual parallel changes in interest rates for the given rate scenarios:

Gradual Change in Interest rate of:
 
Percentage
Change in Net
Interest Income (1)
 
+ 200 Basis Points
   
(4.14
)%
+ 100 Basis Points
   
(2.54
)%

(1)
The impact of 100 and 200 basis point reductions in interest rates are not presented in view of the current level of the federal funds rate and other short-term interest rates.

Item 8.
Financial Statements and Supplementary Data

For the Company's Consolidated Financial Statements, see index on page 58 .

Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.
Controls and Procedures

Disclosure 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 December 31, 2018 , 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 Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2018 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 SEC's rules and forms, and that such information is accumulated and communicated to management of the Company as appropriate to allow timely decisions regarding required disclosures.

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, such controls.

Management’s Report On Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation and fair presentation of financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2018 , utilizing the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in "Internal Controls – Integrated Framework (2013 Framework)." Based upon its assessment, management believes that, as of December 31, 2018 , the Company's internal control over financial reporting is effective.

Crowe LLP, the independent registered public accounting firm that audited the consolidated financial statements included in the Annual Report, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, which is included on page 59 .

Item 9B.
Other Information

None.

PART III

Item 10.
Directors, Executive Officers and Corporate Governance

Information regarding directors and executive officers of the Company is presented under the headings, "Proposal 1 - Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Executive Officers" in the Holding Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 23, 2019 (the "Proxy Statement") which will be filed with the SEC within 120 days of December 31, 2018 , and is incorporated herein by reference.

Information regarding the audit committee of the Holding Company's Board of Directors, including information regarding audit committee financial experts serving on the audit committee, is presented under the headings, "Meetings and Committees of the Company's Board of Directors," and "Report of the Audit Committee" in the Proxy Statement and is incorporated herein by reference.

The Holding Company has adopted a written Code of Business Ethics that applies to all officers, including its principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. The Code of Business Ethics is published on the Company's website, www.dime.com . The Company will provide to any person, without charge, upon request, a copy of such Code of Business Ethics. Such request should be made in writing to: Dime Community Bancshares, Inc., 300 Cadman Plaza West, 8 th Floor, Brooklyn, New York 11201, attention Secretary.

Item 11.
Executive Compensation

Information regarding executive and director compensation and the Compensation Committee of the Holding Company's Board of Directors is presented under the headings, "Directors' Compensation," "Compensation - Executive Compensation," "Compensation Discussion and Analysis," "Compensation Committee Interlocks and Insider Participation," and "Compensation Committee Report" in the Proxy Statement and is incorporated herein by reference.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management is included under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement and is incorporated herein by reference.

Set forth below is certain information as of December 31, 2018 regarding the Company’s equity compensation plans.

   
Number of securities
to be issued
upon exercise
of outstanding
options and rights (1)
   
Weighted average
exercise price
with respect to
outstanding stock
options and rights (2)
   
Number of securities
remaining available for
issuance under the equity
compensation plans
(excluding securities
reflected in column (a)) (3)
 
Plan Category
                 
Equity compensation plans approved by security holders
   
274,789
   
$
13.58
     
533,377
 
Equity compensation plans not approved by security holders
   
—
     
—
     
—
 
Total
   
274,789
   
$
13.58
     
533,377
 

(1)
Includes stock options, restricted stock and shares issuable in connection with awards with performance conditions pursuant to the Dime Community Bancshares, Inc. 2001 Stock Option Plan for Outside Directors, Officers and Employees, the Dime Community Bancshares, Inc. 2004 Stock Incentive Plan and the Dime Community Bancshares, Inc. 2013 Equity and Incentive Plan.
(2)
The weighted average exercise price includes the weighted average exercise price of stock options only. Restricted stock and performance shares do not have an exercise price.
(3)
Represents the shares remaining under the Dime Community Bancshares, Inc. 2013 Equity and Incentive Plan.

Item 13.
Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and related transactions is included under the heading, "Transactions with Certain Related Persons" in the Proxy Statement and is incorporated herein by reference. Information regarding director independence is included under the heading, "Information as to Nominees and Continuing Directors" in the Proxy Statement and is incorporated herein by reference.

Item 14.
Principal Accounting Fees and Services

Information regarding principal accounting fees and services, as well as the Audit Committee's pre-approval policies and procedures, is included under the heading, "Proposal 2 – Ratification of Appointment of Independent Auditors" in the Proxy Statement and is incorporated herein by reference.

PART IV

Item 15.
Exhibits, Financial Statement Schedules

(a)
(1) Financial Statements

See index to Consolidated Financial Statements on page 58 .


(2)
Financial Statement Schedules

Financial statement schedules have been omitted because they are not applicable or not required or the required information is shown in the Consolidated Financial Statements or Notes thereto under "Part II - Item 8. Financial Statements and Supplementary Data."


(3)
Exhibits Required by Item 601 of SEC Regulation S-K

Exhibit Number
 
Description
 
Amended and Restated Certificate of Incorporation of Dime Community Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Transition Report on Form 10-K for the transition period ended December 31, 2002, filed with the SEC on March 28, 2003 (File No. 000-27782))
     
 
Amended and Restated Bylaws of Dime Community Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 24, 2019 (File No. 000-27782))
     
 
Amended and Restated Certificate of Incorporation of Dime Community Bancshares, Inc. [see Exhibit 3.1 hereto]
     
 
Amended and Restated Bylaws of Dime Community Bancshares, Inc. [see Exhibit 3.2 hereto]
     
4.3
 
Draft Stock Certificate of Dime Community Bancshares, Inc. (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1998, filed with the SEC on September 28, 1998 (File No. 000-27782))
     
 
Second Amended and Restated Declaration of Trust, dated as of July 29, 2004, by and among Wilmington Trust Company, 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 to time of undivided beneficial interests in the assets of Dime Community Capital Trust I (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-4, filed with the SEC on July 29, 2004 (File No. 333-117743))
     
 
Indenture, dated as of March 19, 2004, between Dime Community Bancshares, Inc. and Wilmington Trust Company, as Indenture Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-4, filed with the SEC on July 29, 2004 (File No. 333-117743))
     
 
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 to time of the Series B Capital Securities of Dime Community Capital Trust I (incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form S-4, filed with the SEC on July 29, 2004 (File No. 333-117743))
     
 
Indenture, dated as of June 13, 2017, by and between Dime Community Bancshares, Inc. and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 13, 2017 (File No. 000-27782))
     
 
First Supplemental Indenture, dated as of June 13, 2017, by and between Dime Community Bancshares, Inc. and Wilmington Trust, National Association, as Trustee, including the form of 4.50% fixed-to-floating rate subordinated debentures due 2027 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 13, 2017 (File No. 000-27782))
     
 
Amended and Restated Employment Agreement between The Dime Savings Bank of Williamsburgh and Kenneth J. Mahon (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed with the SEC on May 10, 2011 (File No. 000-27782))

 
Employment Agreement between Dime Community Bancshares, Inc. and Kenneth J. Mahon (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed with the SEC on May 10, 2011 (File No. 000-27782))
     
 
Form of Employee Retention Agreement by and among The Dime Savings Bank of Williamsburgh, Dime Community Bancorp, Inc. and certain officers (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed with the SEC on May 9, 2012 (File No. 000-27782))
     
 
The Benefit Maintenance Plan of Dime Community Bancorp, Inc. (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 4, 2011 (File No. 000-27782))
     
 
Dime Community Bank Severance Benefits Plan (incorporate by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 14, 2018 (File No. 000-27782)
     
 
Retirement Plan for Board Members of Dime Community Bancorp, Inc. (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 16, 2009 (File No. 000-27782))
     
 
Form of stock option agreement for Outside Directors under Dime Community Bancshares, Inc. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 29, 2005 (File No. 000-27782))
     
 
Form of stock option agreement for officers and employees under Dime Community Bancshares, Inc. 1996 Stock Option Plan for Outside Directors, Officers and Employees (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed with the SEC on September 26, 1997 (File No. 000-27782))
     
 
Form of stock option agreement for officers and employees under Dime Community Bancshares, Inc. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 22, 2005 (File No. 000-27782))
     
 
Dime Community Bancshares, Inc. 2004 Stock Incentive Plan for Outside Directors, Officers and Employees (incorporated by reference to Exhibit 10.21 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed with the SEC on August 8, 2008 (File No. 000-27782))
     
 
Form of restricted stock award notice for officers and employees under the 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 22, 2005) (File No. 000-27782))
     
 
Form of restricted stock award notice for outside directors under the 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 22, 2005) (File No. 000-27782))
     
 
Adoption Agreement for Pentegra Services, Inc. Volume Submitter 401(K) Profit Sharing Plan (incorporated by reference to Exhibit 10.30 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 7, 2015) (File No. 000-27782))
     
 
Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain Affiliates (incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 16, 2009) (File No. 000-27782))
     
 
Amendment to the Benefit Maintenance Plan (incorporated by reference to Exhibit 10. 32 to the Registrant’s Quarterly Report on Form 10- Q for the quarter ended September 30 , 2012, filed with the SEC on November 13, 2012) (File No. 000-27782))

10.16
 
Amendment to the Benefit Maintenance Plan
     
 
Amendments One, Two and Three to the Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain Affiliates (incorporated by reference to Exhibit 10. 33 the Registrant’s Annual Report on Form 10- K for the year ended December 31, 2012 , filed with the SEC on March 15 , 2013 (File No. 000-27782))
     
 
Dime Community Bancshares, Inc. 2013 Equity and Incentive Plan (incorporated by reference to Exhibit 10. 34 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 , filed with the SEC on August 9, 2013 (File No. 000-27782))
     
10.19
 
Form of restricted stock award notice for officers and employees under the 2013 Equity and Incentive Plan (incorporated by reference to Exhibit 10.35 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, filed with the SEC on August 5, 2014 (File No. 000-27782))
     
 
Form of restricted stock award notice for outside directors under the 2013 Equity and Incentive Plan (incorporated by reference to Exhibit 10.36 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, filed with the SEC on August 5, 2014 (File No. 000-27782))
     
 
The Dime Savings Bank of Williamsburgh 401(K) Savings Plan (incorporated by reference to Exhibit 10.37 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 7, 2015 (File No. 000-27782))
     
 
Amendment Number Four to the Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain Affiliates (incorporated by reference to Exhibit 10. 38 to the Registrant’s Annual Report on Form 10- K for the year ended December 31, 2014 , filed with the SEC on March 16 , 2015 (File No. 000-27782))
     
 
Amendment Number One to the Dime Savings Bank of Williamsburgh 401(K) Savings Plan (incorporated by reference to Exhibit 10. 39 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31 , 2015, filed with the SEC on May 7 , 2015 (File No. 000-27782))
     
 
Retirement and Consulting Agreement between Dime Community Bancshares, Inc. and Michael P. Devine (incorporated by reference to Exhibit 10. 40 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 , filed with the SEC on November 6, 2015 (File No. 000-27782))
     
 
Retirement and Consulting Agreement between Dime Community Bancshares, Inc. and Vincent F. Palagiano (incorporated by reference to Exhibit 10. 41 to the Registrant’s Current Report on Form 8-K , filed with the SEC on June 30 , 2016 ) (File No. 000-27782))
     
 
Form of performance share award notice for 2016 grants to officers under 2013 Equity and Incentive Plan (incorporated by reference to Exhibit 10. 42 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 9, 2016 (File No. 000-27782))
     
 
Change in Control Employment Agreement between Dime Community Bancshares, Inc. and Stuart Lubow (incorporated by reference to Exhibit 10. 1 to the Registrant’s Annual Report on Form 8 -K filed with the SEC on February 4, 2019 (File No. 000-27782))
     
 
Employment and Change in Control Agreement between Dime Community Bank and Conrad Gunther (incorporated by reference to Exhibit 10. 44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 , filed with the SEC on March 15, 2017 (File No. 000-27782))
     
 
Purchase and Sale Agreement between The Dime Savings Bank of Williamsburgh and Tarvos Capital Partners USA LLC (incorporated by reference to Exhibit 10. 45 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 15, 2017 (File No. 000-27782))
     
 
Purchase and Sale Agreement between The Dime Savings Bank of Williamsburgh and Havemeyer Owner BB LLC (incorporated by reference to Exhibit 10. 46 to the Registrant’s Annual Report on Form 10- K for the year ended December 31, 2017, filed with the SEC on March 15 , 2017 (File No. 000-27782))
     
 
Amendment Number Five to the Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain Affiliates (incorporated by reference to Exhibit 10. 47 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017 (File No. 000-27782))

10.32
 
Amendment Number Six to the Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain Affiliates (incorporated by reference to Exhibit 10.48 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 9, 2017 (File No. 000-27782))
     
 
Dime Community Bank KSOP, as amended and restated effective July 1, 2017 (incorporated by reference to Exhibit 10.49 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 7, 2017 (File No. 000-27782))
     
 
Amendment Number One to the Dime Community Bank KSOP (incorporate by reference to Exhibit 10.50 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 14, 2018 (File No. 000-27782)
     
 
Dime Community Bank KSOP, as amended and restated effective January 1, 2019
     
 
Change in Control Employment Agreement between Dime Community Bancshares, Inc. and Roberto Volino (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 8-K filed with the SEC on February 4, 2019 (File No. 000-27782))
     
10.37
 
Change in Control Employment Agreement between Dime Community Bancshares, Inc. and Avinash Reddy (incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 8-K filed with the SEC on February 4, 2019 (File No. 000-27782))
   
 
Change in Control Employment Agreement between Dime Community Bancshares, Inc. and James Rizzo (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 8-K filed with the SEC on February 4, 2019 (File No. 000-27782))
     
 
Consent of Independent Registered Public Accounting Firm
     
 
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
     
 
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
     
 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
     
 
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
     
101
 
Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Annual Report on Form 10-K for the period ended December 31, 2018 is formatted in XBRL (Extensible Business Reporting Language) interactive data files: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements

Item 16.
Form 10-K Summary

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on March 14 , 2019.

 
DIME COMMUNITY BANCSHARES, INC.
 
     
 Date:
By:
/s/ KENNETH J. MAHON  
 
Kenneth J. Mahon
 
 
President and Chief Executive Officer
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 14 , 2019 by the following persons on behalf of the registrant and in the capacities indicated.

Name
 
Title
Date
     
March 14 , 2019
/s/ VINCENT F. PALAGIANO
 
Chairman of the Board
 
Vincent F. Palagiano
     
     
March 14 , 2019
/s/ MICHAEL P. DEVINE
 
Vice Chairman of the Board
 
Michael P. Devine
     
     
March 14 , 2019
/s/ KENNETH J. MAHON
 
President, Chief Executive Officer and Director
 
Kenneth J. Mahon
 
(Principal Executive Officer)
 
     
March 14 , 2019
/s/ AVINASH REDDY
 
Executive Vice President and Chief Financial Officer
 
Avinash Reddy
 
(Principal Financial Officer)
 
     
March 14 , 2019
/s/ LESLIE VELUSWAMY
 
Senior Vice President and Chief Accounting Officer
 
Leslie Veluswamy
     
     
March 14 , 2019
/s/ ROSEMARIE CHEN
 
Director
 
Rosemarie Chen
     
     
March 14 , 2019
/s/ STEVEN D. COHN
 
Director
 
Steven D. Cohn
     
     
March 14 , 2019
/s/ PATRICK E. CURTIN
 
Director
 
Patrick E. Curtin
     
     
March 14 , 2019
/s/ ROBERT C. GOLDEN
 
Director
 
Robert C. Golden
     
     
March 14 , 2019
/s/ BARBARA M. KOSTER
 
Director
 
Barbara M. Koster
     
     
March 14 , 2019
/s/ KATHLEEN M. NELSON
 
Director
 
Kathleen M. Nelson
     
     
March 14 , 2019
/s/ JOSEPH J. PERRY
 
Director
 
Joseph J. Perry
     
     
March 14 , 2019
/s/ KEVIN STEIN
 
Director
 
Kevin Stein
     
     
March 14 , 2019
/s/ OMER S. J. WILLIAMS
 
Director
 
Omer S. J. Williams
     

CONSOLIDATED FINANCIAL STATEMENTS OF
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

INDEX

 
Page
Report of Independent Registered Public Accounting Firm
59
Consolidated Statements of Financial Condition at December 31, 2018 and 2017
60
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
61
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
62
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2018 , 2017 and 2016
63
Consolidated Statements of Cash Flows for the years ended December 31, 2018 , 2017 and 2016
64
Notes to Consolidated Financial Statements
65-107

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and the Board of Directors of Dime Community Bancshares, Inc. and Subsidiaries
Brooklyn, New York

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial condition of Dime Community Bancshares, Inc. and Subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements").  We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting .  Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Crowe LLP

We have served as the Company's auditor since 2009.

Livingston, New Jersey
March 14, 2019

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)

   
December 31,
 
   
2018
   
2017
 
ASSETS:
           
Cash and due from banks
 
$
147,256
   
$
169,455
 
Total cash and cash equivalents
   
147,256
     
169,455
 
Mortgage-backed securities ("MBS") available-for-sale
   
466,605
     
351,384
 
Investment securities available-for-sale, at fair value
   
36,280
     
4,006
 
Marketable equity securities, at fair value
   
5,667
     
—
 
Trading securities
   
—
     
2,715
 
Loans:
               
Real estate
   
5,163,122
     
5,464,067
 
Commercial and industrial ("C&I") loans
   
229,504
     
136,671
 
Other loans
   
1,192
     
1,379
 
Allowance for loan losses
   
(21,782
)
   
(21,033
)
Loans, net
   
5,372,036
     
5,581,084
 
Premises and fixed assets, net
   
24,713
     
24,326
 
Loans held for sale, at fair value
   
1,097
     
—
 
Federal Home Loan Bank of New York ("FHLBNY") capital stock
   
57,551
     
59,696
 
Bank Owned Life Insurance ("BOLI")
   
111,427
     
108,545
 
Goodwill
   
55,638
     
55,638
 
Other assets
   
42,308
     
46,611
 
Total Assets
 
$
6,320,578
   
$
6,403,460
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Interest-bearing deposits
 
$
3,961,277
   
$
4,095,701
 
Non-interest-bearing deposits
   
395,477
     
307,746
 
Due to depositors
   
4,356,754
     
4,403,447
 
Escrow and other deposits
   
85,234
     
82,168
 
FHLBNY Advances and Other Borrowings
   
1,125,350
     
1,170,000
 
Subordinated debt
   
113,759
     
113,612
 
Other liabilities
   
37,400
     
35,666
 
Total Liabilities
   
5,718,497
     
5,804,893
 
                 
COMMITMENTS AND CONTINGENCIES (See Note 22)
               
                 
Stockholders' Equity:
               
Preferred stock ($0.01 par, 9,000,000 shares authorized, none issued or outstanding at December 31, 2018 and December 31, 2017 )
   
—
     
—
 
Common stock ($0.01 par, 125,000,000 shares authorized, 53,690,825 shares and 53,624,453 shares issued at December 31, 2018 and December 31, 2017 , respectively, and 36,081,455 shares and 37,419,070 shares outstanding at December 31, 2018 and December 31, 2017 , respectively)
   
537
     
536
 
Additional paid-in capital
   
277,512
     
276,730
 
Retained earnings
   
565,713
     
535,130
 
Accumulated other comprehensive loss
   
(6,500
)
   
(3,641
)
Unearned equity awards
   
(3,623
)
   
(2,894
)
Benefit Maintenance Plan
   
(1,509
)
   
(2,736
)
Treasury stock, at cost (17,609,370 shares and 16,205,383 shares at December 31, 2018 and December 31, 2017 , respectively)
   
(230,049
)
   
(204,558
)
Total Stockholders' Equity
   
602,081
     
598,567
 
Total Liabilities and Stockholders' Equity
 
$
6,320,578
   
$
6,403,460
 

See notes to consolidated financial statements.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Interest income:
                 
Loans secured by real estate
 
$
194,842
   
$
204,487
   
$
191,856
 
Commercial and industrial loans
   
9,741
     
3,072
     
41
 
Other loans
   
74
     
75
     
74
 
MBS
   
10,794
     
542
     
20
 
Investment securities
   
363
     
577
     
880
 
Other short-term investments
   
5,896
     
3,343
     
2,756
 
Total interest income
   
221,710
     
212,096
     
195,627
 
Interest expense:
                       
Deposits and escrow
   
50,389
     
38,391
     
32,374
 
Borrowed funds
   
24,995
     
20,975
     
19,767
 
Total interest expense
   
75,384
     
59,366
     
52,141
 
Net interest income
   
146,326
     
152,730
     
143,486
 
Provision for loan losses
   
2,244
     
520
     
2,118
 
Net interest income after provision for loan losses
   
144,082
     
152,210
     
141,368
 
Non-interest income:
                       
Service charges and other fees
   
4,642
     
3,828
     
3,429
 
Mortgage banking income, net
   
367
     
201
     
96
 
Net gain on sale of securities and other assets (1)
   
1,068
     
2,740
     
123
 
Gain on sale of loans
   
302
     
1,475
     
—
 
Gain on sale of premises held for sale
   
—
     
10,412
     
68,183
 
Income from BOLI
   
2,882
     
2,217
     
2,734
 
Other
   
262
     
641
     
1,369
 
Total non-interest income
   
9,523
     
21,514
     
75,934
 
Non-interest expense:
                       
Salaries and employee benefits
   
45,066
     
37,365
     
34,854
 
Stock benefit plan compensation expense
   
1,524
     
1,358
     
14,651
 
Occupancy and equipment
   
15,250
     
14,201
     
12,103
 
Data processing costs
   
7,009
     
8,280
     
5,194
 
Marketing
   
3,198
     
5,774
     
4,121
 
Federal deposit insurance premiums
   
1,969
     
2,966
     
2,515
 
Loss from extinguishment of debt
   
—
     
1,272
     
—
 
Other
   
12,874
     
13,770
     
10,393
 
Total non-interest expense
   
86,890
     
84,986
     
83,831
 
Income before income taxes
   
66,715
     
88,738
     
133,471
 
Periodic income tax expense
   
15,427
     
36,856
     
60,957
 
Net income
 
$
51,288
   
$
51,882
   
$
72,514
 
Earnings per Share:
                 
Basic
 
$
1.38
   
$
1.38
   
$
1.97
 
Diluted
 
$
1.38
   
$
1.38
   
$
1.97
 

(1) Amount includes periodic valuation gains or losses on marketable equity and trading securities.

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands except per share amounts)

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Net Income
 
$
51,288
   
$
51,882
   
$
72,514
 
Other comprehensive income (loss):
                       
Change in unrealized holding loss on securities held-to-maturity and transferred securities
   
—
     
1,299
     
85
 
Change in unrealized holding loss (gain) on securities available-for-sale
   
(3,096
)
   
587
     
56
 
Change in pension and other postretirement obligations
   
548
     
2,758
     
1,841
 
Change in unrealized (loss) gain on derivative asset
   
(1,450
)
   
794
     
3,228
 
Other comprehensive gain (loss) before income taxes
   
(3,998
)
   
5,438
     
5,210
 
Deferred tax expense (benefit)
   
(1,260
)
   
2,427
     
2,348
 
Other comprehensive income (loss), net of tax
   
(2,738
)
   
3,011
     
2,862
 
Total comprehensive income
 
$
48,550
   
$
54,893
   
$
75,376
 

See notes to consolidated financial statements.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands except per share data)

   
Number
of Shares
   
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss,
Net of Deferred
Taxes
   
Unallocated
Common
Stock of
Employee
Stock
Ownership
Plan
(“ESOP”)
   
Unearned
Restricted
Stock
Award
Common
Stock
   
Common
Stock
Held by
BMP
   
Treasury
Stock,
at cost
   
Total
Stockholders’
Equity
 
                                                             
Beginning balance as of January 1, 2016
   
37,371,992
   
$
533
   
$
262,798
   
$
451,606
   
$
(8,801
)
 
$
(2,313
)
 
$
(2,271
)
 
$
(9,354
)
 
$
(198,251
)
 
$
493,947
 
                                                                                 
Net Income
   
—
     
—
     
—
     
72,514
     
—
     
—
     
—
     
—
     
—
     
72,514
 
Other comprehensive income, net of tax
   
—
     
—
     
—
     
—
     
2,862
     
—
     
—
     
—
     
—
     
2,862
 
Exercise of stock options, net expired options
   
245,992
     
3
     
3,567
     
—
     
—
     
—
     
—
     
—
     
—
     
3,570
 
Release of shares, net of forfeitures
   
85,137
     
—
     
659
     
—
     
—
     
—
     
(780
)
   
(222
)
   
708
     
365
 
Stock-based compensation
   
—
     
—
     
1,276
     
—
     
—
     
231
     
1,119
     
—
     
349
     
2,975
 
Shares received to satisfy distribution of retirement benefits
   
(107,008
)
   
—
     
(2,717
)
   
—
     
—
     
—
     
—
     
2,717
     
(1,820
)
   
(1,820
)
Tax benefit from market valuation adjustment on distribution of BMP ESOP shares
   
—
     
—
     
717
     
—
     
—
     
—
     
—
     
—
     
—
     
717
 
ESOP Share Acquisition Loan payoff
   
(140,260
)
   
—
     
12,056
     
—
     
—
     
2,082
     
—
     
—
     
(2,819
)
   
11,319
 
Cash dividends declared and paid
   
—
     
—
     
—
     
(20,581
)
   
—
     
—
     
—
     
—
     
—
     
(20,581
)
Ending balance as of December 31, 2016
   
37,455,853
     
536
     
278,356
     
503,539
     
(5,939
)
   
—
     
(1,932
)
   
(6,859
)
   
(201,833
)
   
565 ,868
 
                                                                                 
Net Income
   
—
     
—
     
—
     
51,882
     
—
     
—
     
—
     
—
     
—
     
51,882
 
Other comprehensive income, net of tax
   
—
     
—
     
—
     
—
     
3,011
     
—
     
—
     
—
     
—
     
3,011
 
Exercise of stock options
   
51,708
     
—
     
792
     
—
     
—
     
—
     
—
     
—
     
—
     
792
 
Release of shares, net of forfeitures
   
141,867
     
—
     
1,269
     
—
     
—
     
—
     
(2,649
)
   
(170
)
   
1,786
     
236
 
Stock-based compensation
   
—
     
—
     
—
     
—
     
—
     
—
     
1,687
     
—
     
—
     
1,687
 
Shares received to satisfy distribution of retirement benefits
   
(230,358
)
   
—
     
(3,687
)
   
—
     
—
     
—
     
—
     
4,293
     
(4,511
)
   
(3,905
)
Reclassification of tax effects on other comprehensive income
   
—
     
—
     
—
     
713
     
(713
)
   
—
     
—
     
—
     
—
     
—
 
Cash dividends declared and paid
   
—
     
—
     
—
     
(21,004
)
   
—
     
—
     
—
     
—
     
—
     
(21,004
)
Ending balance as of December 31, 2017
   
37,419,070
     
536
     
276,730
     
535,130
     
(3,641
)
   
—
     
(2,894
)
   
(2,736
)
   
(204,558
)
   
598,567
 
                                                                                 
Reclassification of unrealized gains and losses on marketable equity securities
   
—
     
—
     
—
     
153
     
(153
)
   
—
     
—
     
—
     
—
     
—
 
Adjusted beginning balance as of January 1, 2018
   
37,419,070
     
536
     
276,730
     
535,283
     
(3,794
)
   
—
     
(2,894
)
   
(2,736
)
   
(204,558
)
   
598,567
 
Net Income
   
—
     
—
     
—
     
51,288
     
—
     
—
     
—
     
—
     
—
     
51,288
 
Other comprehensive loss, net of tax
   
—
     
—
     
—
     
—
     
(2,738
)
   
—
     
—
     
—
     
—
     
(2,738
)
Exercise of stock options, net
   
57,327
     
1
     
1,118
     
—
     
—
     
—
     
—
     
—
     
(165
)
   
954
 
Release of shares, net of forfeitures
   
122,402
     
—
     
816
     
—
     
—
     
—
     
(2,253
)
   
—
     
1,513
     
76
 
Stock-based compensation
   
—
     
—
     
—
     
—
     
—
     
—
     
1,524
     
—
     
—
     
1,524
 
Shares received to satisfy distribution of retirement benefits
   
(49,895
)
   
—
     
(1,152
)
   
—
     
—
     
—
     
—
     
1,227
     
(958
)
   
(883
)
Reclassification of tax effects on other comprehensive income (loss)
   
—
     
—
     
—
     
(32
)
   
32
     
—
     
—
     
—
     
—
     
—
 
Cash dividends declared and paid
   
—
     
—
     
—
     
(20,826
)
   
—
     
—
     
—
     
—
     
—
     
(20,826
)
Repurchase of shares of Common Stock
   
(1,467,449
)
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
(25,881
)
   
(25,881
)
Ending balance as of December 31, 2018
   
36,081,455
   
$
537
   
$
277,512
   
$
565,713
   
$
(6,500
)
 
$
—
   
$
(3,623
)
 
$
(1,509
)
 
$
(230,049
)
 
$
602,081
 

See notes to consolidated financial statements.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net Income
 
$
51,288
   
$
51,882
   
$
72,514
 
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Net (gain) loss on sale of investment securities and MBS available-for-sale
   
(1,370
)
   
36
     
—
 
Net gain on sale of investment securities held-to-maturity
   
—
     
(2,607
)
   
—
 
Net (gain) loss recognized on marketable equity and trading securities
   
302
     
(169
)
   
(83
)
Net gain on the sale of other real estate owned (“OREO”)
   
—
     
—
     
(40
)
Write-down of OREO
   
—
     
—
     
18
 
Net gain on sale of premises
   
—
     
(10,412
)
   
(68,183
)
Net gain on sale of loans held for sale
   
(302
)
   
(1,475
)
   
—
 
Net depreciation, amortization and accretion
   
4,965
     
3,673
     
2,296
 
Stock plan compensation
   
1,524
     
1,687
     
1,837
 
Prepayment of ESOP Share Acquisition Loan
   
—
     
—
     
11,319
 
ESOP compensation expense
   
—
     
—
     
1,138
 
Provision for loan losses
   
2,244
     
520
     
2,118
 
Loss from extinguishment of debt
   
—
     
1,272
     
—
 
Originations of loans held for sale
   
(3,228
)
   
—
     
—
 
Proceeds from sale of loans held for sale
   
5,297
     
—
     
—
 
Income recognized from mortality benefit on BOLI
   
—
     
—
     
(484
)
Increase in cash surrender value of BOLI
   
(2,882
)
   
(2,217
)
   
(2,250
)
Deferred income tax provision (benefit)
   
(807
)
   
10,515
     
1,097
 
Reduction in credit related other than temporary impairment (“OTTI”) amortized through interest income
   
—
     
(60
)
   
(104
)
Excess tax benefit of stock benefit plans
   
—
     
—
     
(171
)
Changes in assets and liabilities:
                       
Decrease (Increase) in other assets
   
7,089
     
(8,477
)
   
(2,942
)
Increase (Decrease) in other liabilities
   
185
     
(906
)
   
1,979
 
Net cash provided by Operating activities
   
64,305
     
43,262
     
20,059
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Proceeds from sales of investment securities held-to-maturity
   
—
     
9,167
     
—
 
Proceeds from sales of investment securities available-for-sale
   
—
     
377
     
—
 
Proceeds from sales of MBS and CMO securities available-for-sale
   
158,758
     
15,000
     
—
 
Proceeds from sales of marketable equity securities
   
1,059
     
—
     
—
 
Proceeds from sales of trading securities
   
—
     
4,629
     
3,648
 
Purchases of investment securities available-for-sale
   
(36,248
)
   
(145
)
   
(22
)
Purchases of MBS and CMO securities available-for-sale
   
(352,869
)
   
(363,680
)
   
(3,267
)
Acquisition of marketable equity securities
   
(307
)
   
—
     
—
 
Acquisition of trading securities
   
—
     
(222
)
   
(317
)
Proceeds from calls and principal repayments of MBS available-for-sale
   
76,217
     
957
     
59
 
Purchase of BOLI
   
—
     
(20,000
)
   
—
 
Purchases of loans
   
(7,800
)
   
—
     
(157,782
)
Proceeds from sale of portfolio loans held for sale
   
—
     
333,176
     
—
 
Net decrease (increase) in loans
   
211,668
     
(298,910
)
   
(781,960
)
Proceeds from the sale of OREO and real estate owned
   
—
     
—
     
170
 
Proceeds from surrender of cash surrender value of BOLI
   
—
     
—
     
1,425
 
Proceeds from the sale of fixed assets and premises held for sale
   
—
     
11,791
     
75,899
 
Purchases of fixed assets, net
   
(4,290
)
   
(9,231
)
   
(5,774
)
Sale (purchase) of FHLBNY capital stock, net
   
2,145
     
(15,252
)
   
14,269
 
Net cash provided by (used in) Investing Activities
   
48,333
     
(332,343
)
   
(853,652
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Increase (Decrease) in due to depositors
   
(46,693
)
   
8,021
     
1,211,116
 
Increase (Decrease) in escrow and other deposits
   
3,066
     
(20,833
)
   
25,871
 
Repayments of FHLBNY advances
   
(3,651,600
)
   
(4,602,075
)
   
(3,178,500
)
Proceeds from FHLBNY advances
   
3,606,950
     
4,940,950
     
2,842,900
 
Proceeds from Subordinated debt issuance, net
   
—
     
113,531
     
—
 
Repayments of Trust Preferred securities
   
—
     
(70,680
)
   
—
 
Proceeds from exercise of stock options
   
954
     
792
     
3,498
 
Excess tax benefit of stock benefit plans
   
—
     
—
     
171
 
Equity award distribution
   
76
     
236
     
287
 
BMP ESOP shares received to satisfy distribution of retirement benefits
   
(883
)
   
(3,905
)
   
(1,820
)
Treasury shares repurchased
   
(25,881
)
   
—
     
—
 
Cash dividends paid to stockholders, net
   
(20,826
)
   
(21,004
)
   
(20,581
)
Net cash provided by (used in) Financing Activities
   
(134,837
)
   
345,033
     
882,942
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(22,199
)
   
55,952
     
49,349
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
169,455
     
113,503
     
64,154
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
147,256
   
$
169,455
   
$
113,503
 
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                       
Cash paid for income taxes
 
$
8,428
   
$
36,515
   
$
58,383
 
Cash paid for interest
   
74,297
     
59,823
     
52,320
 
Loans transferred to held for sale
   
2,829
     
333,192
     
—
 
Transfer of premises to held for sale
   
—
     
—
     
1,379
 
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity
   
—
     
50
     
51
 
Net decrease in non-credit component of OTTI
   
—
     
(20
)
   
(34
)
Reductions for previous credit losses realized on securities sold
   
—
     
1,229
     
—
 

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars In Thousands except for share amounts)

1.  NATURE OF OPERATIONS

Nature of Operations - Dime Community Bancshares, Inc. (the "Holding Company" and together with its direct and indirect subsidiaries, the "Company") is a Delaware corporation organized by Dime Community Bank (the "Bank") for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on June 26, 1996. At December 31, 2018 , the significant assets of the Holding Company were the capital stock of the Bank and investments retained by the Holding Company. The liabilities of the Holding Company were comprised primarily of $113,759 subordinated notes payable maturing in 2027, and become callable commencing 2022. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended.

The Bank was originally founded in 1864 as a New York State-chartered mutual savings bank, and currently operates as a New York State-chartered stock savings bank.  Effective August 1, 2016, the Bank changed its name from The Dime Savings Bank of Williamsburgh to Dime Community Bank.  The new name more accurately reflects the Bank's evolving business model and emphasizes its broader geographic and business reach while retaining the Bank's mission to be in and of the communities it serves, including the virtual online community.  The Bank's principal business is gathering deposits from customers within its market area and via the internet, and investing them primarily in multifamily residential, commercial real estate, mixed use, and, to an increasing extent, commercial and industrial (“C&I”) loans, and one-to-four family residential real estate loans, as well as mortgage-backed securities, obligations of the U.S. government and government- sponsored enterprises (“GSEs”), and corporate debt and equity securities.

The Holding Company neither owns nor leases any property, but instead uses the back office of the Bank, located in the Brooklyn Heights section of the borough of Brooklyn, New York. The Bank maintains its principal office in the Williamsburg section of the borough of Brooklyn, New York. As of December 31, 2018 , the Bank had twenty-nine retail banking offices located throughout the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County and Suffolk, New York.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Summary of Significant Accounting Policies – Management believes that the accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP"). The following is a description of the significant policies.

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Holding Company and the Bank and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates - To prepare consolidated financial statements in conformity with GAAP, management makes judgments, estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Cash and Cash Equivalents: Cash and cash equivalents include cash and deposits with other financial institutions with maturities fewer than 90 days. Net cash flows are reported for customer loan and deposit transactions, and interest bearing deposits in other financial institutions.

Securities - Debt securities that have readily determinable fair values are carried at fair value unless they are held-to-maturity. Debt securities are classified as held-to-maturity and carried at amortized cost only if the Company has a positive intent and ability to hold them to maturity. If not classified as held-to-maturity, such securities are classified as securities available-for-sale or trading. Equity securities and mutual fund investments (fixed income or equity in nature) are classified as either available-for-sale, or trading securities until January 1, 2018 upon adoption of ASU 2016-01, and carried at fair value, with changes in fair value reported in net income. Unrealized holding gains or losses on securities available-for-sale that are deemed temporary are excluded from net income and reported net of income taxes as other comprehensive income or loss. While the Holding Company had a small portfolio of mutual fund investments designated as trading at December 31, 2017 , neither the Holding Company nor the Bank actively acquires securities for the purpose of engaging in trading activities. These mutual fund investments were reclassified as marketable equity securities as of January 1, 2018 upon adoption of ASU 2016-01.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for MBS where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

The Company adopted ASU 2016-01 on January 1, 2018. As a result of adoption all registered mutual funds and trading securities were reclassified as marketable equity securities on the Consolidated Statement of Financial Conditions and are recorded at fair value with changes in fair value recorded through the income statement. Additionally, $153 of unrealized gains, net of taxes, was reclassified from accumulated other comprehensive income to beginning retained earnings on January 1, 2018. Marketable equity securities are excluded from the tables for the year ended December 31, 2018.

The Company evaluates securities for OTTI at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. In making its evaluation of OTTI for debt securities, the Company initially considers whether: (1) it intends to sell the security, or (2) it is more likely than not that it will be required to sell the security prior to recovery of its amortized cost basis. If either of these criteria is satisfied, an OTTI charge is recognized in the statement of income equal to the full amount of the decline in fair value below amortized cost. For debt securities, if neither of these criteria is satisfied, however, the Company does not expect to recover the entire amortized cost basis, an OTTI loss has occurred that must be separated into two categories: (a) the amount related to credit loss, and (b) the amount related to other factors. In assessing the level of OTTI attributable to credit loss, the Company compares the present value of expected cash flows to the amortized cost basis of the security. The portion of OTTI determined to result from credit-related factors is recognized through earnings, while the portion of the OTTI related to other factors is recognized in other comprehensive income. When OTTI is recognized on a debt security, its amortized cost basis is reduced to reflect the credit-related component.

Loans - Loans that the Bank has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding (as adjusted for any amounts charged-off), net of unearned fees or costs, unamortized premiums and the allowance for loan losses. 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. Past due status is based upon the contractual terms of the loan.

Accrual of interest is generally discontinued on a loan that meets any of the following three criteria: (i) full payment of principal or interest is not expected; (ii) principal or interest has been in default for a period of 90 days or more and the loan is not both deemed to be well secured and in the process of collection; or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the financial condition of the borrower. Such non-accrual determination practices are applied consistently to all loans regardless of their internal classification or designation. Upon entering non-accrual status, the Bank reverses all outstanding accrued interest receivable.

Management may elect to continue the accrual of interest when a loan that otherwise meets the criteria for non-accrual status is in the process of collection and the estimated fair value and cash flows of the underlying collateral property are sufficient to satisfy the outstanding principal balance (including any outstanding advances related to the loan) and accrued interest. Management may also elect to continue the accrual of interest on a loan that would otherwise meet the criteria for non-accrual status when its delinquency relates solely to principal amounts due, it is well secured and refinancing activities have commenced on the loan. Such elections have not been commonplace.

The Company generally initiates foreclosure proceedings when a delinquent loan enters non-accrual status, and typically does not accept partial payments once foreclosure proceedings have commenced. 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 transferred to OREO status. The Company generally utilizes all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances. In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of at least six months.

A loan is considered impaired when, based on then current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan’s pre-modification rate for some performing troubled debt restructurings (“TDRs”)). If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral property or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. Measured impairment is either charged-off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses. See Note 7 for a discussion of TDRs.

Allowance for Loan Losses and Reserve for Loan Commitments - The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses. All loans that are deemed to meet the definition of impaired are individually evaluated for impairment. Smaller balance homogeneous loans, such as condominium or cooperative apartment and one-to-four family residential real estate loans with balances less than or equal to the Fannie Mae (“FNMA”) conforming loan limits for high-cost areas such as the Bank's primary lending area ("FNMA Limits") and consumer loans, are collectively evaluated for impairment, and accordingly, not separately identified for impairment disclosures.

Loans for which the terms have been modified in a manner that meets the criteria of a TDR are deemed to be impaired and individually evaluated for impairment. If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral property or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has defaulted, the likely realizable net proceeds from either a note sale or the liquidation of collateral is generally considered when measuring impairment.

In determining both the specific and the general components of the allowance for loan losses, the Company has identified the following portfolio segments: 1) real estate; 2) C&I loans; and 3) consumer loans. Consumer loans represent a nominal portion of the Company’s loan portfolio. Within these segments, the Bank analyzes the allowance based upon the underlying collateral type.

The underlying methodology utilized to assess the adequacy of the allowance for loan losses is summarized in Note 8 .

The Company 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 changes in this reserve amount are recognized through earnings as a component of non-interest expense.

Loans Held for Sale - Loans originated and intended for sale in the secondary market, as well as identified problem loans which are subject to an executed note sale agreement, are carried at the lower of aggregate cost or net realizable proceeds. Loans originated and intended for sale are generally sold with servicing rights retained. Certain problematic loans in which the Company has identified for sale during the year in which a pending note sale agreement has been executed will be re-classified as held for sale and carried at the lower of cost or their expected net realizable proceeds.

Derivatives – The Company has a derivative contract designated as a hedge of the variability of cash flows to be received or paid related to a recognized liability (“Cash Flow Hedge”). The gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that are not highly effective in hedging the changes in expected cash flows of the hedged item are recognized immediately in current earnings as non-interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific liabilities on the balance sheet. The Company also formally assesses, both at the hedge’s inception and on an on-going basis, whether the derivative instruments that are used are highly effective in offsetting changes in or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in cash flows of the hedged item, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transaction will affect earnings.

OREO - Properties acquired as a result of foreclosure on a real estate loan or a deed in lieu of foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate collateralizing a one-to-four family residential loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through execution of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Declines in the recorded balance subsequent to acquisition by the Company are recorded through expense. Operating costs after acquisition are expensed.

Premises and Fixed Assets, Net - Land is stated at original cost. Buildings and furniture, fixtures and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the properties as follows:

Buildings
2.22% to 2.50% per year
Leasehold improvements
Lesser of the useful life of the asset or the remaining non-cancelable terms of the related leases
Furniture, fixtures and equipment
10% per year

Accounting for Goodwill and Other Intangible Assets – In January of 2017, the FASB issued ASU 2017-04, which eliminates step 2 of the impairment analysis. While this guidance is not effective until January 1, 2020, the Company has elected to early adopt this guidance as of January 1, 2018 for the annual evaluation of its goodwill for the year ended December 31, 2018 . Based upon one reporting unit, the goodwill impairment test was performed on a consolidated basis by comparing the fair value of the reporting unit, calculated as the market capitalization of the Company, with its carrying amount (including goodwill). To the extent that the carrying amount of goodwill exceeds the implied fair value, an impairment charge must be recognized in an amount equal to the excess carrying amount over fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. As of December 31, 2018 and 2017 , the Company concluded that no impairment of goodwill existed.

Servicing Right Assets ("SRA") – When real estate or C&I loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans.   SRAs 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. All separately recognized SRAs are required to be initially measured at fair value, if practicable. The estimated fair value of loan servicing assets is determined by calculating the present value of estimated future net servicing cash flows, using assumptions of prepayments, defaults, servicing costs and discount rates derived based upon actual historical results for the Bank, or, in the absence of such data, from historical results for the Bank's peers. Capitalized loan servicing assets are stratified based on predominant risk characteristics of the underlying loans ( i.e., collateral, interest rate, servicing spread and maturity) for the purpose of evaluating impairment. A valuation allowance is then established in the event the recorded value of an individual stratum exceeds its fair value. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds, default rates, and losses.

Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

BOLI – BOLI is carried at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. Increases in the contract value are recorded as non-interest income in the consolidated statements of operations and insurance proceeds received are recorded as a reduction of the contract value.

Income Taxes – Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount deemed more likely than not to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not satisfying the "more likely than not" test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to tax matters in income tax expense. The Company had no unrecorded tax positions at December 31, 2018 or 2017 .

Employee Benefits – The Bank maintains the Dime Community Bank KSOP Plan (formerly known as the Dime Community Bank 401(k) Savings Plan (the “401(k) Plan”)) (the "KSOP") for substantially all of its employees, and the Retirement Plan of Dime Community Bank (the "Employee Retirement Plan"), both of which are tax qualified under the Internal Revenue Code.

The Bank also maintains the Postretirement Welfare Plan of Dime Community Bank (the "Postretirement Benefit Plan"), providing additional postretirement benefits to certain retirees, which requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services, a Retirement Plan for its outside Directors (the “Director Retirement Plan”), and the BMP that provides additional benefits to certain of its officers.

As the sponsor of a single employer defined benefit plan, the Company must do the following for the Employee Retirement Plan, a portion of the BMP, the Director Retirement Plan and the Postretirement Benefit Plan: (1) recognize the funded status of the benefit plans in its statements of financial condition, measured as the difference between plan assets at fair value (with limited exceptions) and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation; (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit or cost. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation are adjusted as they are subsequently recognized as components of net periodic benefit cost; (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statements of financial condition (with limited exceptions); and (4) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.

The Holding Company and Bank maintained the ESOP. Compensation expense related to the ESOP is recorded during the period in which the shares become committed to be released to participants. The compensation expense is measured based upon the average fair market value of the stock during the period, and, to the extent that the fair value of the shares committed to be released differs from the original cost of such shares, the difference is recorded as an adjustment to additional paid-in capital. Cash dividends are paid on all ESOP shares, and reduce retained earnings accordingly. During the year ended December 31, 2017, the Company merged the assets of the ESOP into the 401(k) Plan, creating the KSOP.

The Holding Company and Bank maintain the Dime Community Bancshares, Inc. 2004 Stock Incentive Plan for Outside Directors, Officers and Employees and the Dime Community Bancshares, Inc. 2013 Equity and Incentive Plan (collectively the "Stock Plans"); which are discussed more fully in Note 21. Under the Stock Plans, compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of the awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Holding Company’s common stock (“Common Stock”) at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Basic and Diluted EPS -   Basic EPS is computed by dividing net income by the weighted-average common shares outstanding during the reporting period.  Diluted EPS is computed using the same method as basic EPS, but reflects the potential dilution that would occur if "in the money" stock options were exercised and converted into Common Stock, and if all likely aggregate Long-term Incentive Plan ("LTIP") and Sales Incentive Plan ("SIP") share are issued.  In determining the weighted average shares outstanding for basic and diluted EPS, treasury shares are excluded.  Vested restricted stock award ("RSA") shares are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.  Unvested RSA, LTIP, and SIP shares not yet awarded are recognized as a special class of participating securities under ASC 260, and are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.

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

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Numerator:
                 
Net Income per the Consolidated Statements of Operations
 
$
51,288
   
$
51,882
   
$
72,514
 
Less: Dividends paid on earnings allocated to participating securities
   
(160
)
   
(131
)
   
(109
)
Income attributable to Common Stock
 
$
51,128
   
$
51,751
   
$
72,405
 
Weighted average common shares outstanding, including participating securities
   
37,163,023
     
37,593,715
     
36,898,951
 
Less: weighted average participating securities
   
(155,553
)
   
(163,056
)
   
(186,058
)
Weighted average common shares outstanding
   
37,007,470
     
37,430,659
     
36,712,893
 
Basic EPS
 
$
1.38
   
$
1.38
   
$
1.97
 
                         
Income attributable to Common Stock
 
$
51,128
   
$
51,751
   
$
72,405
 
Weighted average common shares outstanding
   
37,007,470
     
37,430,659
     
36,712,893
 
Weighted average common equivalent shares outstanding
   
80,292
     
79,790
     
51,193
 
Weighted average common and equivalent shares outstanding
   
37,087,762
     
37,510,449
     
36,764,086
 
Diluted EPS
 
$
1.38
   
$
1.38
   
$
1.97
 

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

There were no “out-of-the-money” stock options for the year ended December 31, 2018 or December 31, 2017 , respectively. There were approximately 77,432 weighted average options for the year ended December 31, 2016 that were not considered in the calculation of diluted EPS since the sum of their exercise price and unrecognized compensation cost exceeded the average market value during the relevant period.

For information about the calculation of likely aggregate LTIP and SIP share payout, see Note 21.

Comprehensive Income - Comprehensive income for the years ended December 31, 2018 , 2017 and 2016 included some or all of the following changes: in the unrealized gain or loss on available-for-sale securities; changes in the unfunded status of defined benefit plans, the non-credit component of OTTI; a transfer loss related to securities transferred from available-for-sale to held-to-maturity; and changes in the unrealized gain or loss on derivatives. Under GAAP, all of these items bypass net income and are typically reported as components of stockholders' equity. All comprehensive income adjustment items are presented net of applicable tax effect.

Comprehensive and accumulated comprehensive income are summarized in Note 4.

Disclosures about Segments of an Enterprise and Related Information - The Company has one reportable segment, "Community Banking." All of the Company's activities are interrelated, and each activity is dependent and assessed based on the manner in which it supports the other activities of the Company. For example, lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.

For the years ended December 31, 2018, 2017 and 2016, there was no customer that accounted for more than 10% of the Company's consolidated revenue.

Reclassification – There have been no material reclassifications to prior year amounts to conform to their current presentation.

3. RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases , and ASU 2018-11, Leases (Topic 842) : Targeted Improvements.  The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, however, early adoption is permitted.  An entity may adopt the new guidance by either restating prior periods and recording a cumulative effect adjustment at the beginning of the earliest comparative period presented (the modified retrospective transition approach) or by recording a cumulative adjustment at the beginning of the period of adoption (the additional transition method).  The Company plans to use the additional transition method approach.  Topic 842 includes a number of optional practical expedients that entities may elect to apply. The practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The Company plans to adopt these practical expedients: not reevaluating whether or not a contract contains a lease; retaining current lease classification; not reassessing initial direct costs for existing leases; and not reassessing existing land easements that were not previously accounted for as leases under current lease accounting rules. The Company will not utilize the practical expedient of hindsight in its lease assessments. An entity that elects to apply these practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.  The adoption of ASU 2016-02 resulted in increases to both the Company's assets and liabilities. The increase is less than 1% of total assets as of December 31, 2018 and did not have a significant impact on the Company’s Consolidated Statement of Income or Consolidated Statement of Cash Flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) , which requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current condition, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This guidance also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2019. The Company has established a committee that is assessing system requirements, gathering data, and evaluating the impact of ASU 2016-13 on its consolidated financial statements. . The Company has engaged a third party software provider in order to evaluate the potential impact of ASU 2016-13, and is currently working through implementation of the software. The Company expects to recognize a one-time cumulative effect increase to the allowance for loan losses as of the beginning of the reporting period in which ASU 2016-13 takes effect, however, cannot yet determine the magnitude of the impact on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities . ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, however, early adoption is permitted. The adoption of ASU 2017-08 did not have a material impact on the Company’s consolidated financial statements.

4.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

   
Securities
Held-to-
Maturity and
Transferred
Securities
   
Securities
Available-
for-Sale
   
Defined
Benefit
Plans
   
Derivative
Asset
   
Total
Accumulated
Other
Comprehensive
Loss
 
Balance as of January 1, 2017
 
$
(713
)
 
$
(92
)
 
$
(6,910
)
 
$
1,776
   
$
(5,939
)
Other comprehensive income (loss) before reclassifications
   
39
     
307
     
786
     
297
     
1,429
 
Amounts reclassified from accumulated other comprehensive income (loss)
   
674
     
20
     
733
     
155
     
1,582
 
Net other comprehensive income during the period
   
713
     
327
     
1,519
     
452
     
3,011
 
Reclassification of tax effects on other comprehensive income (1)
   
—
     
50
     
(1,242
)
   
479
     
(713
)
Balance as of December 31, 2017
 
$
—
   
$
285
   
$
(6,633
)
 
$
2,707
   
$
(3,641
)
Reclassification of unrealized gains and losses on available-for-sale equity securities (2)
   
—
     
(153
)
   
—
     
—
     
(153
)
Adjusted balance as of January 1, 2018
   
—
     
132
     
(6,633
)
   
2,707
     
(3,794
)
Other comprehensive income (loss) before reclassifications
   
—
     
(1,159
)
   
311
     
(490
)
   
(1,338
)
Amounts reclassified from accumulated other comprehensive loss
   
—
     
(930
)
   
—
     
(470
)
   
(1,400
)
Net other comprehensive income during the period
   
—
     
(2,089
)
   
311
     
(960
)
   
(2,738
)
Reclassification of tax effects on other comprehensive income (1)
   
—
     
—
     
32
     
—
     
32
 
Balance as of December 31, 2018
 
$
—
   
$
(1,957
)
 
$
(6,290
)
 
$
1,747
   
$
(6,500
)

(1)
Represents the impact of adopting ASU 2018-02 allowing the reclassification of certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) (or portion thereof) is recorded. The amount of the reclassification is the difference between the historical corporate income tax rate (35%) and the newly enacted 21% corporate income tax rate. The reclassification is as of and for the year ended December 31, 2017; no prior period information has been retroactively adjusted as a result of implementing the ASU.
(2)
Represents the impact of adopting ASU 2016-01 allowing the reclassification of unrealized gains and losses on available-for-sale equity securities from accumulated other comprehensive income to Retained Earnings.

The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below for the periods indicated.

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Change in unrealized holding loss on securities held-to-maturity and transferred securities:
                 
Accretion of previously recognized non-credit component of OTTI
  $      
$
20
   
$
34
 
Change in unrealized loss on securities transferred to held-to-maturity
   
—
     
50
     
51
 
Reclassification adjustment for net gains included in net gain on securities and other assets
   
—
     
1,229
     
—
 
Net change
   
—
     
1,299
     
85
 
Tax expense
   
—
     
586
     
38
 
Net change in unrealized holding loss on securities held-to-maturity and transferred securities
   
—
     
713
     
47
 
Change in unrealized holding gain on securities available-for-sale:
                       
Change in net unrealized (loss) gain during the period
   
(1,726
)
   
551
     
56
 
Reclassification adjustment for net (losses) gains included in net gain on securities and other assets
   
(1,370
)
   
36
     
—
 
Net change
   
(3,096
)
   
587
     
56
 
Tax expense (benefit)
   
(1,007
)
   
260
     
26
 
Net change in unrealized holding gain on securities available-for-sale
   
(2,089
)
   
327
     
30
 
Change in pension and other postretirement obligations:
                       
Reclassification adjustment for expense included in other expense
   
514
     
1,421
     
1,841
 
Change in the net actuarial gain
   
34
     
1,337
     
—
 
Net change
   
548
     
2,758
     
1,841
 
Tax expense
   
237
     
1,239
     
832
 
Net change in pension and other postretirement obligations
   
311
     
1,519
     
1,009
 
Change in unrealized loss on derivatives:
                       
Change in net unrealized loss during the period
   
(758
)
   
511
     
3,205
 
Reclassification adjustment for expense included in interest expense
   
(692
)
   
283
     
23
 
Net change
   
(1,450
)
   
794
     
3,228
 
Tax expense (benefit)
   
(490
)
   
342
     
1,452
 
Net change in unrealized loss on derivatives
   
(960
)
   
452
     
1,776
 
Other comprehensive income (loss)
 
$
(2,738
)
 
$
3,011
   
$
2,862
 

5.  REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , on January 1, 2018. Under ASC 2014-09, an entity is required to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as well as qualitative and quantitative disclosure related to contracts with certain customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

In accordance with ASU 2014-09, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company applies the following five steps to properly recognize revenue:


1.
Identify the contract with a customer

2.
Identify the performance obligations in the contract

3.
Determine the transaction price

4.
Allocate the transaction price to performance obligations in the contract

5.
Recognize revenue when (or as) the Company satisfies a performance obligation

The Company's only in-scope revenue stream that is subject to the accounting standard is service fees on deposit accounts (including interchange fees), which is disclosed on the Consolidated Statements of Operations as "Service charges and other fees." For the year ended December 31, 2018, 2017 and 2016 service charges and other fees totaled $4,642, $3,828 and $3,429, respectively.

Service Charges on Deposit Accounts . The Company earns fees from its deposits customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfied the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Interchange Income . The Company earns interchange fees from debit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provide to the cardholder.

6.  INVESTMENT AND MORTGAGE-BACKED SECURITIES

The Company adopted ASU 2016-01 on January 1, 2018. As a result of adoption all registered mutual funds and trading securities were reclassified as marketable equity securities on the Consolidated Statement of Financial Conditions and are recorded at fair value with changes in fair value recorded through the income statement. Additionally, $153 of unrealized gains, net of taxes, was reclassified from accumulated other comprehensive income to beginning retained earnings on January 1, 2018. Marketable equity securities are excluded from the tables for the year ended December 31, 2018.

The following tables summarize the major categories of securities owned by the Company as of the dates indicated:

   
At December 31, 2018
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
Debt securities available-for-sale:
                       
Agency Notes
 
$
25,110
   
$
45
   
$
(10
)
 
$
25,145
 
Corporate Securities
   
11,167
     
—
     
(32
)
   
11,135
 
Pass-through MBS issued by Government-sponsored Enterprises ("GSEs")
   
356,039
     
574
     
(2,000
)
   
354,613
 
Agency Collateralized Mortgage Obligation ("CMO")
   
113,470
     
157
     
(1,635
)
   
111,992
 
Total debt securities available-for-sale
 
$
505,786
   
$
776
   
$
(3,677
)
 
$
502,885
 

   
At December 31, 2017
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
Investment securities available-for-sale:
                       
Registered Mutual Funds
 
$
3,779
   
$
311
   
$
(84
)
 
$
4,006
 
Pass-through MBS issued by GSEs
   
72,938
     
16
     
(325
)
   
72,629
 
CMO
   
278,251
     
669
     
(165
)
   
278,755
 
Total investment securities available-for-sale
 
$
354,968
   
$
996
   
$
(574
)
 
$
355,390
 

The carrying amount of securities pledged as collateral for the Bank’s first loss guarantee (see Note 9) at December 31, 2018 and December 31, 2017  was $27,248 and $28,738, respectively.

At year-end 2018 and 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity.

At December 31, 2018, agency notes possessed a weighted average contractual maturity of 4.1 years. As of December 31, 2018, the available-for-sale agency CMO and MBS securities had a weighted average term to maturity of 13.0 years.  At December 31, 2018, corporate securities possessed a weighted average contractual maturity of 4.2 years.

During the year ended December 31, 2017, the Company sold its entire portfolio of investment securities held-to-maturity consisting of six TRUP CDO securities, of which five were deemed to be OTTI. The TRUP CDO portfolio was sold as part of the Company’s strategy to take advantage of investment opportunities. The amortized cost of the TRUP CDO portfolio was $5,331 at the time of the sale. The amortized cost represents the purchase amortized/historical cost less $8,553 of OTTI charges previously recognized and $705 of the unamortized portion of unrealized losses that were 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). As a result of the sale, the pre-tax balances of both the unamortized portion of the unrealized losses at transfer to held-to-maturity of $705 and the unamortized portion of previous credit losses of $524 were reclassified out of accumulated comprehensive loss during the year ended December 31, 2017. Gross proceeds from the sale of the TRUP CDOs were $9,167 for the year ended December 31, 2017. Gross gains of $3,048 and gross losses of $441 were recognized on these sales. There were no sales of held-to-maturity securities during the year ended December 31, 2018. The Company will evaluate purchases of securities for appropriate classification.

Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $274 during the year ended December 31, 2018. Gross gains of $4 were recognized on these sales for the year ended December 31, 2018. The tax expense related to the gain on sales of MBS available-for-sale recognized during the year ended December 31, 2018 was $1. Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $15,000 during the year ended December 31, 2017. Gross losses of $36 were recognized on these sales for the year ended December 31, 2017. The tax benefit related to the loss on sales of MBS available-for-sale recognized during the year ended December 31, 2017 was $16. There were no sales of pass-through MBS issued by GSEs during the year ended December 31, 2016.

Proceeds from the sales of available-for-sale CMOs totaled $158,484 during the year ended December 31, 2018. Gross gains of $1,366 were recognized on these sales. The tax expense related to the gain on sales of available-for-sale CMOs recognized during the year ended December 31, 2018 was $437.  There were no sales of agency CMO securities available-for-sale during the years ended December 31, 2017 or 2016.

The Company holds marketable equity securities (disclosed as both investment securities available-for-sale and trading securities as of December 31, 2017) as the underlying mutual fund investments of the BMP, held in a rabbi trust. The Company may sell these securities on a periodic basis in order to pay retirement benefits to plan retirees. There are no gains or losses recognized from the sales of marketable equity securities.  A summary of the sales of marketable equity securities is listed below for the periods indicated:

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Proceeds:
                 
Marketable equity securities
 
$
1,059
   
$
—
   
$
—
 
Investment securities available-for-sale
   
—
     
377
     
—
 
Trading securities
   
—
     
4,629
     
3,648
 

The remaining gain or loss on securities shown in the consolidated statements of income was due to market valuation changes.  Net losses of $302 were recognized on marketable equity securities for the year ended December 31, 2018.  Net gains of $133 and $123 were recognized on trading securities during years ended December 31, 2017 and December 31, 2016, respectively.

The following table summarizes the gross unrealized losses and fair value of investment securities aggregated by investment category and the length of time the securities were in a continuous unrealized loss position for the periods indicated:

   
December 31, 2018
 
   
Less than 12
Consecutive Months
   
12 Consecutive
Months or Longer
   
Total
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
Debt securities available-for-sale:
                                   
Agency Notes
 
$
5,100
   
$
10
   
$
—
   
$
—
   
$
5,100
   
$
10
 
Corporate Securities
   
11,135
     
32
     
—
     
—
     
11,135
     
32
 
Pass through MBS issued by GSEs
   
216,451
     
1,049
     
45,489
     
951
     
261,940
     
2,000
 
Agency CMO
   
52,605
     
439
     
39,833
     
1,196
     
92,438
     
1,635
 

   
December 31, 2017
 
   
Less than 12
Consecutive Months
   
12 Consecutive
Months or Longer
   
Total
 
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
Investment securities available-for-sale:
                                   
Registered Mutual Funds
 
$
—
   
$
—
   
$
2,591
   
$
84
   
$
2,591
   
$
84
 
Pass through MBS issued by GSEs
   
55,819
     
325
     
—
     
—
     
55,819
     
325
 
Agency CMO
   
86,746
     
96
     
3,168
     
69
     
89,914
     
165
 

The issuers of debt securities available-for-sale are U.S. government-sponsored entities or agencies. The decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality. It is likely that the Company will not be required to sell the securities before their anticipated recovery, and as such, the Company does not consider these securities to be other-than-temporarily-impaired at December 31, 2018 .

TRUP CDOs That Have Maintained an Unrealized Holding Loss for 12 or More Consecutive Months

The Company sold its TRUP CDOs portfolio during the year ended December 31, 2017. At December 31, 2016, there were two TRUP CDOs with unrealized holding losses 12 or more consecutive months. The impairment of one of those TRUP CDOs was deemed temporary, as management believed that the full recorded balance of the investments would be realized. In making this determination, management considered the following at December 31, 2016:


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

●
There were no cash or working capital requirements nor contractual or regulatory obligations that would compel the Company to sell these securities prior to their forecasted recovery or maturity

●
The securities have a pool of underlying issuers comprised primarily of banks

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

●
The securities feature 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

●
The securities are adequately collateralized

The unrealized loss on the second TRUP CDO with unrealized holding losses for 12 or more consecutive months was considered to be other than temporary. See below for a discussion of OTTI.

TRUP CDOs with OTTI

On September 1, 2008, the Bank transferred eight TRUP CDOs ( i.e. , investment securities primarily secured by the preferred debt obligations of a pool of U.S. banks with a small portion secured by debt obligations of insurance companies) with an amortized cost of $19,922 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. On the date of transfer, the unrealized loss of $8,420 on these securities continued to be recognized as a component of accumulated other comprehensive loss within the Company's consolidated stockholders' equity (net of income tax benefit), and was expected to be amortized over the remaining average life of the securities. Activity related to amortization of unrealized transfer loss previously recognized upon transfer of TRUP CDOs to held to maturity securities was as follows:

   
For the year ended
December 31,
 
   
2017
   
2016
 
Cumulative balance at the beginning of the period
 
$
756
   
$
807
 
Amortization
   
(50
)
   
(51
)
Reduction for previous credit losses realized on securities sold
   
(706
)
   
—
 
Cumulative balance at end of the period
 
$
—
   
$
756
 

As of each reporting period through June 30, 2017, the Company applied the protocol established by ASC 320-10-65 in order to determine whether OTTI existed for its TRUP CDOs and/or to measure, for TRUP CDOs that were determined to be other than temporarily impaired, the credit related and non-credit related components of OTTI. The Company sold its entire TRUP CDO portfolio in August of 2017. As of the date of the sale of the TRUP CDO portfolio, five TRUP CDOs were determined to meet the criteria for OTTI based upon this analysis, and no additional OTTI charges were recognized.

The following table provides a reconciliation of the pre-tax OTTI charges recognized on the Company's TRUP CDOs:

   
At or for the Year Ended December 31,
2017
   
At or for the Year Ended December 31,
2016
 
   
Credit
Related
OTTI
Recognized
in Earnings
   
Non-Credit
OTTI
Recognized
in Accumulated
Other
Comprehensive
Loss
   
Total
OTTI
Charge
   
Credit
Related
OTTI
Recognized
in Earnings
   
Non-Credit
OTTI
Recognized
in Accumulated
Other
Comprehensive
Loss
   
Total
OTTI
Charge
 
Cumulative pre-tax balance at the beginning of the period
 
$
8,613
   
$
544
   
$
9,157
   
$
8,717
   
$
578
   
$
9,295
 
(Amortization) Accretion of previously recognized OTTI
   
(60
)
   
(20
)
   
(80
)
   
(104
)
   
(34
)
   
(138
)
Reductions for previous credit losses realized on securities sold during the year
   
(8,553
)
   
(524
)
   
(9,077
)
   
—
     
—
     
—
 
Cumulative pre-tax balance at end of the period
 
$
—
   
$
—
   
$
—
   
$
8,613
   
$
544
   
$
9,157
 

There was no activity related to OTTI charges recognized on the Company's registered mutual funds during the year ended December 31, 2018 , 2017 , or 2016 .

7.  LOANS RECEIVABLE AND CREDIT QUALITY

Loans are reported at the principal amount outstanding (as adjusted for any amounts charged-off), net of unearned fees or costs, unamortized premiums and the allowance for loan losses. Interest income on loans is recorded using the level yield method. Under this method, discount accretion and premium amortization are included in interest income. Loan origination fees and certain direct loan origination costs are deferred and amortized as yield adjustments over the contractual loan terms.

Credit Quality Indicators

On a quarterly basis, the Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit structure, loan documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying them as to credit risk. This analysis includes all loans, such as multifamily residential, mixed-use residential ( i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but 50% or more of such income is generated from the residential units), commercial real estate, mixed-use commercial real estate ( i.e. ,   loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but over 50% of such income is generated from the commercial units), acquisition, development and construction (“ADC”), C&I, as well as all one-to- four family residential and cooperative and condominium apartment loans. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank's credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of then existing facts, conditions, and values, highly questionable and improbable.

The Bank had no loans classified as doubtful at December 31, 2018 or December 31, 2017 . All real estate loans not classified as Special Mention or Substandard were deemed pass loans at both December 31, 2018 and December 31, 2017 .

The following is a summary of the credit risk profile of real estate loans (including deferred costs) by internally assigned grade as of the dates indicated:

     
Balance at December 31, 2018
 
     
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
Real Estate:
                               
One-to-four family residential, including condominium and cooperative apartment
   
$
95,782
   
$
—
   
$
1,065
   
$
—
   
$
96,847
 
Multifamily residential and residential mixed-use
     
3,829,643
     
32,682
     
4,463
     
—
     
3,866,788
 
Commercial real estate and commercial mixed-use
     
1,162,429
      1,209
     
6,447
     
—
     
1,170,085
 
ADC
     
29,402
     
—
     
—
     
—
     
29,402
 
Total real estate
     
5,117,256
     
33,891
     
11,975
     
—
     
5,163,122
 
C& I

   
228,924
     
—
     
580
     
—
     
229,504
 
Total Real Estate and C&I
   
$
5,346,180
   
$
33,891
   
$
12,555
   
$
—
   
$
5,392,626
 

     
Balance at December 31, 2017
 
     
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
Real Estate:
                               
One-to-four family residential, including condominium and cooperative apartment
   
$
62,042
   
$
178
   
$
875
   
$
—
   
$
63,095
 
Multifamily residential and residential mixed-use
     
4,374,388
     
6,326
     
466
     
—
     
4,381,180
 
Commercial real estate and commercial mixed-use
     
999,095
     
1,897
     
9,611
     
—
     
1,010,603
 
ADC
     
9,189
     
—
     
—
     
—
     
9,189
 
Total real estate
     
5,444,714
     
8,401
     
10,952
     
—
     
5,464,067
 
C& I

   
136,671
     
—
     
—
     
—
     
136,671
 
Total Real Estate and C&I
   
$
5,581,385
   
$
8,401
   
$
10,952
   
$
—
   
$
5,600,738
 

For consumer loans, the Company evaluates credit quality based on payment activity. Consumer loans that are 90 days or more past due are placed on non-accrual status, while all remaining consumer loans are classified and evaluated as performing.

The following is a summary of the credit risk profile of consumer loans by internally assigned grade:

   
At December 31,
 
   
2018
   
2017
 
Performing
 
$
1,189
   
$
1,375
 
Non-accrual
   
3
     
4
 
Total
 
$
1,192
   
$
1,379
 

The following is a summary of the past due status of the Company's investment in loans (excluding accrued interest) as of the dates indicated:

           
At December 31, 2018
 
     
30 to 59
Days
Past Due
   
60 to 89
Days
Past Due
   
Accruing
Loans
90 Days
or More
Past Due
   
Non-
accrual (1)
   
Total
Past Due
   
Current
   
Total
Loans
 
Real Estate:
                                           
One-to-four family residential, including condominium and cooperative apartment
   
$
312
   
$
—
   
$
—
   
$
712
   
$
1,024
   
$
95,823
   
$
96,847
 
Multifamily residential and residential mixed-use
     
—
     
—
     
100
     
280
     
380
     
3,866,408
     
3,866,788
 
Commercial real estate and commercial mixed-use
     
—
     
—
     
—
     
1,041
     
1,041
     
1,169,044
     
1,170,085
 
ADC
     
—
     
—
     
—
     
—
     
—
     
29,402
     
29,402
 
Total real estate
   
$
312
   
$
—
   
$
100
   
$
2,033
   
$
2,445
   
$
5,160,677
   
$
5,163,122
 
C& I

 
$
50
   
$
49
   
$
—
   
$
309
   
$
408
   
$
229,096
   
$
229,504
 
Consumer
   
$
12
   
$
1
   
$
—
   
$
3
   
$
16
   
$
1,176
   
$
1,192
 

(1)
Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2018 .

 

At December 31, 2017
 
     
30 to 59
Days
Past Due
   
60 to 89
Days
Past Due
   
Accruing
Loans
90 Days
or More
Past Due
   
Non-
accrual (1)
   
Total
Past Due
   
Current
   
Total
Loans
 
Real Estate:
                                           
One-to-four family residential, including condominium and cooperative apartment
   
$
10
   
$
23
   
$
6,397
   
$
436
   
$
6,866
   
$
56,229
   
$
63,095
 
Multifamily residential and residential mixed-use
     
—
     
—
     
1,669
     
—
     
1,669
     
4,379,511
     
4,381,180
 
Commercial real estate and commercial mixed-use
     
—
     
—
     
11,869
     
93
     
11,962
     
998,641
     
1,010,603
 
ADC
     
—
     
—
     
—
     
—
     
—
     
9,189
     
9,189
 
Total real estate
   
$
10
   
$
23
   
$
19,935
   
$
529
   
$
20,497
   
$
5,443,570
   
$
5,464,067
 
C& I

 
$
—
   
$
—
   
$
—
   
$
—
   
$
—
   
$
136,671
   
$
136,671
 
Consumer
   
$
4
   
$
—
   
$
—
   
$
4
   
$
8
   
$
1,371
   
$
1,379
 

(1)
Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2017 .

Accruing Loans 90 Days or More Past Due:

The Bank continued accruing interest on one real estate loan with an outstanding balance of $100 at December 31, 2018 , and fourteen real estate loans with an aggregate outstanding balance of $19,935 at December 31, 2017 , all of which were 90 days or more past due on their respective contractual maturity dates. These loans continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments due at maturity. These loans were well secured and were expected to be refinanced, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.

TDRs

The following table summarizes outstanding TDRs by underlying collateral type as of the dates indicated:

   
As of December 31, 2018
   
As of December 31, 2017
 
   
No. of
Loans
   
Balance
   
No. of
Loans
   
Balance
 
One-to-four family residential, including condominium and cooperative apartment
   
1
   
$
14
     
1
   
$
22
 
Multifamily residential and residential mixed-use
   
2
     
271
     
3
     
619
 
Commercial real estate and commercial mixed-use
   
1
     
4,084
     
2
     
7,470
 
Total real estate
   
4
   
$
4,369
     
6
   
$
8,111
 

Accrual status for TDRs is determined separately for each TDR in accordance with the Bank’s policies for determining accrual or non-accrual status. At the time an agreement is entered into between the Bank and the borrower that results in the Bank's determination that a TDR has been created, the loan can be on either accrual or non-accrual status. If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months. Conversely, if at the time of restructuring the loan is performing (and accruing); it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under the Bank’s policy and agency regulations. There were no TDRs on non-accrual status at December 31, 2018 or 2017 .

The Company has not restructured any C&I or troubled consumer loans, as its C&I and consumer loan portfolios have not experienced any problem issues warranting restructuring. Therefore, all TDRs were collateralized by real estate at both December 31, 2018 and December 31, 2017 .

There were no loans modified in a manner that met the criteria of a TDR during the year ended December 31, 2018 or 2017 . The Company modified one one-to-four family residential loan in a manner that met the criteria of a TDR during the year ended December 31, 2016 . The outstanding recorded investment pre-modification and post-modification totaled $33.

The Bank's allowance for loan losses at December 31, 2018 and 2017 included no allocated reserve associated with TDRs. Activity related to reserves associated with TDRs was immaterial during the years ended December 31, 2018 and 2017 .

As of December 31, 2018 and December 31, 2017 , the Bank had no loan commitments to borrowers with outstanding TDRs.

A TDR is considered to be in payment default once it is 90 days contractually past due under the modified terms. All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any.

There were no TDRs which defaulted within twelve months following the modification during the years ended December 31, 2018 , 2017 or 2016 (thus no significant impact to the allowance for loan losses during those periods).

The Bank may grant short term extensions ranging from 6 to 12 months on certain loans to borrowers. These loans do not meet the definition of a TDR as they are modifications to borrowers who are not experiencing financial difficulty.

Impaired Loans

A loan is considered impaired when, based on then current information and events, it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Bank considers TDRs and all non-accrual loans, except non-accrual one-to-four family loans in less than the FNMA Limits, to be impaired. Non-accrual one-to-four family loans equal to or less than the FNMA Limits, as well as all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually for impairment unless considered a TDR.

Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan’s pre-modification rate for certain performing TDRs). If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses.

Please refer to Note 8 for t abular information related to impaired loans.

8.  ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses consists of specific and general components. The Bank’s periodic evaluation of its allowance for loan losses (specific or general) was comprised of two primary components: (1) impaired loans and (2) pass graded loans. Within these components, the Company has identified the following portfolio segments for purposes of assessing its allowance for loan losses (specific or general): (1) real estate loans; (2) C&I loans; and (3) consumer loans. Consumer loans were evaluated in aggregate as of both December 31, 2018 and December 31, 2017 .

Real Estate and C&I Loans

Impaired Loan Component

All loans that are deemed to meet the definition of impaired are individually evaluated for impairment. Impairment is typically measured using the difference between the outstanding loan principal balance and either: (1) the likely realizable value of a note sale; (2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or (3) the present value of estimated future cash flows (using the loan's pre-modification rate in the case of certain performing TDRs). For impaired loans on non-accrual status, either of the initial two measurements is utilized.

All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any. If a TDR is substantially performing in accordance with its restructured terms, management will look to either the present value of the expected cash flows from the debt service or the potential net liquidation proceeds of the underlying collateral in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, the likely realizable net proceeds from either a note sale or the liquidation of the collateral are generally considered when measuring impairment. While measured impairment is generally charged off immediately, impairment attributed to a reduction in the present value of expected cash flows of a performing TDR is generally reflected as an allocated reserve within the allowance for loan losses. At December 31, 2018 and December 31, 2017 , there were no allocated reserves related to TDRs within the allowance for loan losses.

Smaller balance homogeneous real estate loans, such as condominium or cooperative apartment and one-to-four family residential real estate loans with balances equal to or less than the FNMA Limits, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

Non-Impaired Loan Component

The Bank initially looks to the underlying collateral type when determining the allowance for loan losses associated with pass graded real estate loans and C&I loans. The following underlying collateral types are analyzed separately: 1) one-to-four family residential and condominium or cooperative apartments; 2) multifamily residential and residential mixed-use; 3) commercial real estate and mixed-use; 4) construction and land acquisition ; and 5) C&I loans.Within the analysis of each underlying collateral type, the following elements are additionally considered and provided weighting in determining the allowance for loan losses for pass graded real estate loans:


(i)
Charge-off experience (including peer charge-off experience)

(ii)
Economic conditions

(iii)
Underwriting standards or experience

(iv)
Loan concentrations

(v)
Regulatory climate

(vi)
Nature and volume of the portfolio

(vii)
Changes in the quality and scope of the loan review function

The following is a brief synopsis of the manner in which each element is considered:


(i)
Charge-off experience - Loans within the pass graded loan portfolio are segmented by significant common characteristics, against which historical loss rates are applied to reflect probable incurred loss percentages. The Bank also reviews and considers the charge-off experience of peer banks in its lending marketplace in order to determine the existence of potential losses that could take a longer period to flow through its allowance for loan losses.


(ii)
Economic conditions - The Bank assigned a loss allocation to its entire pass graded loan portfolio based, in part, upon a review of national and regional economic conditions, such as the unemployment rate. Specifically for the real estate portfolio, the Company considered both the level of, and recent trends in: 1) residential and commercial vacancy rates, 2) real estate sales and pricing, and 3) delinquencies in the Bank’s loan portfolio.


(iii)
Underwriting standards or experience - Underwriting standards are reviewed to ensure that changes in the Bank's lending policies and practices are adequately evaluated for risk and reflected in its analysis of potential credit losses. Loss expectations associated with changes in the Bank’s lending policies and practices, if any, are then incorporated into the methodology.


(iv)
Loan concentrations - The Bank regularly reviews its loan concentrations (borrower, collateral type and location) in order to ensure that heightened risk has not evolved that has not been captured through other factors. The risk component of loan concentrations is regularly evaluated for reserve adequacy.


(v)
Regulatory climate – Consideration is given to public statements made by the banking regulatory agencies that have a potential impact on the Bank’s loan portfolio and allowance for loan losses.


(vi)
Nature and volume of the portfolio – The Bank considers any significant changes in the overall nature and volume of its loan portfolio.


(vii)
Changes in the quality and scope of the loan review function – The Bank considers the potential impact upon its allowance for loan losses of any adverse change in the quality and scope of the loan review function.

Consumer Loans

Due to their small individual balances, the Bank does not evaluate individual consumer loans for impairment. Loss percentages are applied to aggregate consumer loans based upon both their delinquency status and loan type. These loss percentages are derived from a combination of the Company’s historical loss experience and/or nationally published loss data on such loans. Consumer loans in excess of 120 days delinquent are typically fully charged off against the allowance for loan losses.

The following table presents data regarding the allowance for loan losses activity for the periods indicated:

   
Real Estate Loans
             
   
One-to-Four
Family
Residential,
Including
Condominium
and
Cooperative
Apartment
   
Multifamily
Residential
and
Residential
Mixed-Use
   
Commercial
Real Estate
and
Commercial
Mixed-Use
   
ADC
   
Total Real
Estate
     
C& I

 
Consumer
Loans
 
Beginning balance as of January 1, 2016
 
$
263
   
$
14,118
   
$
4,113
   
$
—
   
$
18,494
   
$
—
   
$
20
 
Provision (credit) for loan losses
   
(48
)
   
2,473
     
(308
)
   
—
     
2,117
     
—
     
1
 
Charge-offs
   
(79
)
   
(92
)
   
(12
)
   
—
     
(183
)
   
—
     
(3
)
Recoveries
   
9
     
56
     
23
     
—
     
88
     
—
     
2
 
Ending balance as of December 31, 2016
 
$
145
   
$
16,555
   
$
3,816
   
$
—
   
$
20,516
   
$
—
   
$
20
 
                                                         
Provision (credit) for loan losses
   
(28
)
   
(1,313
)
   
(285
)
   
123
     
(1,503
)
   
2,021
     
2
 
Charge-offs
   
(16
)
   
(104
)
   
—
     
—
     
(120
)
   
—
     
(4
)
Recoveries
   
15
     
81
     
4
     
—
     
100
     
—
     
1
 
Ending balance as of December 31, 2017
 
$
116
   
$
15,219
   
$
3,535
   
$
123
   
$
18,993
     
2,021
     
19
 
                                                         
Provision (credit) for loan losses
   
239
     
(1,773
)
   
246
     
274
     
(1,014
)
   
3,254
     
4
 
Charge-offs
   
(169
)
   
(1
)
   
(7
)
   
—
     
(177
)
   
(1,329
)
   
(5
)
Recoveries
   
12
     
1
     
3
     
—
     
16
     
—
     
—
 
Ending balance as of December 31, 2018
 
$
198
   
$
13,446
   
$
3,777
   
$
397
   
$
17,818
   
$
3,946
   
$
18
 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of the periods indicated:

   
At or for the Year Ended December 31, 2018
 
   
Real Estate Loans
             
   
One-to-Four
Family
Residential,
Including
Condominium
and
Cooperative
Apartment
   
Multifamily
Residential
and
Residential
Mixed-Use
   
Commercial
Real Estate
and
Commercial
Mixed-Use
   
ADC
   
Total Real
Estate
     
C& I

 
Consumer
Loans
 
Allowance for loan losses:
                                           
Ending allowance balance:
                                           
Individually evaluated for impairment
 
$
—
   
$
—
   
$
—
   
$
—
   
$
—
   
$
230
   
$
—
 
Collectively evaluated for impairment
   
198
     
13,446
     
3,777
     
397
     
17,818
     
3,716
     
18
 
Total ending allowance balance
 
$
198
   
$
13,446
   
$
3,777
   
$
397
   
$
17,818
   
$
3,946
   
$
18
 
                                                         
Loans:
                                                       
Individually evaluated for impairment
 
$
14
   
$
551
   
$
5,125
   
$
—
   
$
5,690
   
$
309
   
$
—
 
Collectively evaluated for impairment
   
96,833
     
3,866,237
     
1,164,960
     
29,402
     
5,157,432
     
229,195
     
1,192
 
Total ending loans balance
 
$
96,847
   
$
3,866,788
   
$
1,170,085
   
$
29,402
   
$
5,163,122
   
$
229,504
   
$
1,192
 

   
At or for the Year Ended December 31, 2017
 
   
Real Estate Loans
             
   
One-to-Four
Family
Residential,
Including
Condominium
and
Cooperative
Apartment
   
Multifamily
Residential
and
Residential
Mixed-Use
   
Commercial
Real Estate
and
Commercial
Mixed-Use
   
ADC
   
Total Real
Estate
     
C& I

 
Consumer Loans
 
Allowance for loan losses:
                                           
Ending allowance balance:
                                           
Individually evaluated for impairment
 
$
—
   
$
—
   
$
—
   
$
—
   
$
—
   
$
—
   
$
—
 
Collectively evaluated for impairment
   
116
     
15,219
     
3,535
     
123
     
18,993
     
2,021
     
19
 
Total ending allowance balance
 
$
116
   
$
15,219
   
$
3,535
   
$
123
   
$
18,993
   
$
2,021
   
$
19
 
                                                         
Loans:
                                                       
Individually evaluated for impairment
 
$
22
   
$
619
   
$
7,563
   
$
—
   
$
8,204
   
$
—
   
$
—
 
Collectively evaluated for impairment
   
63,073
     
4,380,561
     
1,003,040
     
9,189
     
5,455,863
     
136,671
     
1,379
 
Total ending loans balance
 
$
63,095
   
$
4,381,180
   
$
1,010,603
   
$
9,189
   
$
5,464,067
   
$
136,671
   
$
1,379
 

The following tables summarize impaired loans with no related allowance recorded and with related allowance recorded as of the periods indicated (by collateral type within the real estate loan segment):

     
For the Year Ended December 31, 2018
   
For the Year Ended December 31, 2017
 
     
Unpaid
Principal
Balance
   
Recorded
Investment (1)
   
Related
Allowance
   
Unpaid
Principal
Balance
   
Recorded
Investment (1)
   
Related
Allowance
 
                                       
With no related allowance recorded:
                                     
One-to-four Family Residential, Including Condominium and Cooperative Apartment
   
$
14
   
$
14
   
$
—
   
$
22
   
$
22
   
$
—
 
Multifamily Residential and Residential Mixed-Use
     
551
     
551
     
—
     
619
     
619
     
—
 
Commercial Real Estate and Commercial Mixed-Use
     
5,125
     
5,125
     
—
     
7,563
     
7,563
     
—
 
Total with no related allowance recorded
     
5,690
     
5,690
     
—
     
8,204
     
8,204
     
—
 
                                                   
With related allowance recorded:
                                                 
C& I

   
309
     
309
     
230
     
—
     
—
     
—
 
Total with related allowance recorded
     
309
     
309
     
230
     
—
     
—
     
—
 
Total
   
$
5,999
   
$
5,999
   
$
230
   
$
8,204
   
$
8,204
   
$
—
 

(1) The recorded investment excludes accrued interest receivable and loan origination fees, net, due to immateriality.

The following table presents information for impaired loans for the periods indicated:

     
For the Year Ended
December 31, 2018
   
For the Year Ended
December 31, 2017
   
For the Year Ended
December 31, 2016
 
     
Average
Recorded
Investment (1)
   
Interest
Income
Recognized (2)
   
Average
Recorded
Investment (1)
   
Interest
Income
Recognized (2)
   
Average
Recorded
Investment (1)
   
Interest
Income
Recognized (2)
 
                                       
With no related allowance recorded:
                                     
One-to-four Family Residential, Including Condominium and Cooperative Apartment
   
$
18
   
$
—
   
$
325
   
$
30
   
$
443
   
$
53
 
Multifamily Residential and Residential Mixed-Use
     
824
     
53
     
2,222
     
85
     
2,515
     
183
 
Commercial Real Estate and Commercial Mixed-Use
     
6,150
     
349
     
7,815
     
307
     
7,905
     
312
 
Total with no related allowance recorded
     
6,992
     
402
     
10,362
     
422
     
10,863
     
548
 
                                                   
With related allowance recorded:
                                                 
C& I


 
298
     
3
     
—
     
—
     
—
     
—
 
Total with related allowance recorded
     
298
     
3
     
—
     
—
     
—
     
—
 
Ending balance
   
$
7,290
   
$
405
   
$
10,362
   
$
422
   
$
10,863
   
$
548
 

(1)
The recorded investment excludes accrued interest receivable and loan origination fees, net, due to immateriality.
(2)
Cash basis interest and interest income recognized on accrual basis approximate each other.

9.  LOAN SECURITIZATION

During the year ended December 31, 2017, the Bank completed a securitization of $280,186 of its multifamily loans through a Federal Home Loan Mortgage Corporation (“FHLMC”) sponsored “Q-deal” securitization completed in December 2017. As a result of the securitization, the Company recognized a gain of $1,261 from the sale of loans. Four classes of FHLMC guaranteed structured pass-through certificates were issued and purchased entirely by the Bank. As part of the securitization transaction, the Bank entered into a Servicing Agreement, general representations and warranties, and reimbursement obligations.

Servicing responsibilities on loan sales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of tax and insurance, and otherwise administer the underlying loans. In connection with the securitization transaction, FHLMC was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with exception to the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such responsibilities accordingly.

General representations and warranties associated with loan sales and securitization sales require the Company to uphold various assertions that pertain to the underlying loans at the time of the transaction, including, but not limited to, compliance with relevant laws and regulations, absence of fraud, enforcement of liens, no environmental damages, and maintenance of relevant environmental insurance. Such representations and warranties are limited to those that do not meet the quality represented at the transaction date and do not pertain to a decline in value or future payment defaults. In circumstances where the Company breaches its representations and warranties, the Company would generally be required to cure such instances through a repurchase or substitution of the subject loan(s).

With respect to the securitization transaction, the Company also has continuing involvement through a reimbursement agreement executed with Freddie Mac. To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is obligated to reimburse FHLMC for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date. The Bank carried a liability of $420 as of both December 31, 2018 and December 31, 2017 for the exposure to the reimbursement agreement with FHLMC.

10.  LOAN SERVICING ACTIVITIES

The Bank services real estate and C&I loans for others having principal balances outstanding of appro ximately $313, 584 , and $337,483 at December 31, 2018 and 2017, respectively. Loans serviced for others are not reported as assets. Servicing loans for others generally consists of collecting loan payments, maintaining escrow accounts, disbursing payments to investors, paying taxes and insurance and processing foreclosure. In connection with loans serviced for others, the Bank held borrowers' escrow balances of $3,022 and $3,107 at December 31, 2018 and 2017, respectively.

There are no restrictions on the Company's consolidated assets or liabilities related to loans sold with servicing rights retained. Upon sale of these loans, the Company recorded an SRA in other assets, and has elected to account for the SRA under the "amortization method" prescribed under GAAP. SRA activity prior to the year December 31, 2017 was not material. At December 31, 2018 , there is no associated valuation allowance for SRAs. The activity for SRAs for the period indicated is as follows:

   
Year Ended
December 31,
 
   
2018
   
2017
 
Beginning of the year
 
$
1,594
   
$
152
 
Additions
   
72
     
1,491
 
Amortized to expense
   
(351
)
   
(49
)
End of year
 
$
1,315
   
$
1,594
 

The fair-value of servicing rights approximates carrying value as of December 31, 2018 . Fair value at December 31, 2018 was determined using a discount rate of 12.0%, prepayment speeds ranging from 16% to 20%, depending on the stratification of the specific servicing right, and a weighted average default rate of 1.30%.

11.  PREMISES AND FIXED ASSETS, NET AND PREMISES HELD FOR SALE

The following is a summary of premises and fixed assets, net and premises held for sale:

   
At December 31,
 
   
2018
   
2017
 
Land
 
$
1,600
   
$
1,600
 
Buildings
   
10,934
     
10,828
 
Leasehold improvements
   
23,154
     
22,657
 
Furniture, fixtures and equipment
   
23,834
     
20,095
 
Premises and fixed assets, gross
 
$
59,522
   
$
55,180
 
Less: accumulated depreciation and amortization
   
(34,809
)
   
(30,854
)
Premises and fixed assets, net
 
$
24,713
   
$
24,326
 

Depreciation and amortization expense amounted to approximately $3,903, $3,310 and $2,223 during the years ended December 31, 2018 , 2017 and 2016 , respectively.

There were no sales of premises and fixed assets during the year ended December 31, 2018 . During the year ended December 31, 2017, the Company completed the sale of premises held for sale with an aggregate recorded balance of $1,379 at December 31, 2016. Net proceeds from the sale were $11,791, and a gain of $10,412 was recognized on the sale. During the year ended December 31, 2016, the Company completed the sale of premises held for sale with an aggregate recorded balance of $8,799 at December 31, 2015. Proceeds from the sale were $75,899, and a gain of $68,183 was recognized on the sale.

12.  FHLBNY CAPITAL STOCK

The Bank is a Savings Bank Member of the FHLBNY. Membership requires the purchase of shares of FHLBNY capital stock at $100 per share. The Bank owned 575,508 shares and 596,959 shares at December 31, 2018 and 2017 , respectively. The Bank recorded dividend income on the FHLBNY capital stock of $3,610, $2,555 and $2,501 during the years ended December 31, 2018 , 2017 and 2016 , respectively.

13.  DUE TO DEPOSITORS

Deposits are summarized as follows:

   
At December 31, 2018
   
At December 31, 2017
 
   
Weighted
Average
Rate
   
Liability
   
Weighted
Average
Rate
   
Liability
 
Savings accounts
   
0.06
%
 
$
336,669
     
0.07
%
 
$
362,092
 
Certificates of deposit ("CDs")
   
1.97
     
1,410,037
     
1.47
     
1,091,887
 
Money market accounts
   
1.43
     
2,098,599
     
0.96
     
2,517,439
 
Interest-bearing checking accounts
   
0.30
     
115,972
     
0.08
     
124,283
 
Non-interest bearing checking accounts
   
—
     
395,477
     
—
     
307,746
 
TOTAL
   
1.33
%
 
$
4,356,754
     
0.91
%
 
$
4,403,447
 

The following table presents a summary of scheduled maturities of CDs outstanding at December 31, 2018 :

   
Maturing
Balance
   
Weighted Average
Interest Rate
 
2019
 
$
1,033,224
     
1.95
%
2020
   
276,966
     
1.98
 
2021
   
34,639
     
1.97
 
2022
   
50,869
     
2.38
 
2023
   
9,492
     
1.95
 
2024 and beyond
   
4,847
     
1.59
 
TOTAL
 
$
1,410,037
     
1.97
%

CDs that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) Insurance limit of two-hundred and fifty thousand dollars were $287,834 and $179,307 December 31, 2018 and 2017 , respectively.

14.  DERIVATIVES AND HEDGING ACTIVITIES

Cash Flow Hedges of Interest Rate Risk

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's loan portfolio.

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  During 2018 , such derivatives were used to hedge the variable cash flows associated with existing or forecasted issuances of short term borrowings debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's debt. During the next twelve months, the Company estimates that an additional $1,370 will be reclassified as a reduction to interest expense.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition as of the periods indicated.

   
At December 31, 2018
   
At December 31, 2017
 
   
Count
   
Notional
Amount
   
Fair Value
Assets
   
Fair Value
Liabilities
   
Count
   
Notional
Amount
   
Fair Value
Assets
   
Fair Value
Liabilities
 
Included in other assets/(liabilities):
                                               
Interest rate swaps related to FHLBNY advances
   
14
   
$
245,000
   
$
4,669
   
$
(2,097
)
   
7
   
$
135,000
   
$
4,041
   
$
—
 

The table below presents the effect of the cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss) as of December 31, 2018 , 2017 and 2016 .

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Interest rate products
                 
Amount of gain (loss) recognized in other comprehensive income
 
$
(758
)
 
$
511
   
$
3,205
 
Amount of gain (loss) reclassified from other comprehensive income into interest expense
   
(692
)
   
283
     
23
 

The table below presents a gross presentation, the effects of offsetting of derivative assets, and a net presentation of the Company's derivatives for the periods indicated. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value in Note 12 provides the location that derivative assets and liabilities are presented on the Balance Sheet.

   
At December 31, 2018
 
   
Gross
Amounts
of
Recognized
Assets
   
Gross
Amounts
Offset in the
Statement of
Financial
Position
   
Net
Amounts of
Assets
Presented in
the
Statement of
Financial
Position
   
Gross Amounts Not Offset
in the Statement of
Financial Position
       
               
Financial
Instruments
   
Cash
Collateral
Received
   
Net
Amount
 
FHLB Advances
 
$
4,669
   
$
(2,097
)
 
$
2,572
   
$
—
   
$
—
   
$
2,572
 

   
At December 31, 2017
 
   
Gross
Amounts
of
Recognized
Assets
   
Gross
Amounts
Offset in the
Statement of
Financial
Position
   
Net
Amounts of
Assets
Presented in
the
Statement of
Financial
Position
   
Gross Amounts Not Offset
in the Statement of
Financial Position
       
               
Financial
Instruments
   
Cash
Collateral
Received
   
Net
Amount
 
FHLB Advances
 
$
4,041
   
$
—
   
$
4,041
   
$
—
   
$
—
   
$
4,041
 

The Company's agreements with each of its derivative counterparties state that if the Company defaults on any of its indebtedness, it could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

The Company's agreements with certain of its derivative counterparties state that if the Bank fails to maintain its status as a well-capitalized institution, the Bank could be required to terminate its derivative positions with the counterparty.

As of December 31, 2018 , the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2,662. If the Company had breached any of the above provisions at December 31, 2018 , it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty. There were no provisions breached for the period ended December 31, 2018 .

15.  FHLBNY ADVANCES

The Bank had borrowings from the FHLBNY (''Advances'') totaling $1,125,350 and $1,170,000 at December 31, 2018 and 2017 , respectively, all of which were fixed rate. The average interest cost of FHLBNY Advances was 1.93%, 1.63%, and 1.45% during the years ended December 31, 2018 , 2017 and 2016 , respectively. The average interest rate on outstanding FHLBNY Advances was 2.27% and 1.67% at December 31, 2018 and 2017 , respectively. In accordance with its Advances, Collateral Pledge and Security Agreement with the FHLBNY, the Bank was eligible to borrow up to $2,145,563 as of December 31, 2018 and $1,770,671 as of December 31, 2017 , and maintained sufficient qualifying collateral, as defined by the FHLBNY, with the FHLBNY (principally real estate loans), to secure Advances in excess of its borrowing limit at both December 31, 2018 and 2017 . Certain FHLBNY Advances may contain call features that may be exercised by the FHLBNY. At December 31, 2018 there were no callable Advances. Prepayment penalties were associated with all fixed-rate Advances outstanding as of December 31, 2018 and 2017 .

There were no prepayments of FHLBNY Advances during the years ended December 31, 2018 , 2017 or 2016.

The following table presents a summary of scheduled maturities of FHLBNY Advances outstanding at December 31, 2018 :

   
Maturing
Balance
   
Weighted Average
Interest Rate
 
2019
   
613,150
     
2.36
%
2020
   
333,750
     
1.99
%
2021
   
140,500
     
2.40
%
2022
   
21,175
     
2.96
%
2023
   
16,775
     
3.00
%
TOTAL
 
$
1,125,350
     
2.27
%

16.  SUBORDINATED NOTES PAYABLE

During the year ended December 31, 2017, the Holding Company issued $115,000 of fixed-to-floating rate subordinated notes due June 2027, which become callable commencing on June 15, 2022. The notes will mature on June 15, 2027 (the “Maturity Date”). From and including June 13, 2017 until but excluding June 15, 2022, interest will be paid semi-annually in arrears on each June 15 and December 15 at a fixed annual interest rate equal to 4.50%. From and including June 15, 2022 to, but excluding, the Maturity Date or earlier redemption date, the interest rate shall reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 266 basis points, payable quarterly in arrears. Debt issuance cost directly associated with subordinated debt offering was capitalized and netted with subordinated notes payable on the Consolidated Statements of Financial Condition. Interest expense related to the subordinated debt was $5,322 and $2, 927 during the year ended December 31, 2018 and 2017, respectively.

17.  TRUST PREFERRED SECURITIES PAYABLE

On March 19, 2004, the Holding Company completed an offering of trust preferred securities through Dime Community Capital Trust I, an unconsolidated special purpose entity formed for the purpose of the offering. The trust preferred securities bear a fixed interest rate of 7.0%, mature on April 14, 2034, and became callable without penalty at any time on or after April 15, 2009. The outstanding balance of the trust preferred securities was $70,680 at December 31, 2016.

During the year ended December 31, 2017, the Company redeemed its $70,680 of trust preferred securities borrowings at par from third parties. The Company recognized a $1,272 loss from extinguishment of debt from the acceleration of the remaining unamortized deferred origination costs.

There was no interest expenses recorded on the trust preferred securities during the year ended December 31, 2018 . Interest expense recorded on the trust preferred securities totaled $2,708 and $5,024 during the years ended December 31, 2017 and 2016 , respectively.

18.  INCOME TAXES

The Company's consolidated Federal, State and City income tax provisions were comprised of the following:

   
Year Ended December 31, 2018
   
Year Ended December 31, 2017
   
Year Ended December 31, 2016
 
   
Federal
   
State
and City
   
Total
   
Federal
   
State
and City
   
Total
   
Federal
   
State
and City
   
Total
 
Current
 
$
12,226
   
$
4,008
   
$
16,234
   
$
20,818
   
$
5,523
   
$
26,341
   
$
42,834
   
$
17,026
   
$
59,860
 
Deferred
   
(554
)
   
(253
)
   
(807
)
   
8,334
     
2,181
     
10,515
     
702
     
395
     
1,097
 
TOTAL
 
$
11,672
   
$
3,755
   
$
15,427
   
$
29,152
   
$
7,704
   
$
36,856
   
$
43,536
   
$
17,421
   
$
60,957
 

The preceding table excludes tax effects recorded directly to stockholders’ equity in connection with unrealized gains and losses on securities available-for-sale (including losses on such securities upon their transfer to held-to-maturity), interest rate derivatives, stock-based compensation plans for years prior to 2017, and adjustments to other comprehensive income relating to the minimum pension liability, unrecognized gains of pension and other postretirement obligations and changes in the non-credit component of OTTI. These tax effects are disclosed as part of the presentation of the consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income.

The provision for income taxes differed from that computed at the Federal statutory rate as follows:

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Tax at Federal statutory rate
 
$
14,010
   
$
31,058
   
$
46,715
 
State and local taxes, net of federal income tax benefit
   
2,967
     
5,008
     
11,323
 
ESOP acceleration expense
   
—
     
—
     
3,962
 
Benefit plan differences
   
(312
)
   
(535
)
   
(54
)
Adjustments for prior period returns and tax items
   
(693
)
   
84
     
(13
)
Investment in BOLI
   
(605
)
   
(776
)
   
(957
)
Enactment of federal tax reform
   
—
     
3,135
     
—
 
Equity based compensation
   
(128
)
   
(1,283
)
   
—
 
Other, net
   
188
     
165
     
(19
)
TOTAL
 
$
15,427
   
$
36,856
   
$
60,957
 
Effective tax rate
   
23.12
%
   
41.53
%
   
45.67
%

Deferred tax assets and liabilities are recorded for temporary differences between the book and tax bases of assets and liabilities. The components of Federal, State and City deferred income tax assets and liabilities were as follows:

   
At December 31,
 
   
2018
   
2017
 
Deferred tax assets:
           
Allowance for loan losses
   
7,071
     
6,836
 
Employee benefit plans
   
6,809
     
7,148
 
Tax effect of purchase accounting fair value adjustments
   
291
     
307
 
Tax effect of other components of income on investment securities and MBS
   
948
     
—
 
Other
   
2,112
     
2,135
 
Total deferred tax assets
   
17,231
     
16,426
 
Deferred tax liabilities:
               
Tax effect of other components of income on investment securities, MBS, and interest rate derivatives
   
827
     
1,474
 
Difference in book and tax carrying value of fixed assets
   
1,497
     
20
 
Difference in book and tax basis of unearned loan fees
   
2,986
     
2,837
 
Difference in book and tax basis of deferred income from REIT subsidiary
   
—
     
2,262
 
Other
   
527
     
605
 
Total deferred tax liabilities
   
5,837
     
7,198
 
Net deferred tax asset (recorded in other assets)
 
$
11,394
   
$
9,228
 

On December 22, 2017, the President signed into law the Tax Act. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate federal tax rate from a maximum rate of 35% to a flat rate of 21%. The rate reduction took effect January 1, 2018.

Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. As a result of the reduction in the corporate income tax rate from 35% to 21%, the Company recorded tax expense of $3,135 during the year ended December 31, 2017.

Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Act in situations where a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that included the enactment date. SAB 118 allowed for a measurement period not to extend beyond one year from the Tax Act’s enactment date to complete the necessary accounting.

As of December 31, 2017, the Company recorded provisional adjustments of income tax effects of certain elements of the Tax Act, such as the accelerated depreciation which allows for full expensing of qualified property purchased and placed into service after September 27, 2017 and the Company has made no adjustments to deferred tax assets representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code 162(m) which, generally, limits the annual deduction for certain compensation paid to certain employees to $1 million.  The accounting for these items was finalized in 2018 with no material impact on income tax expense.

No valuation allowances were recognized on deferred tax assets during the years ended December 31, 2018 or 2017 , since, at each period end, it was deemed more likely than not that the deferred tax assets would be fully realized.

At December 31, 2018 and 2017 , the Bank had accumulated bad debt reserves totaling $15,158 for which no provision for income tax was required to be recorded. These bad debt reserves could be subject to recapture into taxable income under certain circumstances, including a distribution of the bad debt benefits to the Holding Company or the failure of the Bank to qualify as a bank for federal income tax purposes. Should the reserves as of December 31, 2018 be fully recaptured, the Bank would recognize $5,042 in additional income tax expense. The Company expects to take no action in the foreseeable future that would require the establishment of a tax liability associated with these bad debt reserves.

The Company is subject to regular examination by various tax authorities in jurisdictions in which it conducts significant business operations. The Company regularly assesses the likelihood of additional examinations in each of the tax jurisdictions resulting from ongoing assessments.

Under current accounting rules, all tax positions adopted are subjected to two levels of evaluation. Initially, a determination is made, based on the technical merits of the position, 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 processes. 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% likely to be realized upon ultimate settlement. The Company had no unrecognized tax benefits as of December 31, 2018 or 2017 . The Company does not anticipate any material change to unrecognized tax benefits during the year ending December 31, 2019 .

As of December 31, 2018 , the tax years ended December 31, 2015 , 2016 , 2017 , and 2018 remained subject to examination by all of the Company's relevant tax jurisdictions. The 2014 tax year is subject to examination for New Jersey only.  The Company is currently not under audit in any taxing jurisdictions.

19.  KSOP [FORMERLY THE ESOP AND 401(K) PLAN]

The Holding Company adopted the ESOP in connection with the Bank's June 26, 1996 conversion to stock ownership. The ESOP borrowed $11,638 from the Holding Company and used the funds to purchase 3,927,825 shares of Common Stock. The loan was originally to be repaid principally from the Bank's discretionary contributions to the ESOP over a period of time not to exceed 10 years from the date of the conversion. Effective July 1, 2000, the loan agreement was amended to extend the repayment period to thirty years from the date of the conversion, with the right of optional prepayment.

Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Shares released from the ESOP suspense account are allocated among participants on the basis of compensation, as defined in the plan, in the year of allocation. ESOP distributions vest at a rate of 25% per year of service, beginning after two years, with full vesting after five years or upon attainment of age 65, death, disability, retirement or a "change of control" of the Holding Company as defined in the ESOP.

During the year ended December 31, 2016, the ESOP returned 140,260 shares from the suspense account to the Holding Company to pay off the outstanding $2,819 balance of the ESOP loan remaining after the 2016 annual share allocation. In conjunction with the prepayment of the outstanding loan balance, the remaining 563,127 shares were allocated to active participants in the plan as of December 31, 2016, resulting in a one-time, non-cash, non-tax deductible expense of $11,319 which was recorded in stock benefit plan compensation expense.

ESOP benefit expense is recorded based upon the fair value of the award shares. There was no ESOP expense recorded for the year ended December 31, 2018 or 2017. ESOP expenses totaled $1,783 for the year ended December 31, 2016 . Included in ESOP expense were dividends on unallocated Common Stock that were paid to participants. These dividends totaled $438 during the year ended December 31, 2016 .

The Bank also maintains the 401(k) Plan, which covers substantially all of its employees. During the year ended December 31, 2017, the Company merged the assets of the ESOP into the 401(k) Plan, creating the Dime Community Bank KSOP. The KSOP owned participant investments in Common Stock for the accounts of participants totaling $41,863 at December 31, 2018 and $56,741 at December 31, 2017.

The Bank made discretionary contributions totaling $1,743, $1,689 and $638 to eligible KSOP [and former 401(k) Plan] participants during the years ended December 31, 2018 , 2017 and 2016 , respectively. In 2018 and 2017, this included safe harbor contributions of 3% made to eligible employees as well as an additional 3% discretionary contribution made to eligible employees. In 2016 this included safe harbor contributions of 3% made to eligible employees. These contributions were recognized as a component of salaries and employee benefits expense.

20.  EMPLOYEE BENEFIT PLANS

Employee Retirement Plan

The Bank sponsors the Employee Retirement Plan, a tax-qualified, noncontributory, defined-benefit retirement plan. Prior to April 1, 2000, substantially all full-time employees of at least 21 years of age were eligible for participation after one year of service. Effective April 1, 2000, the Bank froze all participant benefits under the Employee Retirement Plan. For the years ended December 31, 2018 and 2017 , the Bank used December 31 st as its measurement date for the Employee Retirement Plan.

The funded status of the Employee Retirement Plan was as follows:

   
At December 31,
 
   
2018
   
2017
 
Accumulated benefit obligation at end of period
 
$
23,047
   
$
26,029
 
Reconciliation of Projected benefit obligation:
               
Projected benefit obligation at beginning of period
 
$
26,029
   
$
25,297
 
Interest cost
   
852
     
936
 
Actuarial (gain) loss
   
(2,293
)
   
1,284
 
Benefit payments
   
(1,486
)
   
(1,488
)
Settlements
   
(55
)
   
—
 
Projected benefit obligation at end of period
   
23,047
     
26,029
 
                 
Plan assets at fair value (investments in trust funds managed by trustee)
               
Balance at beginning of period
   
25,361
     
23,355
 
Return on plan assets
   
(1,296
)
   
3,477
 
Contributions
   
33
     
17
 
Benefit payments
   
(1,486
)
   
(1,488
)
Settlements
   
(55
)
   
—
 
Balance at end of period
   
22,557
     
25,361
 
Funded status at end of year
 
$
(490
)
 
$
(668
)

The net periodic cost for the Employee Retirement Plan included the following components:

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Interest cost
 
$
852
   
$
936
   
$
979
 
Expected return on plan assets
   
(1,719
)
   
(1,579
)
   
(1,532
)
Amortization of unrealized loss
   
1,045
     
1,287
     
1,551
 
Net periodic cost
 
$
178
   
$
644
   
$
998
 

The change in accumulated other comprehensive income (loss) that resulted from the Employee Retirement Plan is summarized as follows:

   
At December 31,
 
   
2018
   
2017
 
Balance at beginning of period
 
$
(8,340
)
 
$
(10,240
)
Amortization of unrealized loss
   
1,045
     
1,287
 
Gain (Loss) recognized during the year
   
(723
)
   
613
 
Balance at the end of the period
 
$
(8,018
)
 
$
(8,340
)
Period end component of accumulated other comprehensive loss, net of tax
 
$
5,456
   
$
5,610
 

Major assumptions utilized to determine the net periodic cost of the Employee Retirement Plan benefit obligations were as follows:

   
At or for the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Discount rate used for net periodic cost
   
3.38
%
   
3.82
%
   
3.98
%
Discount rate used to determine benefit obligation at period end
   
4.04
     
3.38
     
3.82
 
Expected long-term return on plan assets used for net periodic cost
   
7.00
     
7.00
     
7.00
 
Expected long-term return on plan assets used to determine benefit obligation at period end
   
7.00
     
7.00
     
7.00
 

The Employee Retirement Plan assets are invested in two diversified investment portfolios of the Pentegra Retirement Trust (the “Trust”). The Trust, a private placement investment trust, has been granted discretion by the Bank to determine the appropriate strategic asset allocations (as governed by its Investment Policy Statement) to meet estimated plan liabilities.

The Employee Retirement Plan’s asset allocation targets holding 65% of assets in equity securities via investment in the Long-Term Growth Equity Portfolio (“LTGE”), 34% in intermediate-term bonds via investment in the Long-Term Growth Fixed-Income Portfolio (“LTGFI”), and 1 % in a cash equivalents portfolio (for liquidity). Asset rebalancing is performed at least annually, with interim adjustments when the investment mix varies in excess of 10% from the target.

The LTGE is a diversified portfolio of seven registered mutual funds and six common collective trust funds. The LTGE holds a diversified mix of equity funds in order to gain exposure to the U.S. and non-U.S. equity markets. The common collective investment funds held by the LTGE were privately offered, and the Employee Retirement Plan's investment in these common collective investment funds was therefore valued by the fund managers of each respective fund based on the Employee Retirement Plan’s proportionate share of units of beneficial interest in the respective funds. All of the common collective investment funds are audited, and the overwhelming majority of assets held in these funds (which derive the unit value of the common collective investment funds) are actively traded in established marketplaces. The seven registered mutual funds held by the LTGE are all actively traded on national securities exchanges and are valued at their quoted market prices.

The LTGFI is a diversified portfolio that invests in four intermediate-term bond funds, all of which are registered mutual funds. These mutual funds are actively traded on national securities exchanges and are valued at their quoted market prices.

The investment goal is to achieve investment results that will contribute to the proper funding of the Employee Retirement Plan by exceeding the rate of inflation over the long-term. In addition, investment managers for the trust function managing the assets of the Employee Retirement Plan are expected to provide a reasonable return on investment. Performance volatility is also monitored. Risk and volatility are further managed by the distinct investment objectives of each of the trust funds and the diversification within each fund.

The weighted average allocation by asset category of the assets of the Employee Retirement Plan was summarized as follows:

   
At December 31,
 
   
2018
   
2017
 
Asset Category
           
Equity securities
   
58
%
   
66
%
Debt securities (bond mutual funds)
   
39
     
32
 
Cash equivalents
   
3
     
2
 
Total
   
100
%
   
100
%

The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2018 and 2017 , respectively.

The following tables present a summary of the Employee Retirement Plan’s investments measured at fair value on a recurring basis by level within the fair value hierarchy, as of the dates indicated. (See Note 23 for a discussion of the fair value hierarchy).

   
Fair Value Measurements
at December 31, 2018
       
Description
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level
3)
   
Total
 
Mutual Funds (all registered and publicly traded) :
                       
Domestic Large Cap
 
$
2,546
   
$
—
   
$
—
   
$
2,546
 
Domestic Mid Cap
   
1,080
     
—
     
—
     
1,080
 
Domestic Small Cap
   
737
     
—
     
—
     
737
 
International Equity
   
2,507
     
—
     
—
     
2,507
 
Fixed Income
   
8,756
     
—
     
—
     
8,756
 
Cash equivalents
   
650
     
—
     
—
     
650
 
Common collective investment funds:
                               
Domestic Large Cap
   
—
     
4,295
     
—
     
4,295
 
Domestic Mid Cap
   
—
     
550
     
—
     
550
 
Domestic Small Cap
   
—
     
844
     
—
     
844
 
International Equity
   
—
     
592
     
—
     
592
 
Total Plan Assets
                         
$
22,557
 

   
Fair Value Measurements
at December 31, 2017
       
Description
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level
3)
   
Total
 
Mutual Funds (all registered and publicly traded) :
                       
Domestic Large Cap
 
$
3,228
   
$
—
   
$
—
   
$
3,228
 
Domestic Mid Cap
   
1,344
     
—
     
—
     
1,344
 
Domestic Small Cap
   
513
     
—
     
—
     
513
 
International Equity
   
3,198
     
—
     
—
     
3,198
 
Fixed Income
   
8,133
     
—
     
—
     
8,133
 
Cash equivalents
   
510
     
—
     
—
     
510
 
Common collective investment funds:
                               
Domestic Large Cap
   
—
     
5,246
     
—
     
5,246
 
Domestic Mid Cap
   
—
     
702
     
—
     
702
 
Domestic Small Cap
   
—
     
1,527
     
—
     
1,527
 
International Equity
   
—
     
960
     
—
     
960
 
Total Plan Assets
                         
$
25,361
 

The expected long-term rate of return assumptions on Employee Retirement Plan assets were established based upon historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Employee Retirement Plan's target allocation of asset classes. Equities and fixed income securities were assumed to earn real annual rates of return in the ranges of 5% to 10% and 1% to 4%, respectively. The long-term inflation rate was estimated to be 2.5%. When these overall return expectations were applied to the Employee Retirement Plan's target allocation, the expected annual rate of return was determined to be 7.00% at both December 31, 2018 and 2017 .

The Bank contributed $33 to the Employee Retirement Plan during the year ended December 31, 2018 . The Bank expects to make contributions in the amount of $32 to the Employee Retirement Plan during the year ending December 31, 2019 . During the year ending December 31, 2019 , actuarial losses of $913 related to the Employee Retirement Plan are anticipated to be recognized as a component of net periodic cost.

Benefit payments are anticipated to be made as follows:

Year Ending December 31,
 
Amount
 
2019
 
$
1,492
 
2020
   
1,486
 
2021
   
1,496
 
2022
   
1,471
 
2023
   
1,463
 
2024 to 2028
   
7,025
 

BMP and Director Retirement Plan

The Holding Company and Bank maintain the BMP, which exists in order to compensate executive officers for any curtailments in benefits due to statutory limitations on benefit plans. As of December 31, 2018 and 2017 , the BMP had investments, held in a rabbi trust, in the Common Stock of $2,334 and $5,018, respectively. Benefit accruals under the defined benefit portion of the BMP were suspended on April 1, 2000, when they were suspended under the Employee Retirement Plan.

Effective July 1, 1996, the Company established the Director Retirement Plan to provide benefits to each eligible outside director commencing upon the earlier of termination of Board service or at age 75. The Director Retirement Plan was frozen on March 31, 2005, and only outside directors serving prior to that date are eligible for benefits.

As of December 31, 2018 and 2017 , the Bank used December 31 st as its measurement date for both the BMP and Director Retirement Plan.

The combined funded status of the defined benefit portions of the BMP and the Director Retirement Plan was as follows:

   
At December 31,
 
   
2018
   
2017
 
Accumulated benefit obligation at end of period
 
$
9,596
   
$
10,364
 
Reconciliation of projected benefit obligation:
               
Projected benefit obligation at beginning of period
 
$
10,364
   
$
11,351
 
Interest cost
   
313
     
379
 
Benefit payments
   
(770
)
   
(544
)
Actuarial gain
   
(311
)
   
(822
)
Projected benefit obligation at end of period
   
9,596
     
10,364
 
Plan assets at fair value:
               
Balance at beginning of period
   
—
     
—
 
Contributions
   
770
     
544
 
Benefit payments
   
(770
)
   
(544
)
Balance at end of period
   
—
     
—
 
Funded status at the end of the year:
 
$
(9,596
)
 
$
(10,364
)

The combined net periodic cost for the defined benefit portions of the BMP and the Director Retirement Plan included the following components:

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Interest cost
 
$
313
   
$
379
   
$
392
 
Amortization of unrealized loss
   
109
     
147
     
161
 
Net periodic cost
 
$
422
   
$
526
   
$
553
 

The combined change in accumulated other comprehensive income that resulted from the BMP and Director Retirement Plan is summarized as follows:

   
At December 31,
 
   
2018
   
2017
 
Balance at beginning of period
 
$
(1,789
)
 
$
(2,758
)
Amortization of unrealized loss
   
109
     
147
 
Gain recognized during the year
   
311
     
822
 
Balance at the end of the period
 
$
(1,369
)
 
$
(1,789
)
Period end component of accumulated other comprehensive loss, net of tax
 
$
1,089
   
$
1,203
 

Major assumptions utilized to determine the net periodic cost and benefit obligations for both the BMP and Director Retirement Plan were as follows:

   
At or For the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Discount rate used for net periodic cost – BMP
   
3.13
%
   
3.46
%
   
3.54
%
Discount rate used for net periodic cost – Director Retirement Plan
   
3.17
     
3.53
     
3.67
 
Discount rate used to determine BMP benefit obligation at period end
   
3.80
     
3.13
     
3.46
 
Discount rate used to determine Director Retirement Plan benefit obligation at period end
   
3.84
     
3.17
     
3.53
 

Both the BMP and Director Retirement Plan are unfunded non-qualified benefit plans that are not anticipated to ever hold assets for investment. Any contributions made to either the BMP or Director Retirement Plan are expected to be used immediately to pay benefits that accrue. The Bank contributed and made benefit payments in the amount of $546 on behalf of the BMP and $224 on behalf of the Directors Retirement Plan during the year ending December 31, 2018 .

In addition to benefit payments from the defined benefit plan component of the BMP discussed above, retired participants are eligible for distributions from the plan. During the year ended December 31, 2018, three retired participants elected gross lump-sum distributions totaling $2,477.  The distributions were satisfied by 102,074 shares of common stock (market value of $1,963) held by the previous ESOP component of the BMP, of which 49,895 shares were returned to Treasury Stock to cover income tax liabilities, and cash of $514 funded by the proceeds from the sale of marketable equity securities held by the defined contribution plan components of the BMP. As a result of the distribution, a non-cash tax benefit of $619 was recognized as a discrete item in income tax expense in accordance to ASU 2016-09 for the difference between market value and cost basis of the Common Stock held by the BMP.

During the year ended December 31, 2017, three retired participants elected gross lump-sum distributions totaling $11,828. The distributions were satisfied by 365,104 shares of common stock (market value $7,151) held by the previous ESOP component of the BMP, of which 230,358 shares were returned to Treasury Stock to cover income tax liabilities, and cash of $4,629 funded by the proceeds from the sale of trading securities held by the defined contribution plan components of the BMP. As a result of the distribution a non-cash tax benefit of $1,454 was recognized as a discrete item in income tax expense in accordance to ASU 2016-09 for the difference between market value and cost basis of the common stock held by the BMP.

During the year ended December 31, 2016, a retired participant elected a gross lump-sum distribution of $7,736. The distribution was satisfied by 239,822 shares of Common Stock (market value of $4,088) held by the ESOP component of the BMP, of which 107,008 shares were returned to Treasury Stock to cover income tax liabilities, and cash of $3,648 funded by proceeds from the sale of trading securities held by the defined contribution plan components of the BMP. As a result of the distribution, a non-cash tax benefit of $717 was recognized as reduction to income tax payable and increase in Additional Paid-in Capital for the difference between market value and cost basis of the Common Stock held by the BMP, prior to the adoption of ASU 2016-09.

Actuarial projections performed as of December 31, 2018 assumed the Bank will contribute $564 to the BMP and $225 to the Director Retirement Plan during the year ending December 31, 2019 in order to pay benefits due under the respective plans. During the year ending December 31, 2019 , actuarial losses of $23 related to the BMP and $35 related to the Director Retirement Plan are anticipated to be recognized as a component of net periodic cost.

Combined benefit payments under the BMP and Director Retirement Plan, which reflect expected future service (as appropriate), are anticipated to be made as follows:

Year Ending December 31,
 
Amount
 
       
2019
 
$
789
 
2020
   
821
 
2021
   
813
 
2022
   
803
 
2023
   
793
 
2024 to 2028
   
3,909
 

There is no defined contribution cost incurred by the Holding Company or the Bank under the Director Retirement Plan. Defined contribution costs incurred by the Company related to the BMP were $59, $336, and $744 for the years ended December 31, 2018 , 2017 and 2016 , respectively.

Postretirement Benefit Plan

The Bank offers the Postretirement Benefit Plan to its retired employees who provided at least five consecutive years of credited service and were active employees prior to April 1, 1991, as follows:


(1)
Qualified employees who retired prior to April 1, 1991 receive the full medical coverage in effect at the time of retirement until their death at no cost to such retirees;


(2)
Qualified employees retiring on or after April 1, 1991 are eligible for medical benefits. Throughout retirement, the Bank will continue to pay the premiums for the coverage not to exceed the premium amount paid for the first year of retirement coverage. Should the premiums increase, the employee is required to pay the differential to maintain full medical coverage.

Postretirement Benefit Plan benefits are available only to full-time employees who commence or commenced collecting retirement benefits from the Retirement Plan immediately upon termination of service from the Bank. The Bank reserves the right at any time, to the extent permitted by law, to change, terminate or discontinue any of the group benefits, and can exercise the maximum discretion permitted by law in administering, interpreting, modifying or taking any other action with respect to the plan or benefits.

The Postretirement Plan was amended effective March 31, 2015 to eliminate plan participation for post-amendment retirees.

The funded status of the Postretirement Benefit Plan was as follows:

   
At December 31,
 
   
2018
   
2017
 
Accumulated benefit obligation at end of period
 
$
1,532
   
$
1,768
 
Reconciliation of projected benefit obligation:
               
Projected benefit obligation at beginning of period
 
$
1,768
   
$
1,756
 
Interest cost
   
54
     
59
 
Actuarial (gain) loss
   
(200
)
   
132
 
Benefit payments
   
(90
)
   
(179
)
Projected benefit obligation at end of period
   
1,532
     
1,768
 
Plan assets at fair value:
               
Balance at beginning of period
   
—
     
—
 
Contributions
   
90
     
179
 
Benefit payments
   
(90
)
   
(179
)
Balance at end of period
   
—
     
—
 
Funded status:
               
Deficiency of plan assets over projected benefit obligation and accrued expense included in other liabilities
 
$
(1,532
)
 
$
(1,768
)

The Postretirement Benefit Plan net periodic cost included the following components:

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Interest cost
 
$
54
   
$
59
   
$
63
 
Amortization of unrealized loss
   
(9
)
   
(14
)
   
(12
)
Net periodic cost
 
$
45
   
$
45
   
$
51
 

The change in accumulated other comprehensive income (loss) that resulted from the Postretirement Benefit Plan is summarized as follows:

   
At December 31,
 
   
2018
   
2017
 
Balance at beginning of period
 
$
203
   
$
349
 
Amortization of unrealized loss
   
(9
)
   
(14
)
Gain (loss) recognized during the year
   
200
     
(132
)
Balance at the end of the period
 
$
394
   
$
203
 
Period end component of accumulated other comprehensive loss, net of tax
 
$
( 255
)
 
$
(137
)

Major assumptions utilized to determine the net periodic cost were as follows:

   
At or for the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Discount rate used for net periodic cost
   
3.16
%
   
3.48
%
   
3.58
%
Discount rate used to determine benefit obligation at period end
   
3.82
     
3.16
     
3.48
 

As of December 31, 2018 , an escalation in the assumed medical care cost trend rates by 1% in each year would increase the net periodic cost by approximately $1. A decline in the assumed medical care cost trend rates by 1% in each year would decrease the net periodic cost by approximately $1.

As of December 31, 2018 and 2017 , the Bank used December 31 st as its measurement date for the Postretirement Benefit Plan. The assumed medical care cost trend rate used in computing the accumulated Postretirement Benefit Plan obligation was 6.5% for 2018 and was assumed to decrease gradually to 5.0% in 2025 and remain at that level thereafter. An escalation in the assumed medical care cost trend rates by 1% in each year would increase the accumulated Postretirement Benefit Plan obligation by approximately $22. A decline in the assumed medical care cost trend rates by 1% in each year would reduce the accumulated Postretirement Benefit Plan obligation by approximately $20.

GAAP provides guidance on both accounting for the effects of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Modernization Act") to employers that sponsor postretirement health care plans which provide prescription drug benefits, and measuring the accumulated postretirement benefit obligation ("APBO") and net periodic postretirement benefit cost, and the effects of the Modernization Act on the APBO. The Company determined that the benefits provided by the Postretirement Benefit Plan are actuarially equivalent to Medicare Part D under the Modernization Act. The effects of an expected subsidy on payments made under the Postretirement Benefit Plan were treated as an actuarial gain for purposes of calculating the APBO as of December 31, 2018 and 2017 . The Company remains in the process of claiming this subsidy from the government, and, as a result, the Bank cannot determine the amount of subsidy it will ultimately receive.

The Postretirement Benefit Plan is an unfunded non-qualified benefit plan that is not anticipated to ever hold assets for investment. Any contributions made to the Postretirement Benefit Plan are expected to be used immediately to pay benefits that accrue.

Benefit payments under the Postretirement Benefit Plan, which reflect expected future service (as appropriate), are expected to be made as follows:

Year Ending December 31,
 
Amount
 
2019
 
$
109
 
2020
   
101
 
2021
   
95
 
2022
   
89
 
2023
   
80
 
2024 to 2028
   
297
 


21.  STOCK-BASED COMPENSATION

Stock Option Activity

The Company has made stock option grants to outside Directors and certain officers under the Stock Plans. All option shares granted have a ten-year life. The option shares granted to the outside Directors vest over one year, while the option shares granted to officers vest ratably over four years. The exercise price of each option award was determined based upon the fair market value of the Common Stock on the respective grant dates. Compensation expense is determined based upon the fair value of the option shares on the respective dates of grant, as determined utilizing a recognized option pricing methodology. There was no compensation expense recorded during the year ended December 31, 2018 , 2017 , or 2016 as all options were fully vested prior to the year ended December 31, 2016 .

There were no stock options granted during the years ended December 31, 2018 , 2017 and 2016 .

The following table presents a summary of activity related to stock options granted under the Stock Plans, and changes during the period then ended:

   
Number of
Options
   
Weighted-
Average
Exercise
Price
   
Weighted-
Average
Remaining
Contractual
Years
   
Aggregate
Intrinsic
Value
 
Options outstanding at January 1, 2017
   
209,254
   
$
15.48
             
Options granted
   
—
     
—
             
Options exercised
   
(51,708
)
   
15.35
             
Options that expired prior to exercise
   
—
     
—
             
Options outstanding at December 31, 2017
   
157,546
   
$
15.53
     
1.7
   
$
1,027
 
                                 
Options granted
   
—
     
—
                 
Options exercised
   
(66,372
)
   
17.10
                 
Options that expired prior to exercise
   
(18,779
)
   
17.50
                 
Options outstanding at December 31, 2018
   
72,395
   
$
13.58
     
2.0
   
$
246
 
Options vested and exercisable at December 31, 2018
   
72,395
   
$
13.58
     
2.0
   
$
246
 

Information related to stock options under the Stock Plans during each period is as follows:

   
For the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Cash received for option exercise cost
 
$
954
   
$
792
   
$
3,498
 
Income tax benefit recognized (1)
   
44
     
52
     
93
 
Intrinsic value of options exercised
   
167
     
314
     
826
 

(1)
Effective January 1, 2017, income tax benefits were recognized as discrete items in income tax expense in accordance to ASU 2016-09. Prior to January, 1, 2017, income tax benefits were recognized through additional paid in capital.

The range of exercise prices and weighted-average remaining contractual lives of both outstanding and vested options (by option exercise cost) as of December 31, 2018 were as follows:

   
Outstanding Options
   
Vested Options
 
   
Amount
   
Weighted
Average
Contractual
Years
Remaining
   
Amount
   
Weighted
Average
Contractual
Years
Remaining
 
Exercise Prices:
                       
$8.34
   
8,869
     
0.3
     
8,869
     
0.3
 
$12.75
   
19,827
     
1.3
     
19,827
     
1.3
 
$13.86
   
12,220
     
3.3
     
12,220
     
3.3
 
$15.46
   
31,479
     
2.3
     
31,479
     
2.3
 
Total
   
72,395
     
2.0
     
72,395
     
2.0
 

Restricted Stock Awards

The Company has made restricted stock award grants to outside Directors and certain officers under the Stock Plans. Typically awards to outside Directors fully vest on the first anniversary of the grant date, while awards to officers may vest in equal installments over a four-year period or at the end of the four-year requisite period. All awards were made at the fair value of the Common Stock on the award date. Compensation expense on all restricted stock awards was thus recorded during the years ended December 31, 2018 , 2017 and 2016 based upon the fair value of the shares on the respective dates of grant.

The following table presents a summary of activity related to the restricted stock awards granted under the Stock Plans, and changes during the periods indicated:

   
Number of
Shares
   
Weighted-
Average
Grant-Date
Fair Value
 
Unvested allocated shares outstanding at January 1, 2017
   
152,409
   
$
16.56
 
Shares granted
   
122,329
     
19.61
 
Shares vested
   
(87,455
)
   
16.43
 
Shares forfeited
   
(36,716
)
   
17.65
 
Unvested allocated shares at December 31, 2017
   
150,567
     
18.85
 
                 
Shares granted
   
63,612
     
19.72
 
Shares vested
   
(56,742
)
   
18.19
 
Shares forfeited
   
(9,202
)
   
18.84
 
Unvested allocated shares at December 31, 2018
   
148,235
   
$
19.48
 

Information related to restricted stock awards under the Stock Plans during each period is as follows:

   
For the Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Compensation expense recognized
 
$
1,240
   
$
1,358
   
$
1,549
 
Income tax benefit recognized
   
22
     
95
     
78
 
Weighted average remaining years for which compensation expense is to be recognized
   
2.4
     
2.7
     
1.6
 

LTIP

During the years ended December 31, 2018 , 2017 and 2016 , the Company established long term incentive award programs to certain officers. The program for 2018 and 2017 will ultimately be settled in performance shares only and the program for 2016 will ultimately be settled in both cash and performance shares.

For each award, threshold (50% of target), target (100% of target) and maximum (150% of target) payment opportunities are eligible to be earned over a three-year performance period based on the Company's performance on certain measurement goals. Both the measurement goals and the peer group utilized to determine the Company's performance are established at the onset of the measurement period and cannot be altered subsequently.

At December 31, 2018 , a liability totaling $177 was recorded for expected future payments under the long-term cash incentive payment plan. This liability reflected the expectation of the most likely payment outcome determined for each individual incentive award (based upon both period-to-date actual and estimated future results for each award period). During the years ended December 31, 2018 , 2017 and 2016 , total expense recognized related to LTIP cash awards were $25, $190, and $443, respectively.

Performance based shares awarded to certain officers meet the criteria for equity-based accounting. The following table presents a summary of activity related to performance based equity awards and changes during the period:

   
Number of
Shares
   
Weighted-
Average
Grant-Date
Fair Value
 
Maximum aggregate share payout at January 1, 2017
   
24,730
   
$
17.35
 
Shares granted
   
71,976
     
19.75
 
Shares forfeited
   
(27,482
)
   
18.99
 
Maximum aggregate share payout at December 31, 2017
   
69,224
     
19.19
 
                 
Shares granted
   
81,353
     
18.55
 
Shares vested
   
(3,536
)
   
18.83
 
Shares forfeited
   
(26,161
)
   
18.62
 
                 
Maximum aggregate share payout at December 31, 2018
   
120,880
   
$
18.90
 
                 
Minimum aggregate share payout
   
2,276
   
$
17.35
 
Likely aggregate share payout
   
51,508
   
$
19.05
 

Compensation expense recorded for performance based equity awards was $207, $329, and $57 for the years ended December 31, 2018 , 2017, and 2016, respectively.

Sales Incentive Awards

During the year ended December 31, 2018, the Company established the SIP, a sales incentive award program for certain officers, which meets the criteria for equity-based accounting. For each quarter an individual can earn their shares based on their sales performance in that quarter. The shares then vest one year from the quarter in which they are earned. Shares of Common Stock are issued on the grant date and held as unvested stock awards until the end of the performance period. They are issued at the maximum opportunity in order to ensure that an adequate number of shares are allocated for shares expected to vest at the end of the performance period.

The following table presents a summary of activity related to performance based equity awards, and changes during the period then ended:

   
Number of
Shares
   
Weighted-
Average
Grant-Date
Fair Value
 
Maximum aggregate share payout at January 1, 2018
   
—
   
$
—
 
Shares granted
   
21,736
     
18.4
 
Shares vested
   
—
     
—
 
Shares forfeited
   
(13,585
)
   
18.4
 
Maximum aggregate share payout at December 31, 2018
   
8,151
   
$
18.4
 
Minimum aggregate share payout
   
—
     
—
 
Expected aggregate share payout
   
2,651
   
$
18.4
 

Compensation expense recorded for sales incentive based equity awards was $77 for the year ended December 31, 2018 .

22.  COMMITMENTS AND CONTINGENCIES

Loan Commitments and Lines of Credit

The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows:

   
2018
   
2017
 
   
Fixed
Rate
   
Variable
Rate
   
Fixed
Rate
   
Variable
Rate
 
Available lines of credit
 
$
—
   
$
102,110
   
$
—
   
$
73,315
 
Other loan commitments
   
16,450
     
133,608
     
1,000
     
47,181
 
Stand-by letters of credit
   
1,968
     
—
     
927
     
—
 

At December 31, 2018 and 2017 , the Bank had outstanding loan commitments that were accepted by the borrower aggregating $150,058 and $48,181 respectively. Substantially all of the Bank's commitments expire within three months of their acceptance by the prospective borrower. The primary concentrations of credit risk associated with these commitments were geographical (as the majority of committed loans were collateralized by properties located in the New York City metropolitan area) and the proportion of the commitments comprised of multifamily residential and commercial real estate loans.

At December 31, 2018 , the Bank had an available line of credit with the FHLBNY equal to its excess borrowing capacity. At December 31, 2018 , this amount approximated $1,020,213.

Additionally, in connection with the Loan Securitization (see Note 9), the Bank executed a reimbursement agreement with FHLMC that obligates the Company to reimburse FHLMC for any contractual principal and interest payments on defaulted loans, not to exceed 10% of the original principal amount of the loans comprising the aggregate balance of the loan pool at securitization. The maximum exposure under this reimbursement obligation is $28.0 million.

Lease Commitments

At December 31, 2018 , aggregate minimum annual rental commitments on operating leases were as follows:

   
Amount
 
       
2019
 
$
6,960
 
2020
   
6,869
 
2021
   
6,789
 
2022
   
6,490
 
2023
   
5,516
 
Thereafter
   
23,853
 
Total
 
$
56,477
 

Rental expense for the years ended December 31, 2018 , 2017 and 2016 totaled $6,873, $6,740, and $5,854, respectively.

Litigation

The Company is subject to certain pending and threatened legal actions which arise out of the normal course of business. Litigation is inherently unpredictable, particularly in proceedings where claimants seek substantial or indeterminate damages, or which are in their early stages. The Company cannot predict with certainty the actual loss or range of loss related to such legal proceedings, the manner in which they will be resolved, the timing of final resolution or the ultimate settlement. Consequently, the Company cannot estimate losses or ranges of losses related to such legal matters, even in instances where it is reasonably possible that a loss will be incurred. In the opinion of management, after consultation with counsel, the resolution of all ongoing legal proceedings will not have a material adverse effect on the consolidated financial condition or results of operations of the Company. The Company accounts for potential losses related to litigation in accordance with GAAP.

23.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:

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 – Significant unobservable inputs for the asset or liability.  Significant 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).  Significant unobservable inputs shall be used to measure fair value to the extent that observable inputs 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Securities

The Company's marketable equity securities and available-for-sale securities are reported at fair value, which were 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, bids, 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.

All debt securities available-for-sale are guaranteed either implicitly or explicitly by GSEs as of December 31, 2018 or 2017 . Obtaining market values as of December 31, 2018 or 2017   for these securities utilizing significant observable inputs was not difficult due to their considerable demand.

Loans Held for Sale, at Fair Value

The fair value of loans held for sale is determined using quoted prices, adjusted for specific attributes of that loan.

Derivatives

Derivatives represent interest rate swaps and estimated fair values are based on valuation models using observable market data as of the measurement date.

The following tables present financial assets liabilities measured at fair value on a recurring basis as of the dates indicated, segmented by level within the fair value hierarchy.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

         
Fair Value Measurements
at December 31, 2018 Using
 
   
Total
   
Level 1
Inputs
   
Level 2
Inputs
   
Level 3
Inputs
 
Financial Assets
                       
Marketable equity securities (Registered Mutual Funds):
                       
Domestic Equity Mutual Funds
 
$
1,420
   
$
1,420
   
$
—
   
$
—
 
International Equity Mutual Funds
   
377
     
377
     
—
     
—
 
Fixed Income Mutual Funds
   
3,870
     
3,870
     
—
     
—
 
Debt securities available-for-sale:
                               
Agency Notes
   
25,145
     
—
     
25,145
     
—
 
Corporate Securities
   
11,135
     
—
     
11,135
     
—
 
Pass-through MBS issued by GSEs
   
354,613
     
—
     
354,613
     
—
 
Agency CMOs
   
111,992
     
—
     
111,992
     
—
 
Loans held for sale
   
1,097
     
—
     
1,097
     
—
 
Derivative – interest rate product
   
4,669
     
—
     
4,669
     
—
 
Financial Liabilities
                               
Derivative – interest rate product
   
2,097
     
—
     
2,097
     
—
 

         
Fair Value Measurements
at December 31, 2017 Using
 
   
Total
   
Level 1
Inputs
   
Level 2
Inputs
   
Level 3
Inputs
 
Financial Assets
                       
Trading securities (Registered Mutual Funds):
                       
Domestic Equity Mutual Funds
 
$
460
   
$
460
   
$
—
   
$
—
 
International Equity Mutual Funds
   
120
     
120
     
—
     
—
 
Fixed Income Mutual Funds
   
2,135
     
2,135
     
—
     
—
 
Investment securities available-for-sale:
                               
Registered Mutual Funds:
                               
Domestic Equity Mutual Funds
   
1,512
     
1,512
     
—
     
—
 
International Equity Mutual Funds
   
445
     
445
     
—
     
—
 
Fixed Income Mutual Funds
   
2,049
     
2,049
     
—
     
—
 
Pass-through MBS issued by GSEs
   
72,629
     
—
     
72,629
     
—
 
Agency CMOs
   
278,755
     
—
     
278,755
     
—
 
Derivative – interest rate product
   
4,041
     
—
     
4,041
     
—
 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment), and are subject to fair value adjustments. Financial assets measured at fair value on a non-recurring basis include certain impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.

Financial Instruments Not Measured at Fair Value

The following tables present the carrying amounts and estimated fair values of financial instruments other than those measured at fair value on either a recurring or non-recurring is as follows for the dates indicated, segmented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

         
Fair Value Measurements
at December 31, 2018 Using
 
   
Carrying
Amount
   
Level 1
Inputs
   
Level 2
Inputs
   
Level 3
Inputs
   
Total
 
Financial Assets:
                             
Cash and due from banks
 
$
147,256
   
$
147,256
   
$
—
   
$
—
   
$
147,256
 
Loans, net
   
5,372,036
     
—
     
—
     
5,301,281
     
5,301,281
 
Accrued interest receivable
   
17,875
     
—
     
1,296
     
16,579
     
17,875
 
FHLBNY capital stock
   
57,551
     
N/A
     
N/A
     
N/A
     
N/A
 
Financial Liabilities:
                                       
Savings, money market and checking accounts
   
2,946,717
     
2,946,717
     
—
     
—
     
2,946,717
 
CDs
   
1,410,037
     
—
     
1,407,747
     
—
     
1,407,747
 
Escrow and other deposits
   
85,234
     
85,234
     
—
     
—
     
85,234
 
FHLBNY Advances
   
1,125,350
     
—
     
1,119,548
     
—
     
1,119,548
 
Subordinated debt, net
   
113,759
     
—
     
110,346
     
—
     
110,346
 
Accrued interest payable
   
2,710
     
—
     
2,710
     
—
     
2,710
 

         
Fair Value Measurements
at December 31, 2017 Using
 
   
Carrying
Amount
   
Level 1
Inputs
   
Level 2
Inputs
   
Level 3
Inputs
   
Total
 
Financial Assets:
                             
Cash and due from banks
 
$
169,455
   
$
169,455
   
$
—
   
$
—
   
$
169,455
 
Loans, net
   
5,581,084
     
—
     
—
     
5,519,746
     
5,519,746
 
Accrued interest receivable
   
16,543
     
—
     
751
     
15,792
     
16,543
 
FHLBNY capital stock
   
59,696
     
N/A
     
N/A
     
N/A
     
N/A
 
Financial Liabilities:
                                       
Savings, money market and checking accounts
   
3,311,560
     
3,311,560
     
—
     
—
     
3,311,560
 
CDs
   
1,091,887
     
—
     
1,192,964
     
—
     
1,192,964
 
Escrow and other deposits
   
82,168
     
82,168
     
—
     
—
     
82,168
 
FHLBNY Advances
   
1,170,000
     
—
     
1,164,947
     
—
     
1,164,947
 
Subordinated debt, net
   
113,612
     
—
     
115,337
     
—
     
115,337
 
Accrued interest payable
   
1,623
     
—
     
1,623
     
—
     
1,623
 

The methods and assumptions used to estimate fair values are described 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 (deemed a Level 1 valuation).

Loans, Net

In accordance with ASU 2016-01, the fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level 3 classification.

Accrued Interest Receivable

The estimated fair value of accrued interest receivable approximates its carrying amount, and is deemed to be valued at an input level comparable to its underlying financial asset.

FHLBNY Capital Stock

It is not practicable to determine the fair value of FHLBNY capital stock due to restrictions placed on transferability.

Deposits

The fair value of savings, money market, and checking accounts is, by definition, equal to the amount payable on demand at the reporting date ( i.e ., their carrying amount), which has been deemed a Level 1 valuation. The fair value of CDs is based upon the present value of contractual cash flows using current interest rates for instruments of the same remaining maturity (deemed a Level 2 valuation).

Escrow and Other Deposits

The fair value of escrow and other deposits is, by definition, equal to the amount payable on demand at the reporting date (i.e. , their carrying amount), which has been deemed a Level 1 valuation.

FHLBNY Advances

The   fair value of FHLBNY Advances 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 (deemed a Level 2 valuation). The carrying amount of accrued interest payable on FHLBNY Advances is its fair value and is deemed a Level 2 valuation.

Subordinated Debt

The fair value of subordinated debt is estimated using discounted cash flow analyses based on then current borrowing rates for similar types of borrowing arrangements (deemed a Level 2 valuation), and is provided to the Company quarterly independently by a market maker in the underlying security. The fair value is shown net of capitalized issuance costs.

Accrued Interest Payable

The estimated fair value of accrued interest payable approximates its carrying amount, and is deemed to be valued at an input level comparable to its underlying financial liability.

24.  REGULATORY MATTERS

The Bank is subject to regulation, examination, and supervision by the New York State Department of Financial Services and the FDIC. The Holding Company is subject to regulation, examination, and supervision by the Board of Governors of the Federal Reserve System.

The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (the “Basel III Capital Rules”) became effective for the Holding Company and Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios as of January 1, 2015: a) 4.5% based upon common equity tier 1 capital ("CET1"); b) 6.0% based upon tier 1 capital; and c) 8.0% based upon total regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of average consolidated assets) of 4.0% is also required under the Basel III Capital Rules.

The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer, composed entirely of CET1, of 2.5% above these required minimum capital ratio levels. Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. Restrictions would begin phasing in where the banking organization’s capital conservation buffer was below 2.5% at the beginning of a quarter, and distributions and discretionary bonus payments would be completely prohibited if no capital conservation buffer exists. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and increased by 0.625% each subsequent January 1, until it reached 2.5% on January 1, 2019. The capital conservation buffer was 1.875% and 1.25% at December 31, 2018 and 2017, respectively. Beginning on January 1, 2019, the Holding Company and the Bank effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based upon tier 1 capital; and c) 10.5% based upon total regulatory capital. In accordance with the Basel III Capital Rules, the Holding Company and the Bank have elected to exclude all permissible components of accumulated other comprehensive income from computing regulatory capital. Management believes, as of December 31, 2018 and 2017 , the Holding Company and Bank met all capital requirements to which they were subject.

The Bank is also governed by numerous federal and state laws and regulations, including the FDIC Improvement Act of 1991, which established five categories of capital adequacy ranging from well capitalized to critically undercapitalized (although these items are not utilized to represent overall financial condition). The FDIC utilizes these categories of capital adequacy to determine various matters, including, but not limited to, prompt corrective action and deposit insurance premium assessment levels. Capital levels and adequacy classifications may also be subject to qualitative judgments by the Bank’s regulators regarding, among other factors, the components of capital and risk weighting. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions and asset growth are limited, and capital restoration plans are required. As of December 31, 2018 and 2017 , the Bank satisfied all criteria necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. There have been no conditions or events since December 31, 2018 that management believes have changed the "well capitalized" categorization.

Actual and required capital amounts and ratios as of the dates indicated are presented below:

   
Actual
   
For Capital
Adequacy Purposes (1)
   
To Be Categorized
as “Well Capitalized” (1)
 
As of December 31, 2018
 
Amount
   
Ratio
   
Amount
   
Minimum
Ratio
   
Amount
   
Minimum
Ratio
 
Tier 1 Capital / % of average total assets
                                   
Bank
 
$
640,386
     
10.31
%
 
$
248,447
     
4.0
%
 
$
310,559
     
5.0
%
Consolidated Company
   
552,943
     
8.92
     
247,842
     
4.0
     
N/A
     
N/A
 
Common equity Tier 1 capital / % of risk weighted assets
                                               
Bank
   
640,386
     
13.34
     
216,103
     
4.5
     
312,149
     
N/A
 
Consolidated Company
   
552,943
     
11.50
     
216,361
     
4.5
     
N/A
     
6.5
 
Tier 1 Capital / % of risk weighted assets
                                               
Bank
   
640,386
     
13.34
     
288,137
     
6.0
     
384,183
     
8.0
 
Consolidated Company
   
552,943
     
11.50
     
288,481
     
6.0
     
N/A
     
N/A
 
Total Capital / % of risk weighted assets
                                               
Bank
   
662,613
     
13.80
     
384,183
     
8.0
     
480,229
     
10.0
 
Consolidated Company
   
690,170
     
14.35
     
384,642
     
8.0
     
N/A
     
N/A
 

(1)
In accordance with the Basel III rules.

   
Actual
   
For Capital
Adequacy Purposes (1)
   
To Be Categorized
as “Well Capitalized” (1)
 
As of December 31, 2017
 
Amount
   
Ratio
   
Amount
   
Minimum
Ratio
   
Amount
   
Minimum
Ratio
 
Tier 1 Capital / % of average total assets
                                   
Bank
 
$
591,380
     
9.32
%
 
$
256,071
     
4.0
%
 
$
320,089
     
5.0
%
Consolidated Company
   
546,571
     
8.61
     
256,029
     
4.0
     
N/A
     
N/A
 
Common equity Tier 1 capital / % of risk weighted assets
                                               
Bank
   
591,380
     
12.38
     
214,984
     
4.5
     
310,532
     
6.5
 
Consolidated Company
   
546,571
     
11.42
     
215,424
     
4.5
     
N/A
     
N/A
 
Tier 1 Capital / % of risk weighted assets
                                               
Bank
   
591,380
     
12.38
     
286,645
     
6.0
     
382,194
     
8.0
 
Consolidated Company
   
546,571
     
11.42
     
287,232
     
6.0
     
N/A
     
N/A
 
Total Capital / % of risk weighted assets
                                               
Bank
   
612,858
     
12.83
     
382,194
     
8.0
     
477,742
     
10.0
 
Consolidated Company
   
683,049
     
14.27
     
382,976
     
8.0
     
N/A
     
N/A
 

(1)
In accordance with the Basel III rules.

25.  UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following tables summarize the unaudited condensed consolidated results of operations for each of the quarters during the fiscal years ended December 31, 2018 and 2017 :

   
For the Three Months Ended
 
   
March 31,
2018
   
June 30,
2018
   
September 30,
2018
   
December 31,
2018
 
Net interest income
 
$
38,015
   
$
36,134
   
$
35,028
   
$
37,150
 
Provision for loan losses
   
193
     
1,113
     
335
     
603
 
Net interest income after provision for loan losses
   
37,822
     
35,021
     
34,693
     
36,547
 
Non-interest income
   
3,244
     
2,237
     
2,221
     
1,821
 
Non-interest expense
   
21,734
     
20,827
     
21,585
     
22,745
 
Income before income taxes
   
19,332
     
16,431
     
15,329
     
15,623
 
Income tax expense
   
4,587
     
4,110
     
3,547
     
3,183
 
Net income
 
$
14,745
   
$
12,321
   
$
11,782
   
$
12,440
 
EPS (1) :
                               
Basic
 
$
0.39
   
$
0.33
   
$
0.32
   
$
0.34
 
Diluted
 
$
0.39
   
$
0.33
   
$
0.32
   
$
0.34
 

(1)
The quarterly EPS amounts, when added, may not coincide with the full fiscal year EPS reported on the Consolidated Statements of Operations due to differences in the computed weighted average shares outstanding as well as rounding differences.

   
For the Three Months Ended
 
   
March 31,
2017
   
June 30,
2017
   
September 30,
2017
   
December 31,
2017
 
Net interest income
 
$
37,487
   
$
38,053
   
$
38,458
   
$
38,732
 
Provision (credit) for loan losses
   
450
     
1,047
     
23
     
(1,000
)
Net interest income after provision for loan losses
   
37,037
     
37,006
     
38,435
     
39,732
 
Non-interest income
   
1,778
     
1,747
     
4,283
     
13,706
 
Non-interest expense
   
20,769
     
19,469
     
22,175
     
22,573
 
Income before income taxes
   
18,046
     
19,284
     
20,543
     
30,865
 
Income tax expense
   
6,889
     
7,295
     
7,230
     
15,442
 
Net income
 
$
11,157
   
$
11,989
   
$
13,313
   
$
15,423
 
EPS (1) :
                               
Basic
 
$
0.30
   
$
0.32
   
$
0.36
   
$
0.41
 
Diluted
 
$
0.30
   
$
0.32
   
$
0.35
   
$
0.41
 

(1)
The quarterly EPS amounts, when added, may not coincide with the full fiscal year EPS reported on the Consolidated Statements of Operations due to differences in the computed weighted average shares outstanding as well as rounding differences

26.  CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS

The following statements of condition as of December 31, 2018 and 2017 , and the related statements of operations and cash flows for the years ended December 31, 2018 , 2017 and 2016 , reflect the Holding Company’s investment in its wholly-owned subsidiary, the Bank, using, as deemed appropriate, the equity method of accounting:

DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION

   
At December 31,
 
   
2018
   
2017
 
ASSETS:
           
Cash and due from banks
 
$
20,467
   
$
58,723
 
Marketable equity securities at fair value
   
5,667
     
—
 
Investment securities available-for-sale
   
—
     
4,006
 
Trading securities
   
—
     
2,715
 
MBS available-for-sale
   
—
     
321
 
Investment in subsidiaries
   
689,523
     
643,260
 
Other assets
   
542
     
3,154
 
Total assets
 
$
716,199
   
$
712,179
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
               
Subordinated debt, net
 
$
113,759
   
$
113,612
 
Other liabilities
   
359
     
—
 
Stockholders’ equity
   
602,081
     
598,567
 
Total liabilities and stockholders’ equity
 
$
716,199
   
$
712,179
 

DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (1)

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Net interest loss
 
$
(5,151
)
 
$
(5,427
)
 
$
(4,852
)
Dividends received from Bank
   
8,000
     
8,000
     
12,000
 
Non-interest income (loss)
   
(302
)
   
249
     
478
 
Non-interest expense
   
(814
)
   
(2,002
)
   
(668
)
Income before income taxes and equity in undistributed earnings of direct subsidiaries
   
1,733
     
820
     
6,958
 
Income tax credit
   
2,021
     
3,274
     
2,251
 
Income before equity in undistributed earnings of direct subsidiaries
   
3,754
     
4,094
     
9,209
 
Equity in undistributed earnings of subsidiaries
   
47,534
     
47,788
     
63,305
 
Net income
 
$
51,288
   
$
51,882
   
$
72,514
 

(1)
Other comprehensive income for the Holding Company approximated other comprehensive income for the consolidated Company during the years ended December 31, 2018 , 2017 and 2016 .

DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS

   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Cash flows from Operating Activities:
                 
Net income
 
$
51,288
   
$
51,882
   
$
72,514
 
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Equity in undistributed earnings of direct subsidiaries
   
(47,534
)
   
(47,788
)
   
(63,305
)
Net (gain) loss on marketable equity and trading securities
   
302
     
(169
)
   
(83
)
Net accretion
   
147
     
81
     
—
 
Loss from extinguishment of debt
   
—
     
1,272
     
—
 
Decrease (Increase) in other assets
   
2,621
     
1,442
     
(2,206
)
(Decrease) Increase in other liabilities
   
359
     
(994
)
   
(7
)
Net cash provided by operating activities
   
7,183
     
5,726
     
6,913
 
                         
Cash flows from Investing Activities:
                       
Proceeds from sale of investment securities available-for-sale
   
274
     
377
     
—
 
Proceeds from the sale of marketable equity and trading securities
   
1,059
     
4,629
     
3,648
 
Purchases of investment securities available-for-sale
   
(311
)
   
(145
)
   
(22
)
Reimbursement from subsidiary, including purchases of investment securities available-for-sale
   
44
     
175
     
303
 
Net purchases of trading securities
   
—
     
(222
)
   
(317
)
Principal collected on MBS available-for-sale
   
42
     
49
     
59
 
Principal repayments on ESOP loan
   
—
     
—
     
209
 
Net cash provided by investing activities
   
1,108
     
4,863
     
3,880
 
                         
Cash flows from Financing Activities:
                       
Redemption of preferred stock
   
—
     
(1
)
   
—
 
Common Stock issued for exercise of stock options
   
954
     
792
     
3,669
 
Repayment of trust preferred securities
   
—
     
(70,680
)
   
—
 
Proceeds from subordinated debt issuance, net
   
—
     
113,531
     
—
 
Treasury shares repurchased
   
(25,881
)
   
—
     
—
 
Equity award distribution
   
76
     
236
     
65
 
BMP ESOP shares received to satisfy distribution of retirement benefits
   
(883
)
   
(3,905
)
   
(1,820
)
Capital contribution to subsidiary
   
—
     
(20,000
)
   
—
 
Cash dividends paid to stockholders
   
(20,813
)
   
(20,991
)
   
(20,569
)
Net cash used in financing activities
   
(46,547
)
   
(1,018
)
   
(18,655
)
                         
Net (decrease) increase in cash and due from banks
   
(38,256
)
   
9,571
     
(7,862
)
Cash and due from banks, beginning of period
   
58,723
     
49,152
     
57,014
 
Cash and due from banks, end of period
 
$
20,467
   
$
58,723
   
$
49,152
 

26.  SUBSEQUENT EVENTS

On January 24, 2019, the Bank filed an application with the New York State Department of Financial Services (“NYSDFS”) seeking approval to convert from a New York stock form savings bank to a New York commercial bank (the “Charter Conversion”).  Simultaneously with the Charter Conversion application to NYSDFS, the Holding Company filed an application with the Federal Reserve Bank of Philadelphia to delist as a savings and loan holding company and elect to become a bank holding company. By letter from the Federal Reserve Bank of Philadelphia, dated March 7, 2019, the Company was informed that the Holding Company’s application to convert from a savings and loan holding company to a bank holding company was approved, subject to receipt of all required regulatory approvals.  The Bank has not yet received all required regulatory approvals; therefore, the Charter Conversion and conversion to a bank holding company are not yet effective.


107
Exhibit 10.16

FOURTH AMENDMENT
TO THE
BENEFIT MAINTENANCE PLAN OF
DIME COMMUNITY BANCSHARES, INC.

This Fourth Amendment to the Benefit Maintenance Plan of Dime Community BancShares, Inc. (as amended and restated effective December 31, 2008), executed on this 24th day of January 2019, by undersigned, pursuant to the authority given by the Board of Directors.

W I T N E S E T H T H A T:

WHEREAS , the Dime Community Bancshares, Inc. (the “Company) maintains the Benefit Maintenance Plan of Dime Community Bancshares, Inc. (as amended and restated effective December 31, 2008) (the “Plan”) for the benefit of its eligible employees;

WHEREAS , pursuant to Article 9, Section 9.1 of the Plan, the Company, in its sole and absolute discretion, at any time and from time to time, by action of the Board, may amend the Plan in whole or in part;

WHEREAS , the Company desires to amend the Plan to change the date of valuation of participant account balances to correspond with the outside vendor’s record keeping platform, effective February 1, 2019; and

WHEREAS , the Company desires to amend the Plan such that plan expenses shall be the sole responsibility of Plan Participants and not the Company, effective February 1, 2019;

NOW, THEREFORE, the Plan is hereby amended, as follows;


1.
Section 3.2(b)(i) is hereby amended by deleting the section in its entirety and replacing it with the following:

 
“(i)
except as provided in section 3.2(b)(ii), with respect to each Participant who has a bookkeeping account under the Plan, the amount credited to such account shall be adjusted by the following debits and credits, at the times and in the order stated:

(A)       The bookkeeping account shall be debited each business day with the total amount of any payments made from such account since the last preceding business day to him or for his benefit. Unless otherwise specified by the Employer, each deemed investment fund will be debited pro-rata based on the value of the applicable investment fund as of the end of the preceding business day.

(B)       The bookkeeping account shall be credited on each crediting date with the total amount of any Employer Contributions to such account since the last preceding crediting date.

(C)       The bookkeeping account shall be credited or debited on each day securities are traded on a national stock exchange with the amount of deemed investment gain or loss resulting from the performance of the Vanguard Long-Term Treasury Admiral Fund (VUSUX), or such other deemed investment fund selected by the Committee from time to time, with daily valuation. The amount of such deemed investment gain or loss shall be determined by the Committee and such determination shall be final and conclusive upon all concerned.”


2.
Section 8.3 is hereby amended as follows:

“All expenses incurred prior to termination of the Plan that shall arise in connection with the administration of the Plan (including, but not limited to administrative expenses, proper charges and disbursements, compensation and other expenses and charges of any actuary, counsel, accountant, specialist, or other person who shall be employed by the Committee in connection with administration of the Plan), shall be paid by and allocated among Plan Participants either on a pro-rata basis or an equal dollar basis, subject to applicable law. Any such expenses that may not be paid by or allocated among Participants under ERISA shall be paid by the Company.”

IN WITNESS WHEREOF , this [Fourth] Amendment has been executed by the undersigned officer of Dime Community Bancshares, Inc. pursuant to authority given by the Board of Directors, effective as of the date indicated above.

 
DIME COMMUNITY BANCSHARES, INC.
 
 
 
 
 
 
By:
 
 
 
 
 
 
 
Name:
 
 
 
 
 
 
  Title:    


Exhibit 10.35

DIME COMMUNITY BANK KSOP

As amended and restated effective January 1, 2019

DIME COMMUNITY BANK KSOP

TABLE OF CONTENTS

   
Page
     
ARTICLE 1
INTRODUCTION
1
     
ARTICLE 2
DEFINITIONS
4
     
ARTICLE 3
PARTICIPATION
12
     
Section 3.1
Eligibility Requirements.
12
     
ARTICLE 4
CONTRIBUTIONS
13
     
Section 4.1
Elective Deferrals (Pre-Tax and Roth).
13
     
Section 4.2
Employer Safe Harbor Basic Contribution.
16
     
Section 4.3
Employer Discretionary Contribution.
16
     
Section 4.4
Employer Matching Contributions
17
     
Section 4.5
Limitations on Contributions for Highly-Compensated Employees.
17
     
Section 4.6
Return of Employer Contributions
22
     
Section 4.7
Military Service
23
     
ARTICLE 5
ROLLOVER CONTRIBUTIONS TO THE PLAN
24
     
Section 5.1
Requirements for Rollover Contributions
24
     
Section 5.2
Delivery of Rollover Contributions.
24
     
ARTICLE 6
TRUST
25
     
ARTICLE 7
INVESTMENT ELECTIONS, ALLOCATION OF TRUST INCOME AND CONTRIBUTIONS TO PARTICIPANTS’ ACCOUNTS
26
     
Section 7.1
Separate Accounts.
26
     
Section 7.2
Investment Funds, Elections and Company Stock Fund.
26
     
Section 7.3
Allocation to Participants’ Accounts of Net Income of Trust and Fluctuation in Value of Trust Assets
34
 
   
Section 7.4
Determination of Net Worth of an Investment Fund
34
 
   
Section 7.5
Limitations on Allocations
34
 
   
Section 7.6
Correction of Error.
35
     
ARTICLE 8
VESTING
36
     
Section 8.1
Vesting Schedules.
36

i
Section 8.2
Forfeiture of Unvested Amounts
36
     
ARTICLE 9
DISTRIBUTIONS
38
     
Section 9.1
Time and Form of Distribution upon Termination of Employment.
38
 
   
Section 9.2
Designation of Beneficiary
40
 
   
Section 9.3
Investment of Distributee Accounts
41
 
   
Section 9.4
Distributions to Minor and Disabled Distributees
41
 
   
Section 9.5
Withdrawals from Accounts During Employment.
42
 
   
Section 9.6
Loans to Participants.
44
 
   
Section 9.7
Direct Rollovers.
45
     
ARTICLE 10
PARTICIPANTS’ STOCKHOLDER RIGHTS
47
     
Section 10.1
Company Stock
47
 
   
Section 10.2
Tender Offers.
47
 
   
ARTICLE 11
ADMINISTRATION
49
     
Section 11.1
The Plan Administrator.
49
 
   
Section 11.2
Claims Procedure.
50
 
   
Section 11.3
Procedures for Domestic Relations Orders
52
 
   
Section 11.4
Notices to Participants, Etc.
53
 
   
Section 11.5
Notices to Company, Employers or Plan Administrator
53
 
   
Section 11.6
New Technologies
53
 
   
Section 11.7
Records
54
 
   
Section 11.8
Reports of Accounting to Participants
54
 
   
Section 11.9
Limitations on Actions
54
 
   
Section 11.10
Restriction of Venue
54
     
ARTICLE 12
ADOPTION OF THIS PLAN
55
     
Section 12.1
Adoption of Plan By Entity in Company’s Controlled Group
55
 
   
Section 12.2
Withdrawal from Participation
55
 
   
Section 12.3
Company and Plan Administrator as Agent for Employers
55
 
   
ARTICLE 13
MISCELLANEOUS
56
 
   
Section 13.1
Expenses
56
 
   
Section 13.2
Non-Assignability.
56
 
   
Section 13.3
Employment Non-Contractual
57

ii
Section 13.4
Limitation of Rights
57
 
   
Section 13.5
Merger or Consolidation with Another Plan
57
 
   
Section 13.6
Gender and Plurals
57
 
   
Section 13.7
Applicable Law
57
 
   
Section 13.8
Severability
58
 
   
ARTICLE 14
TOP-HEAVY PLAN REQUIREMENTS
59
 
   
Section 14.1
Top-Heavy Plan Determination
59
 
   
Section 14.2
Definitions and Special Rules.
59
 
   
Section 14.3
Minimum Contribution for Top-Heavy Years
60
     
ARTICLE 15
AMENDMENT, ESTABLISHMENT OF SEPARATE PLAN AND TERMINATION
61
     
Section 15.1
Amendment or Termination
61
 
   
Section 15.2
Establishment of Separate Plan
61
 
   
Section 15.3
Full Vesting upon Termination of Participation, Partial Plan Termination or Complete Discontinuance of Contributions
61
 
   
Section 15.4
Distribution upon Termination of the Plan
61
 
   
Section 15.5
Trust Fund to Be Applied Exclusively for Participants and Their Beneficiaries
62
     
SIGNATURE

63

iii
DIME COMMUNITY BANK KSOP

ARTICLE 1

INTRODUCTION

The Dime Community Bank KSOP has been established to permit the eligible employees of Dime Community Bank to save for retirement by deferring receipt of a portion of their compensation on either a pre-tax or after-tax (Roth) basis as elected by the Participant, and also by providing for Company-paid contributions to the extent described herein.

The Plan is a single-employer defined contribution profit sharing plan that is intended to meet the requirements for qualification and tax-exemption under Code section 401(a).  The Plan is ERISA plan number 002.

The Plan includes a cash or deferred arrangement under Code section 401(k), a discretionary employer contribution feature and a matching contribution feature under 401(m).  In addition, the Plan is intended to qualify as a safe harbor plan under Code section 401(k)(12)(C) and provides for a qualified nonelective contributions as required therein.  The Plan is a participant-directed individual account plan and is intended to meet the requirements of ERISA section 404(c) (regarding participant control over Plan assets in the participant’s account).

The Plan also includes an employee stock ownership plan (“ESOP”) portion that is intended to qualify as both a stock bonus plan under Code section 401(a) and an employee stock ownership plan under Code section 4975(e)(7) and ERISA section 407(d)(6).  The ESOP portion of the Plan consists of the portion of the Plan which, as of any applicable date, is invested in the common stock of the Company.  Both the ESOP portion of the Plan and the non-ESOP portion of the Plan are intended to constitute a single plan under Treasury regulation § 1.414(l) 1(b)(1).  This Plan has never included an ESOP leveraged loan feature.  The Dime ESOP, which merged into this Plan on the KSOP Effective Date, included a leveraged loan feature.  All exempt loans under the Dime ESOP were repaid in full prior to the KSOP Effective Date.  The Company has structured Plan to include the ESOP portion so that the Company can qualify for the dividend deduction under Code section 404(k) and also so as to maintain the required ESOP features for the Participants with Dime ESOP accounts that merged into this Plan to the extent it is required to do so.

The Plan is called a “KSOP” because it includes both the elective deferral opportunity under Code section 401(k) and the ESOP feature.

The Plan allows its Participants to take withdrawals and loans from their account balances under certain limited circumstances while still actively employed, and allows its Participants to elect a distribution of their vested account balances upon termination of employment in the form of a lump sum or installments.

It is the Company’s intention that (i) the Plan shall at all times be qualified under Code sections 401(a), 401(k) and 401(m), (ii) the Trust Agreement shall be tax-exempt under Code section 501(a), and (iii) Employer contributions under the Plan shall be tax deductible under Code section 404.  The provisions of the Plan and the Trust Agreement shall be construed to effectuate these intentions.

1
This Restatement .  Except as otherwise noted herein, this amendment and restatement is effective as of January 1, 2019 (the “Effective Date”).  It governs the rights of Participants and Beneficiaries (and of those claiming through or on behalf of such individuals) from and after January 1, 2019.  The rights and benefits of any individual who ceases to be a Participant (and of anyone claiming through or on behalf of such individual) in this Plan shall be determined in accordance with the provisions of this Plan in effect not later than the date such individual ceases to be a Participant except to the extent otherwise specified in the Plan or required by law.

History of the Plan .  The Plan was originally established effective July 1, 1973 as the Dime Savings Bank of Williamsburgh Incentive Savings Plan by Dime Savings Bank of Williamsburgh and has been amended from time to time since that date.  The following are some of the key events that have occurred since the establishment of the Plan.

Effective as of July 1, 1991, the Plan was amended and restated in its entirety and the Plan was renamed The Dime Savings Bank of Williamsburgh 401(k) Savings Plan in RSI Retirement Trust

Effective as of February 8, 1996, the Plan: (a) added an investment fund consisting of common stock of the employer (b) established the plan as a “Plan of Partial Participation” as defined under the RSI Retirement Trust Agreement and Declaration of Trust, and (c) established a separate trust to hold company common stock and designated a separate agency to serve as trustee.

Effective as of May 31, 1996, matching contributions were discontinued.

Effective as of June 26, 1996, Dime Savings Bank of Williamsburgh acquired Pioneer Savings Bank, F.S.B. and its parent Conestoga Bancorp, Inc. and in connection with that acquisition, the Plan was amended to give credit to employees of specified “acquired companies” for purposes of vesting and eligibility to participate, and to permit immediate participation as of the date of such acquisition for eligible employees with respect to compensation for the full payroll period that includes the date of such acquisition.

Effective as of January 1, 1997, the Plan was amended and restated in its entirety.  New enrollments in the Plan and future before-tax contributions under the Plan were disallowed.

Effective March 1, 1997, the Pioneer Savings Bank, FSB Tax Deferral Savings Plan in RSI Retirement Trust merged into the Plan, and the accounts of employees of Pioneer Savings Bank, FSB and Conestoga Bancorp, Inc. were merged into the accounts maintained on behalf of each participant in the Plan.

Effective January 21, 1999, Dime Savings Bank of Williamsburgh acquired Financial Federal Savings Bank.  Effective April 15, 1999, Financial Federal Savings Bank Incentive Savings Plan in RSI Retirement Trust merged with and into the Plan and the accounts of employees of Financial Federal Savings Bank were merged into the accounts maintained on behalf of each participant in the Plan.

2
Effective as of July 1, 2000, the Dime Savings Bank of Williamsburgh 401(k) Savings Plan in RSI Retirement Trust was amended to (i) reinstate enrollments; (ii) reinstate Before Tax Contributions; and (iii) provide for a three percent (3%) Employer contribution meeting the requirements for a design-based “safe harbor” arrangement under Code section 401(k)(12).

Effective as of April 1, 2001, Dime Savings Bank of Williamsburgh 401(k) Savings Plan in RSI Retirement Trust was amended and restated in its entirety and the Plan was renamed The Dime Savings Bank of Williamsburgh 401(k) Savings Plan.

Effective as of January 1, 2009, the option of making Roth Contributions became available to Participants.

Effective as of January 1, 2010, Plan was amended and restated in its entirety.

Effective as of January 1, 2015, The Dime Savings Bank of Williamsburgh 401(k) Savings Plan was amended and restated in its entirety using the format of the Pentegra Services, Inc. Volume Submitter 401(k) Profit Sharing Plan #01-003.

Effective as of August 1, 2016, Dime Savings Bank of Williamsburgh changed its name to Dime Community Bank.

Effective as of July 1, 2017 (the KSOP Effective Date), the Dime ESOP merged into this Plan and the Plan was amended and restated in its entirety.

3
ARTICLE 2

DEFINITIONS

As used herein, the following words and phrases shall have the following respective meanings when capitalized:

(1)  Accounts .  The separate accounts established for each Participant under Section 7.1 and otherwise under the Plan.  For purposes of the Plan, “Account” and “Account balance” shall mean all Accounts and the aggregate value of all Accounts maintained for a Participant under the Plan.

(2)  Age 50 Catch-Up Contributions .  The Elective Deferrals described in Section 4.1(e).

(3)  Beneficiary .  The person or persons entitled under Article 9 to receive benefits in the event of the death of a Participant.

(4)  Cash ESOP Dividends .  Cash ESOP Dividends that are paid on or after the KSOP Effective Date by the Company with respect to Company Stock in the Company Stock Fund and that are eligible for the deduction for dividends paid pursuant to Code section 404(k).

(5)  Cash ESOP Dividend Payment Election .  A completed election made under Section 7.2(d) pursuant to which a Participant (or Beneficiary, as applicable) affirmatively elects to have Cash ESOP Dividends with respect to his or her Accounts distributed to the Participant (or Beneficiary, as applicable) in cash rather than reinvested in the Company Stock Fund.

(6)  Code .  The Internal Revenue Code of 1986, as amended.

(7)  Code Section 415 Compensation .  Compensation as defined under Treasury regulation § 1.415(c)-2(d)(4) (Form W-2 compensation with adjustments including the addition of amounts that would be included in wages but for a payroll deduction election under Code section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B, 402(k) or 457(b)).

(a)  Code Section 415 Compensation shall not exceed the limits in Code section 401(a)(17)(B) (limitation on annual compensation):

 
Plan Year
 
Plan Year Limit
 
2019
 
For calendar years 2019 and later, $280,000 (or such higher amount as is permitted under the cost-of-living provisions of Code section 402(g)(4))

4
(b)  Code Section 415 Compensation shall include compensation paid by the later of 2½ months after an Employee’s severance from employment with Company’s Controlled Group and the end of the Plan Year that includes such severance from employment date if (a) the payment is regular compensation for services during the employee’s regular working hours, or compensation for services outside the employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and, absent a severance from employment, the payments would have been paid to the employee while the employee continued in employment with the employer, (b) the payment is for unused accrued bona fide sick, vacation or other leave that the employee would have been able to use if employment had continued; or (c) the payment is received by the employee pursuant to a nonqualified unfunded deferred compensation plan and would have been paid at the same time if employment had continued, but only to the extent includible in gross income.  Any payments not described above shall not be considered compensation if paid after severance from employment, even if they are paid by the later of 2 ½ months after the date of severance from employment or the end of the Plan Year that includes the date of severance from employment.

(c)  Back pay, within the meaning of Treasury regulation § 1.415(c)‑2(g)(8), shall be treated as compensation for the limitation year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included under this definition.

(8)  Company .  Dime Community Bank (which before August 1, 2016 was known as the Dime Savings Bank of Williamsburgh).

(9)  Company’s Controlled Group .  All organizations under common control with the Company, within the meaning of Code section 414(b), 414(c), 414(m) or 414(o) and the regulations issued thereunder.  An entity shall be considered a member of the Company’s Controlled Group only during the period it is one of the group of organizations described in the preceding sentence.

(10)  Company Stock .  Shares of common stock of Dime Community Bancshares, Inc.

(11)  Company Stock Fund .  The investment fund holding Company Stock that is established and maintained in accordance with Section 7.2.

(12)  Dependent .  An individual who qualifies as a dependent of a Participant under the applicable provisions of Code section 152.

(13)  Dime ESOP .  The Employee Stock Ownership Plan of Dime Community Bancshares, Inc. and Certain Affiliates (which merged into this Plan as of the KSOP Effective Date).

(14)  Distributee .  A person entitled to receive a distribution from the Trust under Article 9.

(15)  Elective Deferrals .  Contributions made pursuant to Section 4.1 of the Plan.

5
(16)  Eligible Employee .  An Employee of an Employer, other than:

(a)  Student interns (as defined by the Company’s personnel policies),

(b)  Employees who are paid solely on the basis of commissions,

(c)  Employees included in a unit of Employees the terms of whose employment with an Employer are subject to the terms of a collective bargaining agreement between employee representatives of such unit and such Employer unless such agreement provides for such Employee to be eligible for participation in the Plan,

(d)  Independent contractor (as determined by the Company),

(e)  Leased Employees, and

(f)  Nonresident aliens.

An individual must be an Employee to be an Eligible Employee.  The Plan documents as in effect before the Effective Date sets forth the applicable definitions of Eligible Employee for prior periods.

(17)  Employee .  An individual whose relationship with an Employer is that of an employee under common law, as so classified by his Employer, and subject to the following:

(a)  The following individuals are not eligible to be Employees (or to participate in the Plan): Any individuals who are classified by their Employer as independent contractors or are otherwise not classified as employees under the personnel practices and rules of the Employer (including self-employed individuals, consultants, freelancers, agency employees, on-call workers, contingent workers, non-payroll workers, or other similar individuals), or who are not classified as employees for purposes of income tax withholding and employment taxes.

(b)  Leased Employees shall be treated as Employees only to the extent provided in the definition of Leased Employee in this Article I.

(c)  For purposes of this definition of “Employee”, it is expressly intended that individuals who are classified by an Employer as independent contractors, as well as any other individuals who are not classified as Employees under this definition, are not Employees (and therefore may not be Eligible Employees or Participants) until the Plan Administrator affirmatively changes their classification.  Therefore, an independent contractor or any other individual who is reclassified by a court, administrative agency, governmental unit, tribunal or other party as an employee (including a common law employee) will nevertheless not be considered an Employee or Eligible Employee hereunder for periods before the Plan Administrator implements the reclassification decision, even if the reclassification decision applies retroactively.

6
(18)  Employer .  The Company, and any member of the Company’s Controlled Group that with the consent of the Company elects to participate in the Plan in the manner described in Article 12.  If any such entity withdraws from participation in the Plan pursuant to Section 12.2 or leaves the Company’s Controlled Group, such entity shall thereupon cease to be an Employer.

(19)  Employer Discretionary Contributions .  The Employer contributions described in Section 4.3

(20)  Employer Matching Contributions .  Matching Contributions made pursuant to Section 4.4.

(21)  Employer Safe Harbor Basic Contributions .  The Employer contributions described in Section 4.2

(22)  Employment Commencement Date .  The date on which the Employee first performs an Hour of Service for which the Employee is paid or entitled to payment for the performance of duties for any entity within the Company’s Controlled Group.

(23)  ERISA .  The Employee Retirement Income Security Act of 1974, as amended.

(24)  ESOP .  An employee stock ownership plan.

(25)  Hour of Service .  An hour for which an Employee is entitled to receive compensation from an entity in the Company’s Controlled Group (including hours for any period during which he receives compensation without rendering services such as paid holidays, vacations, sick leave, disability leave, layoff, or jury duty (but in such cases not exceeding 501 hours for any one such period).  For purposes of determining the number of Hours of Service to be credited to an Employee, “compensation” shall mean the total earnings paid, directly or indirectly, to the Employee by an entity in the Company’s Controlled Group, including any back pay, irrespective of mitigation of damages, either awarded to the Employee or agreed to by an entity in the Company’s Controlled Group.  The computation of Hours of Service and the periods to which they are to be credited shall be determined under uniform rules applied by the Plan Administrator in accordance with Department of Labor regulation § 2530.200b-2(b), (c) and (f).  Each employee for whom Hours of Service are not determinable pursuant to the foregoing sentence shall be credited with 45 Hours of Service for each week of employment or such other number of Hours of Service determined by the Plan Administrator in accordance with Department of Labor regulation § 2530.200b-3(e).  This provision shall not be interpreted in a manner that would result in duplication of service crediting.

(26)  KSOP Effective Date .  July 1, 2017, the date the Dime ESOP merged into this Plan and this Plan was amended and restated in its entirety.

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(27)  Leased Employee .  Any person who is not a common law employee of an Employer and who, pursuant to an agreement between the Employer and a leasing organization, has performed services for the Company’s Controlled Group on a substantially full-time basis for a period of at least one year, where such services are performed under the “primary direction or control” (within the meaning of Code section 414(n)(2)(C)) of the Company’s Controlled Group.  A Leased Employee is treated as an Employee unless both of the following occur (in which case such Leased Employee is not treated as an Employee): (i) such Leased Employee is covered by a money purchase pension plan providing a nonintegrated employer contribution rate of at least 10% of Code Section 415 Compensation, immediate participation, and full and immediate vesting; and (ii) Leased Employees do not constitute more than 20% of the non-highly compensated employees (as defined in Code section 414(q)) of the Company’s Controlled Group.  For this purpose, contributions and benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer are treated as provided by the Employer.  In no event may a Leased Employee be treated as an Eligible Employee.

(28)  Military Service .  Qualified service in the uniformed services within the meaning of Code section 414(u)(5).

(29)  Participant .  An Eligible Employee who has become a Participant as set forth in Article 3.  A person shall cease to be a Participant when he or she no longer has an Account balance.

(30)  Participant Response System .  The participant response system established by the Company to permit Participants to manage their Account and communicate with the Plan Administrator, Trustee, recordkeeper and/or delegate thereof, including the ability to change their contribution elections and investment elections, to apply for a loan, to commence participation in the Plan, to apply for an in-service withdrawal, and to request a distribution.  As determined by the Plan Administrator, this system may take any form, and different forms and protocols may be used for different purposes or different groups of Participants (e.g., an interactive telephone voice response system, a paper document system, an internet site, an intranet site, or an e-mail protocol).  Unless the Participant uses a form or protocol that is specifically permitted by the Plan Administrator for the purpose in question, the Participant’s communication shall not be deemed to be made through the Participant Response System.

(31)  Period of Service .  The period commencing on the Employee’s Employment Commencement Date or Reemployment Commencement Date and ending on the next Period of Service Cutoff Date (subject to (a) and (b) below).  Periods of Service shall be measured in years and days.

(a)  If Employee Has a Break in Service .  If an Employee has a Period of Service Cutoff Date and the resulting Period of Severance lasts less than 12 months, the Period of Severance shall be counted as part of such Employee’s Period of Service.  In all other cases, the Employee’s Period of Severance shall be disregarded in determining such Employee’s Period of Service.

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(b)  If an Employee has Period of Severance of at Least Five Years .  If an Employee is reemployed after a five-year Period of Severance, his or her Period of Service shall not include his or her Periods of Service from before the five-year Period of Severance unless the former Employee: (i) has a vested Account balance at the time of his or her rehire, or (ii) had a Period of Service that exceeded five years or if greater, his or her pre-break Period of Service.

(32)  Period of Service Cutoff Date .  The earlier of:

(a)  The Employee’s Separation from Service date, or

(b)  The first anniversary of the first date the Employee is absent from employment with the Company’s Controlled Group for any reason other than a Separation from Service, such as vacation, holiday, sickness, disability, leave of absence or layoff, except that in the case of an Employee who is absent from employment beyond the first anniversary of the first day of absence on account of (i) the Employee’s pregnancy, (ii) the birth of a child of the Employee, (iii) the placement of a child with the Employee in connection with the adoption of the child by the Employee, or (iv) an absence due to the need for caring for such child for a period beginning immediately following the birth or placement, the second anniversary of the first day of such absence.  The period after the first anniversary of the Employee’s absence shall neither be a Period of Service nor a period that is part of a Period of Severance.

In the case of an Employee whose Period of Service Cutoff Date would otherwise occur during an absence required by the Family Medical Leave Act, the Employee’s Period of Service Cutoff Date shall be delayed just to the extent required so that it does not occur during the absence required by the Family Medical Leave Act.  The period after the first anniversary of the Employee’s absence shall neither be a Period of Service nor a period that is part of a Period of Severance.

(33)  Period of Severance .  The period commencing on the Participant’s Period of Service Cutoff Date and ending on the Participant’s Reemployment Commencement Date, except that a Period of Severance shall not include any period of time when an individual is not an Employee solely because he or she is serving in the uniformed services of the United States provided the individual seeks reinstatement as an Employee while his or her reemployment rights are protected by law.

(34)  Plan .  The Dime Community Bank KSOP.  Prior to July 1, 2017, the Plan was referred to as the “Dime Savings Bank of Williamsburgh 401(k) Savings Plan.”

(35)  Plan Administrator .  The administrator described in Section 11.1.  The Plan Administrator shall have authority to administer the Plan as provided in Article 11.

(36)  Plan Compensation .  Code Section 415 Compensation (i.e., W-2 box 1 compensation with some adjustments including the addition of certain enumerated salary reduction amounts and without regard to the annual limitation under Code Section 401(a)(17)), reduced as follows.

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(a)  For purposes of Elective Deferrals (Pre-Tax and Roth) described in Section 4.1, Plan Compensation shall not include reimbursements or other expense allowance, fringe benefits (cash or non-cash), moving expenses, deferred compensation (other than Elective Deferrals) or welfare benefits.

(b)  For purposes of Employer Safe Harbor Basic Contributions described in Section 4.2, Employer Discretionary Contributions described in Section 4.3 and Employer Matching Contributions described in Section 4.4, Plan Compensation shall not include amounts excluded in subsection (a) above nor shall it include amounts that are attributable to (i) the exercise of stock options or a disqualifying disposition of incentive stock options by the Employee, (ii) the vesting of, or other recognition of income with respect to, restricted stock awards, or (iii) cash awards under any long-term incentive plan of any organization in the Company’s Controlled Group.

(37)  Plan Year .  Each 12-consecutive-month period beginning on each January 1 and ending on the next December 31.

(38)  Reemployment Commencement Date .  The date on which an Employee first performs an Hour of Service for which the Employee is paid or entitled to payment for the performance of duties for the Employer or any other employer within the Company’s Controlled Group, following a Period of Severance.

(39)  Rollover Contributions .  Contributions made pursuant to Section 5.1 of the Plan.

(40)  Roth Elective Deferrals .  A Participant’s Elective Deferrals that are includible in the Participant’s gross income at the time deferred and have been irrevocably designated as Roth Elective Deferrals by the Participant in his or her deferral election, and that are described in Section 4.1(f).

(41)  Separation from Service .  The termination of the Employee’s employment relationship with the Company’s Controlled Group, including by quit, resignation, discharge, retirement, disability, or layoff (but not an authorized leave of absence).

(42)  Spouse .  A person who is considered lawfully married to another individual under applicable Federal tax law.

(43)  Total Disability .  A total disability that has lasted at least 6 months and that is evidenced by either:

(a)  Receipt of disability payments under the Employer’s long-term disability program, or

(b)  If the Employee is not covered by the Employer’s long-term disability program, receipt of a Social Security disability award (however, the receipt of such disability award shall not be deemed to occur prior to the time the Plan Administrator has received written notice from the Participant that he or she is receiving such a disability award).

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(44)  Trust .  The trust fund (or funds) which holds the assets of the Plan and are established by the trust agreement or agreements entered into on behalf of the Plan with an individual or corporate trustee to provide for holding the Plan assets.

(45)  Trust Fund .  All money and property of every kind held by the Trustee under the Trust agreement.

(46)  Trustee .  The Trustee provided for in Article 6 or any successor Trustee or, if there shall be more than one Trustee acting at any time, all of such Trustees collectively.

(47)  Valuation Date .  Each day that the New York Stock Exchange is open, and any other day as the Plan Administrator may determine.

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ARTICLE 3

PARTICIPATION

Section 3.1      Eligibility Requirements.

(a)  Service Requirement .  An Eligible Employee shall be eligible to participate in the Plan as follows.

(1)  General Rule .  An Eligible Employee shall be eligible to become a Participant as of the pay date for the first pay period that begins on or after the Employee completes a one month Period of Service, and such date shall be the Eligible Employee’s entry date.

(2)  Historical Provisions .  See the prior plan documents for the applicable rules for earlier periods.

An individual must be an Eligible Employee and must have satisfied the service and entry date requirements set out above to participate actively in this Plan.

(b)  Participation .  An Eligible Employee who satisfies the Plan’s service and entry date requirements in subsection (a) above may make an election pursuant to Section 4.1 to make Elective Deferrals to the Plan.  Such Eligible Employee will become a Participant in this Plan on the first date that Elective Deferrals are withheld from his or her Plan Compensation or, if earlier, that any Employer contribution (such as the Employer Basic Safe Harbor Contribution) is made to his or her Account.  An Eligible Employee who makes a Rollover Contribution in accordance with Section 5.1 before becoming a Participant pursuant to the preceding sentence also shall be treated as a Participant, but only to the limited extent described in Section 5.1 (that is, he or she shall not be eligible to make Elective Deferrals or receive Employer contributions) until such time as he or she becomes eligible to make Elective Deferrals pursuant to the first sentence of this Section 3.1(b).

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ARTICLE 4

CONTRIBUTIONS

Section 4.1      Elective Deferrals (Pre-Tax and Roth).

(a)  Employee Elections .  Each Employer shall make a contribution (“Elective Deferral”) to the Trust for each payroll period on behalf of each Eligible Employee of such Employer who has satisfied the service and entry date requirements in Section 3.1 and who elects to make an elective deferral from his or her Plan Compensation for such payroll period (or is deemed to do so pursuant to subsection (b) below).  Except as provided in subsection (f) below (Roth Elective Deferrals), Elective Deferrals shall be made on a pre-tax basis.  Any election (or deemed election pursuant to subsection (b) below) to commence Elective Deferrals is effective only with respect to Plan Compensation that has not yet been paid to the Eligible Employee as of the effective date of such election and not yet “currently available” to the Eligible Employee (within the meaning of Treasury regulation § 1.401(k)-1(a)(3)).  Such election is effective only while the election remains in effect.  The Elective Deferral election must be in an amount equal to a whole percentage from 1% to 100% of the Participant’s Plan Compensation paid by such Employer for the payroll period.  Separate Elective Deferral elections may be permitted for Plan Compensation consisting of bonuses.  If a Participant makes an Elective Deferral for a pay period, the Participant’s remuneration paid through the Employer’s regular payroll that would otherwise be payable directly to the Participant for that payroll period shall be reduced by the amount of such Elective Deferral (but only to the extent the Participant’s paycheck is sufficient to fund such Elective Deferral after satisfying the Participant’s tax withholding obligations and health and welfare deductions).

(b)  Automatic Contribution Arrangement :  The Plan has adopted an automatic contribution arrangement, effective for Employees hired on or after January 1, 2017.  Pursuant to this arrangement, an Eligible Employee who has satisfied the service and entry date requirements in Section 3.1(a) shall be deemed to elect to become a Participant and to have pre-tax Elective Deferrals made on his or her behalf at a rate equal to 3% of his or her Plan Compensation each pay period.

(1)  Election Out Before Auto-Enrollment Begins .  The automatic enrollment described in the preceding sentence shall not apply if the Eligible Employee affirmatively elects to participate in the Plan or not to participate in the Plan in sufficient time before the automatic enrollment is scheduled to become effective that it can be canceled before it becomes effective.

(2)  Election Out After Auto-Enrollment Begins .  A Participant who has made a deemed election pursuant to the automatic contribution arrangement described in this Section 4.1(b) may elect not to participate in the Plan or may elect to change the applicable contribution rate as provided in subsection (c) of this Section, in which case the Participant shall thereafter cease to be covered by the automatic contribution arrangement.

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(c)  Change, Suspension or Resumption of Elective Deferrals .  A Participant may change the rate of Elective Deferrals at any time, may suspend Elective Deferrals at any time and may resume Elective Deferrals at any time, and may change the type of Elective Deferrals (pre-tax Elective Deferrals or Roth Elective Deferrals), in each case by giving directions to the Plan Administrator in accordance with rules and procedures prescribed by the Plan Administrator.  Any such suspension shall be effective as soon as administratively practicable.  Any such change or resumption in the rate of Elective Deferrals shall be subject to the rules described in subsection (a) of this Section, and shall be effective as soon as administratively practicable.

(d)  Annual limit on Elective Deferrals .

(1)  The Annual Limit .  An Employee’s Elective Deferrals plus any elective deferrals made under any other cash or deferred arrangement sponsored by the Company’s Controlled Group for a calendar year shall be limited as follows:

 
Plan Year
 
Plan Year Limit
 
2019
 
For calendar years 2019 and later $19,000 (or such higher amount as is permitted under the cost-of-living provisions of Code section 402(g)(4))

These limits do not apply to Age 50 Catch-Up Contributions, which are addressed in subsection (e) below.

(2)  Distribution of Excess Elective Deferrals .

(i)  If for any calendar year the aggregate for the Participant of the (i) Elective Deferrals to the Plan excluding any Age 50 Catch-Up Contributions and/or (ii) amounts contributed under any other plan or arrangement described in Code section 401(k), 408(k) or 403(b) maintained by another employer in which the Participant participates, will exceed the above limit for the calendar year in which such contributions are made (“excess Elective Deferrals”), such Participant shall, pursuant to such rules and at such time following such calendar year as determined by the Plan Administrator but no later than the March 31 of the calendar year following the calendar year in which such excess Elective Deferrals were made, be allowed to submit a written request that the excess Elective Deferrals plus any income allocable thereto be distributed to him.  Such request shall be accompanied by the Participant’s written statement that if such excess Elective Deferrals are not distributed such excess Elective Deferrals, when added to amounts contributed under other plans and arrangements described in Code sections 401(k), 408(k) or 403(b) will exceed the limit described in the first sentence of this paragraph.  In the event the excess Elective Deferrals are contributed under the Plan or any other plan sponsored by the Company, the Participant will be deemed to have notified the Plan Administrator of any such excess Elective Deferrals.  The distribution of excess Elective Deferrals shall consist of a Participant's pre-tax Elective Deferrals, Roth Elective Deferrals or a combination of both.  A distribution of such excess Elective Deferrals as well as of any other amounts that the Plan Administrator determines were contributed on behalf of Participants in excess of the annual limitations set forth in Code section 402(g) limitation, plus allocable income, shall be made no later than the April 15 of the calendar year following the calendar year in which such excess Elective Deferrals were made.  The amount of excess Elective Deferrals to be so distributed shall be reduced by any contributions previously distributed pursuant to Section 4.5 with respect to such calendar year.  The amount of any income allocable to such excess Elective Deferrals shall be determined by the Plan Administrator pursuant to applicable Treasury regulations.  The Plan shall not distribute the allocable gain or loss for the period between the end of the Plan Year and the date of distribution (the “gap period”).  Notwithstanding the provisions of this paragraph, any excess Elective Deferrals shall be treated as “annual additions” for purposes of Section 7.5 except to the extent such excess Elective Deferrals are distributed in accordance with Treasury regulation § 1.402(g)-1(e)(2) or (3).  Excess Elective Deferrals shall be excluded for purposes of the tests described in Section 4.5(a) to the extent required by applicable Treasury regulations.  Any corresponding “Employer Matching Contributions” (described in Section 4.2) related to excess Elective Deferrals so distributed, plus any income allocable to such Employer Matching Contributions shall be forfeited.

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(e)  Age 50 Catch-Up Contributions .  Each Participant whose 50 th birthday is on or before the close of the Participant’s taxable year shall be eligible to elect to have Age 50 Catch-Up Contributions made in any payroll period provided the Participant cannot make any other regular Elective Deferrals to the Plan for such payroll period by reason of the limitations contained in this Article 4, Section 7.5 or any comparable limitation or any restriction contained in the terms of the Plan or the Code. Age 50 Catch-Up Contributions are eligible to receive Employer Matching Contributions, subject to the limitations under Section 4.4, which will be made as soon as practicable after the end of each payroll period.

(1)  Dollar Limits.  The amount of the Age 50 Catch-Up Contributions a Participant may make to the Plan for a calendar year may not exceed, when combined with any catch-up contributions made under Code section 414(v) to any other plan or arrangement of the Employer, the following:

Plan Year
Plan Year Limit
2019
For calendar years 2019 and later $6,000 (or such higher amount as is permitted under the cost-of-living provisions of Code section 414(v)(2)(C))

(2)  Age 50 Catch-Up Contributions made pursuant to this subsection shall be treated as Elective Deferrals under the Plan except as otherwise provided below.

(i)  Age 50 Catch-Up Contributions shall not be taken into account for purposes of the annual dollar limitations in Section 3.1(d) (Code section 402(g) provisions) and Section 7.5 (Code section 415 provisions), and as otherwise provided in Code section 414(v).

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(ii)  The Plan shall not be treated as failing to satisfy the provisions of Section 4.5 (ADP nondiscrimination test), Article 14 (top heavy provisions), Code section 401(a)(4) (nondiscrimination in contributions), Code section 401(a)(17) (limit on compensation taken into account), Code section 401(k)(12) (safe harbor provisions) or  Code section 410(b) (nondiscrimination in coverage) by reason of such Age 50 Catch-Up Contributions.

At the end of the Plan Year the Plan Administrator will determine if any Age 50 Catch-Up Contributions must be recharacterized as regular Elective Deferrals to meet the requirements of this subsection (e), and to what extent any Age 50 Catch-Up Contributions recharacterized as regular Elective Deferrals are eligible for an Employer Matching Contribution under Section 4.2, and will adjust the Participant’s Account accordingly.

(f)  Roth Elective Deferrals .  Participants shall be permitted to designate some or all of their Elective Deferrals as Roth Elective Deferrals, in which case the contributions will be includible in the Participant’s gross income at the time deferred.  Roth Elective Deferrals are a Participant's Elective Deferrals that are includible in the Participant's gross income at the time deferred and have been irrevocably designated as Roth Elective Deferrals by the Participant in his or her deferral election. Except in the case of an in-plan Roth rollover (a rollover to a participant’s Roth Elective Deferral account from another account of the Participant in this Plan), Elective Deferrals contributed to the Plan as one type, either Roth or pre-tax, may not later be reclassified as the other type.  A Participant’s Roth Elective Deferrals shall be deposited in the Participant’s Roth Elective Deferral account in the Plan.  No contributions other than Roth Elective Deferrals, in-plan Roth rollovers and properly attributable earnings will be credited to each Participant’s Roth Elective Deferral account, and gains, losses and other credits or charges will be allocated on a reasonable and consistent basis to such account.  The Plan shall maintain a record of the amount of Roth Elective Deferrals in each Participant’s Roth Elective Deferral account.

Section 4.2     Employer Safe Harbor Basic Contribution. The Employer shall make an Employer Safe Harbor Basic Contribution to the Account of each Eligible Employee who has satisfied the service and entry date requirements in Section 3.1 by the end of the Plan Year, without regard to whether the individual is an Eligible Employee on the last day of the Plan Year.  Such contribution shall be equal to 3% of the Participant’s Plan Compensation for the Plan Year.  The Employer shall contribute such contribution to the Trust no later than the Employer’s tax filing deadline for the Plan Year.  The Employer Safe Harbor Basic Contribution is intended to meet the requirements of Code section 401(k)(12)(C).

Section 4.3     Employer Discretionary Contribution .  The Employer may at its discretion make an annual Employer Discretionary Contribution to the Account of each Eligible Employee who has satisfied the service and entry date requirements in Section 3.1 by the end of the Plan Year and who is employed on the last day of the Plan Year as an Eligible Employee.  The Employer Discretionary Contribution shall be equal to a uniform percentage of the Eligible Employee’s Plan Compensation for the Plan Year (for example, 3% of Plan Compensation), with such percentage to be determined at the Employer’s discretion.  The Employer shall contribute the Employer Discretionary Contribution to the Eligible Employee’s Account no later than the Company’s tax filing deadline for the Plan Year.  The Employer does not intend to make Employer Discretionary Contributions with respect to Plan Years after the 2017 Plan Year, but retains the right to do so.

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Section 4.4     Employer Matching Contributions .  As of the Effective Date, the Employer may, in its discretion, make an annual Employer Matching Contribution to the Account of each Participant by the end of the Plan Year. The formula used and amount to be contributed shall be determined on an annual basis at the Employer’s discretion and shall be communicated to each Participant.

Section 4.5     Limitations on Contributions for Highly-Compensated Employees.  For purposes of this Section 4.5, “Eligible Employee” means an Eligible Employee who has satisfied the service and entry date requirements of Section 3.1(a).

(a)  Limits imposed by Code section 401(k)(3) (ADP Test) .  The Plan intends to meet the requirements of Code section 401(k)(3) (the “actual deferral percentage” or “ADP” test) automatically by qualifying for the safe harbor under Code section 401(k)(12)(C).  Accordingly, the requirements of this Section 4.5(a) shall apply only in the unlikely event the Plan should fail to meet the safe harbor requirements of Code section 401(k)(12)(C) for any Plan Year, and in that case, if the Elective Deferrals made for a Plan Year fail to satisfy either of the tests set forth in subparagraphs (1) and (2) of this paragraph, the adjustments prescribed in Section 4.5(c)(1) shall be made.

(1)  The average deferral percentage for the group consisting of all highly compensated Eligible Employees for the Plan Year does not exceed the product of the average deferral percentage for the group consisting of all non-highly compensated Eligible Employees for such Plan Year and 1.25.

(2)  The average deferral percentage for the group consisting of all highly compensated Eligible Employees for the Plan Year (i) does not exceed the average deferral percentage of the group consisting of all non-highly compensated Eligible Employees for such Plan Year by more than 2 percentage points, and (ii) does not exceed the product of the average deferral percentage of the group consisting of all non-highly compensated Eligible Employees for such Plan Year and 2.0.

Any additional Elective Deferrals which are Age 50 Catch-Up Contributions or which are permitted for periods of Military Service as described in Section 4.7 shall not be considered as Elective Deferrals for purposes of determining whether the tests set forth in such paragraphs (1) and (2) of this subsection are satisfied or for purposes of making any adjustments prescribed by Section 4.5(e)(1).

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(b)  Limits imposed by Code section 401(m) (ACP Test) .  Notwithstanding the provisions of Section 4.4, if the Employer Matching Contributions made for a Plan Year fail to satisfy both of the tests set forth in subparagraphs (1) and (2) of this paragraph, the adjustments prescribed in Section 4.5(e)(2) shall be made.  Any additional Employer Matching Contributions made pursuant to Section 4.7 (Military Service) shall not be considered Employer Matching Contributions for purposes of determining whether the tests set forth in such paragraphs (1) and (2) of this subsection are satisfied or for purposes of making any adjustments prescribed by Section 4.5(e)(2).

(1)  The average contribution percentage for the group consisting of all highly compensated Eligible Employees for the Plan Year does not exceed the product of the average contribution percentage for the group consisting of all non-highly compensated Eligible Employees for such Plan Year and 1.25.

(2)  The average contribution percentage for the group consisting of all highly compensated Eligible Employees for the Plan Year (i) does not exceed the average contribution percentage of the group consisting of all non-highly compensated Eligible Employees for such Plan Year by more than 2 percentage points, and (ii) does not exceed the product of the average contribution percentage of the group consisting of all non-highly compensated Eligible Employees for such Plan Year and 2.0.

(c)  Definitions and Special Rules .  For purposes of this Section:

(1)  The “average deferral percentage” for

(i)  The group of highly compensated Eligible Employees for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in such group to the nearest one-hundredth of one percent, of the Elective Deferrals made for the benefit of such Eligible Employee for such Plan Year to the total Code section 415 Compensation for such Plan Year paid to such Eligible Employee, and

(ii)  The group of non-highly compensated Eligible Employees for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in such group to the nearest one-hundredth of one percent, of the pre-tax compensation contributions made for the benefit of such Eligible Employee for such Plan Year to the total Code section 415 Compensation for such Plan Year paid to such Eligible Employee.

(2)  The “average contribution percentage” for

(i)  The group of highly compensated Eligible Employees for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in such group to the nearest one-hundredth of one percent, of the Employer Matching Contributions made during such Plan Year for the benefit of such Eligible Employee to such Eligible Employee’s Code section 415 Compensation for such Plan Year, and

(ii)  The group of non-highly compensated Eligible Employees for a Plan Year shall be the average of the ratios, calculated separately for each Eligible Employee in such group to the nearest one-hundredth of one percent, of the Employer Matching Contributions made during such Plan Year for the benefit of such Eligible Employee to such Eligible Employee’s Code section 415 Compensation for the Plan Year.

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(3)  “highly compensated Eligible Employee” shall mean any Eligible Employee who has satisfied the service requirement in Section 3.1(a), who performs services in the determination year, and who is in one or more of the following groups:  (i) Employees who were five percent owners as determined in Code section 416(i)(1)(A)(iii) at any time during the determination year or the look-back year, or (ii) Employees with Code section 415 Compensation greater than $125,000 (for 2019, and adjusted for changes in the cost of living as set forth in Code section 415(d)) during the look-back year.  Any former Employee who had a separation year prior to the determination year and was a highly compensated Eligible Employee as described in any of in the first sentence above for either (A) his separation year or (B) any determination year ending on or after this attainment of age 55 shall be considered a “highly compensated Eligible Employee”.  For purposes of determining whether a person is a highly compensated Eligible Employee of an Employer with respect to a Plan Year, the term “determination year” means the Plan Year for which the determination is being made; the term “look-back year” means the twelve-month period immediately preceding the determination year; the term “top-paid group” means the top 20% of employees of the Employer ranked on the basis of Code Section 415 Compensation received during the year (provided, however, that when determining the number of employees in such group, employees described in Code section 414(q)(8) and Q&A 9(b) of Treasury regulation § 1.414(q)-1T are excluded); the Company’s Controlled Group is treated as a single Employer; and “separation year” means the determination year the Employee separates from service with the Employer.

(4)  “non-highly compensated Eligible Employee” shall mean any Eligible Employee who has satisfied the service requirement in Section 3.1(a), who performs services in the determination year (as defined in subparagraph (3) of this paragraph), and who is not a highly compensated Eligible Employee.

(5)  Any Eligible Employee who is not a highly compensated Eligible Employee and who has either (i) not attained the age of 21 or (ii) or completed a one-year Period of Service may be excluded from consideration for purposes of the average deferral percentage test and the average contribution percentage test, provided however, that such excluded Eligible Employees separately satisfy the minimum coverage test of Code section 410(b).

(6)  The Plan incorporates the provisions of Code sections 401(k)(3) and 401(m)(2), and the Treasury regulations thereunder, by reference.  In the event that this Plan satisfies the requirements of Code section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then the ADP and ACP tests in Sections 4.5(a) and 4.5(b) shall be determined as if all such plans were a single plan.  Plans may be aggregated in order to satisfy Code sections 401(k) and 401(m), respectively, only if they have the same Plan Year and use the same ADP and ACP testing method, as the case may be.

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(7)  If a highly compensated Eligible Employee participates in the Plan and one or more other plans in his Company’s Controlled Group to which any such contributions are made, all such contributions shall be aggregated for purposes of this Section.

(d)  Adjustments to comply with limits.

(1)  Adjustments to comply with Code section 401(k)(3) .  The Plan Administrator may cause to be made such periodic computations as it shall deem necessary or appropriate to determine whether either of the tests set forth in Section 4.5(a)(1) or 4.5(a)(2) shall be satisfied during a Plan Year and, if it appears to the Plan Administrator that neither of such tests will be satisfied, the Plan Administrator may take such steps as it deems necessary or appropriate to adjust the Elective Deferrals made for all or a portion of the remainder of such Plan Year on behalf of each Participant who is a highly compensated Eligible Employee to the extent necessary in order for one of such tests to be satisfied.  If after the end of a Plan Year it is determined that regardless of any such steps taken neither of the tests set forth in Section 4.5(a)(1) or 4.5(a)(2) shall be satisfied with respect to such Plan Year, the Plan Administrator shall calculate the “excess contribution amount.”  The excess contribution amount shall be, with respect to any Plan Year, the excess of:

(i)  The aggregate amount of Elective Deferrals actually made on behalf of highly compensated Eligible Employees for such Plan Year, over

(ii)  The maximum amount of such contributions permitted by the limitations of the actual deferral percentage test set forth in Section 4.5(a) (determined by hypothetically reducing contributions made on behalf of highly compensated Eligible Employees in order of actual deferral percentages, beginning with the highest of such percentages).

The amount to be returned to each Participant who is a highly compensated Eligible Employee shall be determined by first reducing the Elective Deferrals made under the Plan on behalf of each Participant whose actual dollar amount of Elective Deferrals for such Plan Year is the highest until such reduced dollar amount equals the next highest actual dollar amount of Elective Deferrals made for such Plan Year on behalf of any highly compensated Participant or until the total reduction equals the excess contributions amount.  If further reductions are necessary, then such contributions made under the Plan on behalf of each Participant who is a highly compensated Eligible Employee and whose actual dollar amount of Elective Deferrals made for such Plan Year is the highest (determined after the reduction described in the previous sentence) shall be reduced in accordance with the previous sentence.  Such reductions shall continue to be made to the extent necessary so that the total reduction equals the excess contributions amount.  The Plan Administrator shall distribute to each such Participant no later than the last day of the subsequent Plan Year for which such adjustment is made the amount of such reductions made with respect to such Participant plus any income allocable thereto, and any corresponding Employer Matching Contributions related thereto, plus any income allocable thereto shall be forfeited.  The distribution of Elective Deferrals that are excess contributions shall be made from the Participant's pre-tax Elective Deferral account before the Participant's Roth Elective Deferral account, to the extent pre-tax Elective Deferrals were made for the year, unless the Participant specifies otherwise.  The amount of Elective Deferrals distributed shall be reduced by any Elective Deferrals previously distributed to such Participant pursuant to Section 4.1(d)(2) for such Plan Year.  The amount of any income allocable to any such reductions to be so distributed or forfeited shall be determined pursuant to applicable Treasury regulations.  The Plan shall not distribute the allocable gain or loss for the period between the end of the Plan Year and the date of distribution (the “gap period”).  The unadjusted amount of any reductions distributed shall be treated as “annual additions” for purposes of Section 7.6.

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(2)  Adjustments to comply with Code section 401(m) .  The provisions of this Section shall apply separately to each collective bargaining unit whose collective bargaining agreement provides for participation in the Plan.  The Plan Administrator may cause to be made such periodic computations as it shall deem necessary or appropriate to determine whether either of the tests set forth in Sections 4.5(b)(1) or 4.5(b)(2) shall be satisfied during a Plan Year with respect to the Plan, and if it appears to the Plan Administrator that neither of such tests will be satisfied, the Plan Administrator may take such steps as it deems necessary or appropriate to adjust the Employer Matching Contributions made for all or a portion of the remainder of such Plan Year on behalf of each Participant who is a highly compensated Eligible Employees to the extent necessary in order for one of such tests to be satisfied.  If after the end of a Plan Year it is determined that regardless of any steps taken neither of the tests set forth in Section 4.5(b)(1) or 4.5(b)(2) shall be satisfied with respect to such Plan Year, the Plan Administrator shall calculate the “excess aggregate contribution amount.”  The excess aggregate contribution amount shall be, with respect to any Plan Year, the excess of:

(i)   The aggregate Employer Matching Contributions actually made on behalf of highly compensated Eligible Employees for such Plan Year, over

(ii)  The maximum amount of such contributions permitted by the limitations of the actual contribution percentage test set forth in Section 4.4(b) (determined by hypothetically reducing contributions made on behalf of highly compensated Eligible Employees in order of their contribution percentages, beginning with the highest of such percentages).

Such determination shall be made after first determining excess Elective Deferrals pursuant to Section 4.1(d) and then determining the excess contribution amount pursuant to Section 4.5(d)(1).  The Plan Administrator shall reduce the Employer Matching Contributions made under the Plan on behalf of each Participant who is a highly compensated Eligible Employee and whose actual dollar amount of Employer Matching Contributions for such Plan Year is the highest in the same manner described in paragraph (1) above until such reductions in the aggregate equal the excess aggregate contribution amount.  The reduction described in the foregoing sentence shall be made with respect to a Participant’s Employer Matching Contributions.  The Plan Administrator shall distribute no later than the last day of the subsequent Plan Year to each such Participant the amount of such reductions made with respect to Employer Matching Contributions plus any income allocable thereto to which such Participant would be entitled under Section 8.1 or Section 8.2 if such Participant had terminated service on the last day of the Plan Year for which such contributions are made (or earlier if such Participant actually terminates service at any earlier date), and any remaining amount of such reductions plus any income allocable thereto shall be forfeited.  The distribution of Elective Deferrals that are excess aggregate contributions shall be made from the Participant's pre-tax Elective Deferral account before the Participant's Roth Elective Deferral account, to the extent pre-tax Elective Deferrals were made for the year, unless the Participant specifies otherwise.  The amount of any such income allocable to any such reductions to be so distributed or forfeited shall be determined pursuant to applicable Treasury regulations.  The Plan shall not distribute the allocable gain or loss for the period between the end of the Plan Year and the date of distribution (the “gap period”).

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(e)  Designation of Qualified Nonelective Contributions and Qualified Matching Contributions .  Each Plan Year, the Company may require some or all of the Employers to make, to the extent permitted by the Secretary of the U.S.  Department of Treasury, a “qualified nonelective contribution,” as defined below, or a “qualified matching contribution,” as defined below, or both, to the Plan for purposes of applying the tests set forth in subsection (a) or (b) of this Section (each such contribution may be applied either for purposes of the test set forth in subsection (a) of this Section or for purposes of the test set forth in subsection (b) of this Section, but not both such tests).  Any qualified nonelective contribution or qualified matching contribution to the Plan shall be allocated in the manner prescribed by the Company and consistent with applicable regulations to the Accounts of some or all of those Participants who are non-highly compensated Eligible Employees (as defined in subsection (d) of this Section) for the Plan Year with respect to which such qualified nonelective contribution or qualified matching contribution is made.  Any such qualified nonelective contributions or qualified matching contributions shall be accounted for separately and shall be distributable pursuant to the provisions of the Plan concerning Employer Matching Contributions.

For purposes of this Section, the term “qualified matching contribution” shall mean Employer Matching Contributions which are subject to the distribution and nonforfeitability requirements under Code section 401(k) when made, and the term “qualified nonelective contribution” shall mean contributions (other than Employer Matching Contributions or qualified matching contributions) made by an Employer and allocated to Participants’ Accounts that the Participants may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when made; and that are distributable only in accordance with the distribution provisions that are applicable to Elective Deferrals and qualified matching contributions.

Section 4.6      Return of Employer Contributions .  Upon written demand by the Employer, the Trustee shall return any Elective Deferrals to this Plan under any one of the circumstances described in (a) or (b), subject to the special rules of (c):

(a)  If a contribution was made due to a mistake of fact, the contribution may be returned, adjusted for losses but not earnings, within one year after it was contributed.

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(b)  If a contribution is determined not to be deductible under Code section 404, the portion of the contribution that was disallowed may be returned to the Employer, adjusted for losses but not earnings, within one year after the disallowance.

(c)  If Elective Deferrals are returned to the Employer in accordance with subsections (a) or (b), Participants’ Elective Deferral elections with respect to such returned contributions shall be adjusted retroactively to the beginning of the period for which such contributions were made.  As a result, amounts returned in accordance with subsections (a) or (b) shall not be counted in determining the limitations in Section 4.4.  The Elective Deferrals so returned shall be distributed in cash to those Participants for whom such contributions were made.

Section 4.7     Military Service .  Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to Military Service will be provided in accordance with Code section 414(u) (e.g., covered Participants will be given an opportunity to make make-up Elective Deferrals and receive make-up Employer Matching Contributions (but without make-up earnings) after their return to active employment to the extent required by section 414(u)(2), subject to the applicable limit under Code section 415 for the year to which the contributions relate and to other limits as set forth in Code section 414(u)(2)).  An Employee shall be deemed to be employed during any period during which the Employee is in Military Service, provided that the Employee returns to the employ of an Employer as an Eligible Employee within the period prescribed by laws relating to the reemployment rights of persons in Military Service.  The Plan Administrator may require certification from an Eligible Employee that during the Employee’s absence, the Employee was in Military Service.  Participants on military leave will be treated like other Employee on an approved leave of absence, and as such will be able to make Elective Deferrals (including out of any Company-paid differential pay), request in-service distributions and take loans but will not be treated as having a Separation from Service.  If a Participant who is performing qualified military service dies while he or she has a right to reemployment with the Employer under the Uniformed Services Employment and Reemployment Rights Act (USERRA), such Participant’s survivors any additional benefits (other than contributions relating to the period of qualified military service, but including vesting service credit for such period and any other survivor benefits) that would have been provided under the plan had the participant resumed employment on the day preceding the participant’s death and then terminated employment on account of death.

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ARTICLE 5

ROLLOVER CONTRIBUTIONS TO THE PLAN

Section 5.1     Requirements for Rollover Contributions .  If an Eligible Employee receives, either before or after becoming a Participant, a distribution or distributions from an employees’ trust described in Code section 401(a) which is exempt from tax under Code section 501(a) or from a qualified annuity plan described in Code section 403(a) or 403(b) (or elects to directly transfer to the Plan such distribution) and such distribution or distributions were eligible rollover distributions as defined in Code section 402(c)(4) and do not include after-tax contributions (and any earnings thereon), but may include a distribution from a Roth Elective Deferral Account, then such Employee may contribute to the Plan an amount which does not exceed the amount of such distribution or distributions (including the proceeds from the sale of any property received as a part of such distribution or distributions) less the amount considered contributed to such trust or annuity plan by the Employee (determined by applying Code section 402(d)(4)(D)(i)) (a “rollover contribution”).  A rollover contribution may also be a distribution from an individual retirement account or individual retirement annuity (within the meaning of Code section 408); provided that (i) no amount in such account or no value of such annuity is attributable to a source other than an eligible rollover distribution (within the meaning of Code section 402(c)(4)) from an employees’ trust described in Code section 401(a) which is exempt from tax under Code section 501(a) or a qualified annuity plan described in Code section 403(a) at the time contributions were made on his behalf under such trust or annuity plan (and any earnings on such a rollover distribution), (ii) the contribution does not include after-tax contributions (or earnings thereon) and (iii) the entire amount received is paid (for the benefit of such individual) into the Trust no later than the 60th day following the day on which the individual receives the distribution.  A rollover contribution may also be a distribution from an eligible Code section 457(b) plan that is maintained by a state, political subdivision of a state or any agency or instrumentality of a state or political subdivision of a state (a “governmental 457(b) plan”); provided that no amount is attributable to a source other than an eligible rollover distribution (within the meaning of Code section 402(c)(4)) and the contribution does not include after-tax contributions (or earnings thereon). If a rollover contribution is made by an Eligible Employee prior to his becoming a Participant, such Eligible Employee shall until such time as he becomes a Participant be deemed to be a Participant and his Rollover Account shall be deemed to be an Account of a Participant for all purposes of the Plan except for the purpose of being eligible for contributions made by his Employer and for the purpose of making Elective Deferrals.

Section 5.2      Delivery of Rollover Contributions .  Any rollover contribution made pursuant to Section 5.1 shall be delivered by the Eligible Employee to the Plan Administrator and by the Plan Administrator to the Trustee on or before the 60th day after the day on which the Employee receives the distribution or on or before such later date as may be prescribed by law.  Any such contribution must be accompanied by (i) a statement of the Employee that to the best of his knowledge the contribution meets the conditions specified in Section 5.1 and (ii) a copy of such documents as may have been received by the Employee advising him of the amount of and the character of such distribution.  Notwithstanding the foregoing, the Plan Administrator shall not accept a rollover contribution if in its judgment accepting such contribution would cause the Plan to violate any provision of ERISA, the Code or any regulations thereunder, and the Plan Administrator shall not be required to accept such a contribution to the extent it consists of property other than cash.

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ARTICLE 6

TRUST

A Trust was created between the Company and the Trustee in connection with the implementation of the Plan in July 1973 and has been amended from time to time since that date.  The assets of the Plan are held in the Trust by the Trustee pursuant to the terms of the Plan and the Trust Agreement.  All contributions under the Plan shall be paid to the Trustee.  The Trustee shall hold all monies and other property received by it and invest and reinvest the same, together with the income therefrom, on behalf of the Participants collectively in accordance with the provisions of the Trust agreement, except to the extent that such monies and other property are invested as provided for in Article 7.  The Trustee shall make distributions from the Trust Fund at such time or times to such person or persons and in such amounts as the Plan Administrator shall direct in accordance with the Plan.

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ARTICLE 7

INVESTMENT ELECTIONS, ALLOCATION OF TRUST INCOME
AND CONTRIBUTIONS TO PARTICIPANTS’ ACCOUNTS

Section 7.1     Separate Accounts .

(a)  In General .  The Plan Administrator shall maintain or cause to be maintained separate Accounts for each Participant.  The Accounts maintained for a Participant shall include, but not be limited to: (i) a Pre-Tax Account, to which shall be credited all Elective Deferrals made on behalf of the Participant other than Roth Elective Deferrals, (ii) an Employer Safe Harbor Basic Contribution Account, to which shall be credited all Employer Safe Harbor Basic Contribution made on behalf of the Participant pursuant to Section 4.2, (iii) an Employer Discretionary Contribution Account, to which shall be credited all Employer Safe Harbor Contributions made on behalf of the Participant pursuant to Section 4.3, (iv) an Employer Matching Contribution Account, to which shall be credited all Employer Matching Contributions made on behalf of the Participant pursuant to Section 4.4, (v) a Roth Elective Deferral Account, to which shall be credited any Roth Elective Deferrals made on behalf of the Participant pursuant to Section 4.1(f), and (vi) a Rollover Account, to which shall be credited all rollover contributions made by the Participant.  In addition, other Accounts may be established by the Plan Administrator for other purposes, including with respect to plans that are merged into or otherwise transferred to the Plan.  Each such Account shall be divided and invested as the Participant elects in accordance with Section 7.2(b) among such separate investment funds as are maintained pursuant to Section 7.2(a).  Unless the context otherwise requires, a Participant’s “Account” and “Account balance” shall mean all Accounts and the aggregate value of all accounts maintained for such Participant pursuant to the Plan.  Such Accounts shall be maintained solely for accounting purposes and there shall be no segregation of assets of the Trust Fund or of any separate investment fund among separate Accounts.  The books of Accounts, forms and accounting methods used in the administration of Participants’ Accounts shall be the responsibility of, and shall be subject to the supervision and control of, the Plan Administrator.

Section 7.2     Investment Funds, Elections and Company Stock Fund .

(a)  Investment Funds .  As directed by the Plan Administrator, several separate investment funds have been established and maintained or made available with respect to the Plan.  From time to time, in accordance with the investment policies and objectives established by the Plan Administrator, the Plan Administrator may add, cease offering or make changes in the operation and management of any investment fund at any time, and shall have the authority to specify rules and procedures as to how Participant investment elections shall be adjusted to reflect the addition, deletion or change in the investment funds offered under the Plan, subject to paragraph (1) below (regarding the Company Stock Fund).  The investment funds may include, but are not limited to, investments in securities of open-end or closed-end investment companies and investments in any suitable collective investment fund maintained by any bank or trust company.  Pending allocation to the investment funds, contributions to the Plan may be held uninvested or may, on an interim basis, be invested, in whole or in part, in cash or cash equivalents.  Except as otherwise provided herein (or in rules adopted from time to time), dividends, interest, and other distributions received on the assets held by the Trustee in respect of any investment fund shall be reinvested in the respective investment fund.

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(1)  Diversified Investment Options .  The Plan shall at all times offer at least three diversified investment options, in addition to the Company Stock Fund (for which see paragraph (2) below and subsection 7.2(e) below), to which a Participant or Beneficiary may direct his or her investments, each of which shall be selected by the Plan Administrator or its delegate and each of which shall have materially different risk and return characteristics.

(2)  Company Stock Fund .  An investment fund called the “Company Stock Fund” shall be established and maintained and shall be invested primarily in Company Stock.  The rules regarding the Company Stock Fund are set forth in Section 7.2(e) below.

(b)  Investment Elections .  Each Participant shall have the right to direct the Trustee with respect to the investment and reinvestment of the assets and future contributions comprising the Participant’s Account among the investment funds that the Plan makes available.  To do so, the Participant must file an investment election with the Plan that specifies the percentage of the Participant’s existing Account balance and future contributions (in multiples established by the Plan Administrator from time to time) that are to be invested in each of such investment funds.  The Plan’s record keeper shall establish the procedures for filing investment elections.  The Participant’s most recent valid and timely-filed investment direction will be honored, subject to the default investment provisions in paragraph (3) below.  After a Participant’s death, the Participant’s Beneficiary shall have the right to direct the Trustee with respect to the investment or reinvestment of the assets comprising the Participant’s Account to the same extent that the Participant had during his life.

(1)  Timing of Investment Elections .  A Participant may make or change his or her investment election at any time.  A Participant’s initial or changed investment election shall be effective as soon as administratively practicable on or following the date the Plan receives the Participant’s investment election (usually by no later than the following business day).

(2)  Participant-Directed Investments and Section 404(c) Compliance .  Each Participant is solely responsible for the investment of his or her Plan contributions, his or her selection of investment funds, and for his transfers among the available investment funds, and no Plan fiduciary or other person shall have any liability for any loss or diminution in value resulting from the Participant’s exercise of such investment responsibility.  Because each Participant controls the investment of his or her Participant Accounts, the Plan is intended to be covered to the maximum extent possible by ERISA section 404(c) and Department of Labor regulations thereunder which provide that Plan fiduciaries may be relieved of liability for any losses that are the result of investment instructions given by a Participant or Beneficiary.

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(3)  Default Investment Fund .  Whenever amounts in a Participant’s Account or future contributions to that Account cannot be invested pursuant to the Participant’s direction (for example, if the Participant has not made a valid investment election) or pursuant to a mapping procedure established by the Plan Administrator for this purpose (see paragraph (4) below), the Trustee shall direct the investment of such amounts into the Plan’s default investment fund (or funds) as designated by the Plan Administrator, which shall be a “qualified default investment alternative” within the meaning of ERISA section 404(c)(5).

(4)  Mapping of Investment Elections When Funds Change .  The Plan’s investment funds will change from time to time.  When they do, the Plan intends to use the protocol in ERISA section 404(c)(4) for a qualified change in investment options to map the funds that will no longer be offered in the Plan to the appropriate new or existing investment funds.

(5)  Notification to Participants .  The Plan Administrator intends to notify Participants of the investment funds that are available under the Plan pursuant to Section 7.2 and to explain related fees and costs to the extent required by the regulations promulgated by the Department of Labor pursuant to ERISA section 404.  The Plan Administrator also intends to provide any notifications necessary to maintain compliance with ERISA sections 404(c) (participant-directed account), 404(c)(4) (qualified change in investment options) and 404(c)(5) (qualified default investment arrangements).

(6)  No Investment Recommendations .  The Trustee, the Plan Administrator, the Company, the Employer, the officers or supervisors of the Employer and the Company and the Plan’s fiduciaries are not empowered or authorized to advise a Participant regarding the Participant’s investment election.  The fact that an investment fund is offered under the Plan shall not be construed as a recommendation that Participants invest in such investment fund.

(7)  Investment of Amounts That are not Allocated to Participant Accounts .  Any portion of the Trust Fund which from time to time is not allocated to Participants’ Accounts shall be invested in such manner as the Plan Administrator shall determine.  The Plan Administrator shall be a “named fiduciary” (within the meaning of such term as used in ERISA) for this purpose.

(8)  Rule 16b-3(f) Compliance .  To the extent necessary to ensure compliance with Rule 16b-3(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company may arrange for tracking of any transaction defined in Rule 16b‑3(b)(1) of the Exchange Act involving the Company Stock Fund and the Company may bar any such transaction to the extent it would not be exempt under Rule 16b-3(f) of the Exchange Act.  To the extent the Company exercises its authority to bar a transaction under this subsection, the provisions of this subsection shall apply notwithstanding Section 7.2(b)(2) of the Plan (ERISA section 404(c) compliance).

(9)  Blackout Periods .  The Plan will comply with section 306 of the Sarbanes-Oxley Act of 2002.  Section 306 in part requires the Plan to give advance notice of “blackout periods” (as defined in Department of Labor regulation section 2520.101‑3(d)(1)) to affected Participants and Beneficiaries (i.e., to Participants and Beneficiaries whose rights under the Plan to direct or diversify assets credited to their Accounts, to obtain loans from the Plan, or to obtain distributions from the Plan are suspended, limited or restricted by the blackout period).

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(i)  The Company is authorized to impose blackout periods whenever the Company determines that circumstances warrant.

(ii)  The Company may impose “regularly scheduled” blackout periods within the meaning of Department of Labor regulation section 2520.101-3(d)(1)(ii)(B) in the following circumstances:

(A)  The Company imposes quarterly blackout periods on insider trading in the Company Stock Fund as needed (as determined by the Company), timed to coincide with the release of the Company’s quarterly earnings reports.  The commencement and termination of these blackout periods in each quarter, the parties to which they apply and the activities they restrict shall be as set forth in the official insider trading policy promulgated by the Company from time to time.

(B)  The Company may impose blackout periods to the extent necessary under the liquidity provisions of paragraph (10) below.

(10)  Maintaining Liquidity .  The Trustee may direct the investment of a portion of certain investment Funds such as the Company Stock Fund in cash or short-term securities to the extent necessary to maintain a level of liquidity in such Funds that is reasonably expected to permit trades into and out of such Funds, as determined by the Trustee in its sole discretion.  If the liquid assets held by these Funds are insufficient to satisfy the immediate demand for liquidity under the Plan, the Trustee may temporarily limit or suspend transfers of any type (including withdrawals and distributions) to or from any affected investment fund.  During this period, contributions to any affected Fund may be redirected to a Fund chosen by the Trustee and instructions and transfers may be pended.

(c)  ESOP Portion and Non-ESOP Portions .  The Plan is divided into two portions: An ESOP Portion and a Non-ESOP Portion.  Together the ESOP Portion and the Non-ESOP Portion constitute the entire Plan and are intended to be a single plan under Treasury regulation section 1.414(l)-1(b)(1).

(1)  ESOP Portion .  As of any time, the portion of the Plan assets that is invested in the Company Stock Fund shall be a stock bonus plan under Code section 401(a) and is intended to qualify as an employee stock ownership plan under Code section 4975(e)(7) (the “ESOP Portion”).

(i)  Separate Portion .  The ESOP Portion is maintained as a portion of the Plan as authorized by Treasury regulation § 54.4975-11(a)(5).

(ii)  Diversification .  In general, the ESOP Portion meets the diversification requirements of Code section 401(a)(28), to the extent applicable, by Plan design, since a Participant may self-direct the investment of 100% of the Participant’s Account.

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(iii)  Valuations .  Valuations of shares of distributed Company Stock which are not readily tradable on an established securities market shall be made by an independent appraiser (within the meaning of Code section 401(a)(28)(C)).
 
(iv)  Suspense Account Not Required .  The ESOP Portion is not required to provide for the establishment and maintenance of a suspense account pursuant to Treasury regulation section 54.4975‑11(c), because for periods after the KSOP Effective Date, any assets acquired with an exempt loan have already been released from suspense, nor for the protections and rights described in Treasury regulation § 54.4975-11(a)(3)(i) (e.g., put options) that are required for assets acquired with the proceeds of an exempt loan, because the assets distributed under the Plan are publicly traded when distributed.
 
(v)  Distribution in Employer Securities .  The distribution provisions of Code section 409(h) (requiring a Participant to be given the opportunity to have his Account distributed in the form of employer securities) are met by Plan design because a Participant can take a distribution from the Plan in the form of shares of Company Stock.
 
(vi)  Merger of Dime ESOP .  Effective as of the KSOP Effective Date, the Dime ESOP merged into this Plan, and all of the accounts of the participants in the Dime ESOP as of immediately before the KSOP Effective Date were thereupon invested in the Company Stock Fund.  The Trustee shall account separately for these accounts, including any earnings thereon (“Dime ESOP Accounts”).  The Dime ESOP Accounts are closed to new investments.  A Participant may elect to reinvest all or any portion of his or her investment in the Company Stock Fund that is in his or her Dime ESOP Account into any other investment fund offered by the Plan, and by doing so, such amounts shall no longer be considered part of such Participant’s Dime ESOP Account.  Further, if any Participant invests or reinvests in the Company Stock Fund on or after the KSOP Effective Date, such investment or reinvestment shall not be included in the Participant’s Dime ESOP Account.
 
(2)  Non-ESOP Portion .  The remaining part of the Plan is intended to be a profit sharing plan under Code section 401(a) and to meet the requirements for qualification under Code section 401(a) (the “non-ESOP Portion”).
 
(d)  Election to Receive Dividends on ESOP Portion (Company Stock Fund) .  The Plan Administrator shall prescribe rules and procedures that allow each Participant (or Beneficiary, as applicable) with an interest in the Company Stock Fund to elect to have any Cash ESOP Dividends that are allocated to the Participant’s Accounts distributed in cash directly to him or her as soon as administratively practical after the dividend is paid to the Plan without being first reinvested in the Company Stock Fund (a Cash ESOP Dividend Payment Election).
 
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(1)  Dividend Deduction Under Code Section 404(k) .  Such rules and procedures shall be in accordance with the terms of the Plan or, to the extent not specified in the Plan, with the requirements that must be satisfied in order for a federal income tax deduction to be allowed under Code section 404(k) with respect to the Cash ESOP Dividends (including the requirement that the election to receive Cash ESOP Dividends be irrevocable for the period to which it applies).  The Plan Administrator may provide for procedures for a Participant to make a Cash ESOP Dividend Payment Election by contacting the Participant Response System.
 
(2)  Processing Fee .  The Plan Administrator shall be allowed to prescribe a processing fee for processing and paying Cash ESOP Dividends to electing Participants, the amount of which shall be subject to change; provided, however, that any increase in such fee shall not cause it to exceed the level that would permit the Company to deduct such dividends.
 
(3)  If Participant Does Not Make a Dividend Election .  In the event a Participant, as of the record date for a Cash ESOP Dividend, either:
 
(i)    Does not have a completed Cash ESOP Dividend Payment Election on file with the Plan Administrator, or
 
(ii)  Completes a Cash ESOP Dividend Payment Election but the Participant cannot be located (for example, because his address on file is invalid),
 
the Participant’s Cash ESOP Dividends shall be paid to the Plan, allocated to the Company Stock Fund and reinvested in Company Stock.  Cash ESOP Dividends that are either paid or reinvested pursuant to Code section 404(k)(2)(A)(iii) and the provisions of this Section shall not be considered to be Annual Additions for purposes of Code section 415(c), Elective Deferrals for purposes of Code section 402(g), elective contributions for purposes of Code section 401(k), or employee (or matching) contributions for purposes of Code section 401(m).
 
(4)  Timing .  A Cash ESOP Dividend Payment Election must be completed by the Participant (or Beneficiary, as applicable) within the time prescribed for such purpose and pursuant to the rules and procedures adopted by the Plan Administrator from time to time.  Any Cash ESOP Dividend Payment Election that is not completed in the format required by the Plan Administrator shall be considered null and void.  The Plan Administrator shall give Participants (or Beneficiaries, as applicable) a reasonable opportunity before each dividend record date in which to make a Cash ESOP Dividend Payment.  The Plan Administrator shall honor each Cash ESOP Dividend Payment Election as in effect on the dividend record date, and each Cash ESOP Dividend Payment Election shall become irrevocable on such record date unless the Committee has timely established and communicated a different irrevocability date.  Each Cash ESOP Dividend Payment Election shall remain in effect until the Participant (or Beneficiary, as applicable) affirmatively elects to revoke it.  A Participant (or Beneficiary, as applicable) may submit a Cash ESOP Dividend Payment Election at any time, and may revoke an existing Cash ESOP Dividend Payment Election at any time, with any submission or revocation to be effective for dividend record dates that occur after such submission or revocation.
 
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(e)  Company Stock Fund .  The Company Stock Fund shall be governed by the following paragraphs, unless otherwise noted:
 
(1)  Share Accounting .  Effective July 1, 2017, investments in the Company Stock Fund shall be record-kept using “share accounting” so that a Participant’s Account will hold shares as opposed to units.
 
(2)  Employee Benefit Committee is Plan Administrator for Company Stock Fund .  The Company’s Employee Benefit Committee is the Plan Administrator and “named fiduciary” (within the meaning of such term as it is used in ERISA) for investment decisions relating to the Company Stock Fund.  The Company’s Employee Benefit Committee shall be solely responsible for all investment decisions relating to the Company Stock Fund, except to the extent it delegates that responsibility to another ERISA fiduciary.  Subject to an override by the Company’s Employee Benefit Committee or other applicable fiduciary that such fiduciary determines to be required to comply with ERISA, the Company Stock Fund is required to be available to Participants as an investment fund pursuant to the terms of the Plan.  Except as provided in the preceding sentence, no provision of the Plan is to be construed to confer discretion on or authority in the Trustee or any fiduciary to remove the Company Stock Fund as an investment fund under the Plan or to limit Participants’ access to such fund.
 
(3)  Diversification Not Required for Company Stock Fund .  In accordance with ERISA section 404(a)(2), the Trustee is expressly excused from the requirements of diversification as to the investment of the Trust in the Company Stock Fund or other qualifying employer security.
 
(4)  Qualifying Employer Securities .  Shares of Company Stock in the Company Stock Fund are “qualifying employer securities” within the meaning of Code section 409(1) which defines “qualifying employer securities in relevant part as “common stock issued by the employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market”, and ERISA section 407(d)(3).  In accordance with ERISA section 407(b)(1), the Trustee is authorized to invest and hold up to 100% of the assets of the Trust in the Company Stock Fund as directed from time to time by the Participants.  Accordingly, the Plan is an “eligible individual account plan” as defined in ERISA section 407(d)(3).
 
(5)  Trading in Company Stock .  The Trustee may purchase Company Stock or other qualifying employer security from the Company or any other source, and such Company Stock or other qualifying employer security purchased by the Trustee may be outstanding, newly issued, or treasury shares, provided that such shares are registered.  Notwithstanding the foregoing, any purchase by the Trustee of any shares of Company Stock or other qualifying employer security from any “party in interest” as defined in ERISA section 3(14), or from any “disqualified person” as defined in Code section 4975(e)(2), shall not be made at a price that exceeds “adequate consideration” as defined in ERISA section 3(18) and no commissions shall be paid with Plan assets on such purchase.  Shares of Company Stock will be purchased or sold for the Company Stock Fund in the open market or in privately negotiated transactions.  In the unusual event that the Company Stock Fund is acquiring or liquidating a block of Company Stock that is so large that its purchase or sale, in the ordinary course, is expected to disrupt an orderly market in Company Stock, the Trustee (or its designated agent) may limit the daily volume of purchases and sales of Company Stock by the Company Stock Fund to the extent necessary to preserve an orderly market.
 
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(6)  Valuation .  Ongoing investment of Trust funds into Company Stock shall be permitted only if such Company Stock is traded on an exchange permitting a readily ascertained value, or the Plan Administrator has obtained a current valuation by a qualified independent appraiser.  The Trust shall be invested in the Stock Fund to the extent necessary to comply with valid Participant investment directions made pursuant to this Article.
 
(7)  Right to Divest .  Participants investing in the Company Stock Fund may divest their interests at any time.
 
(8)  Dividends and Stock Splits .  All dividends on shares of Company Stock in the Company Stock Fund are paid to the Company Stock Fund, treated as earnings and used to purchase additional shares of Company Stock in the Company Stock Fund (other than Cash ESOP Dividends that a Participant elects to have paid directly to him or her pursuant to Section 7.2(d)).  Any Company Stock received by the Trustee as a stock split or dividend, or as a result of a reorganization or other recapitalization with respect to the Company Stock in the Company Stock Fund, will be added to the Company Stock Fund.  Any other property (other than shares of Company Stock) received by the Trustee with respect to the Company Stock in the Company Stock Fund may be sold by the Trustee and the proceeds added to the Company Stock Fund.  In the event of a significant distribution of such other property, the Plan Administrator may implement special arrangements for the holding or disposition of such other property by the Plan.  Any rights to subscribe to additional shares of Company Stock shall be sold by the Trustee and the proceeds credited to the Company Stock Fund.
 
(9)  Voting .  See Article 10 below.
 
(10)  Liquidity .  See Section 7.2(b)(10) above.
 
Section 7.3     Allocation to Participants’ Accounts of Net Income of Trust and Fluctuation in Value of Trust Assets .  The net worth of each investment fund shall be determined as of each Valuation Date pursuant to Section 7.4, and the market value of each Participant’s Account shall be recalculated to reflect the net earnings and losses of each such investment fund since the preceding Valuation Date in accordance with procedures established by the Plan Administrator.
 
Section 7.4     Determination of Net Worth of an Investment Fund .  The net worth of an investment fund as of any Valuation Date shall be the fair market value of all assets (including any uninvested cash) held by such investment fund, as determined by the Trustee on the basis of such evidence and information as it may deem pertinent and reliable, reduced by any liabilities of the investment fund other than Participants’ Accounts and reduced by contributions made to the Trust Fund and invested in the investment fund subsequent to the preceding Valuation Date.
 
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Section 7.5    Limitations on Allocations .  Notwithstanding any other provision of the Plan, the amounts allocated pursuant to Section 7.5 to a Participant’s Accounts under the Plan for each Plan Year shall be limited so that the aggregate annual additions to the Participant’s Accounts under the Plan and under all other defined contribution plans maintained by an Employer shall not exceed the lesser of (i) $54,000 in 2017 (as adjusted for cost-of-living increases in accordance with Code section 415(d)), and (ii) 100% of the Participant’s Code Section 415 Compensation for such Plan Year.  For purposes of this Section, the provisions of Code section 415 and the regulations issued thereunder are incorporated by reference as permitted under Treasury regulation § 1.415(a)-1(d)(3).  If the amount to be allocated to a Participant’s Accounts pursuant to Section 7.5 for a Plan Year would exceed the limitation set forth in this Section, such excess amount shall be corrected in accordance with the Employee Plans Compliance Resolution System (see, e.g., Revenue Procedure 2018-52).  If the amount to be allocated to a Participant’s Accounts pursuant to this Section for a Plan Year would exceed any of the limitations set forth in this Section, such excess amounts shall be corrected in accordance with the Employee Plan Compliance Resolution System of the Internal Revenue Service.  Such excess amounts shall be deemed Elective Deferrals and special Employer contributions, in that order.  For purposes of this Section, the “annual additions” for a Plan Year to a Participant’s Accounts in the Plan and his accounts in any other defined contribution plans is the sum during such Plan Year of:
 
(a)  the amount of Elective Deferrals, Employer Matching Contributions, special Employer contributions and after-tax contributions (but excluding any rollover contributions (within the meaning of Code sections 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3) and 457(e)(16)) or any direct transfers made to such plan) allocated to such Participant’s accounts,
 
(b)  the amount of forfeitures allocated to such Participant’s accounts, and
 
(c)  contributions allocated on behalf of the Participant to any individual medical benefit account as defined in Code section 415(1), the additional reserve for post-retirement medical and life insurance benefits (as defined in Code section 419A(d)(2)) maintained on behalf of the Participant and mandatory employee contributions (as defined in Code section 411(c)(2)(C)) to a defined benefit plan, regardless of whether such plan is subject to the requirements of Code section 411.
 
For purposes of this Section, the term “defined contribution plan” shall have the meaning set forth in Code section 415 and the Treasury regulations thereunder, and the term “Employer” shall mean the Company’s Controlled Group except that in defining the Company’s Controlled Group, “more than 50%” shall be substituted for “at least 80 percent” where required by Code section 415(g).
 
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Section 7.6     Correction of Error .  If it comes to the attention of the Plan Administrator that an error has been made in any of the allocations prescribed by this Article 7, appropriate adjustment shall be made to the Accounts of all Participants and designated Beneficiaries which are affected by such error, in accordance with the Employee Plans Compliance Resolution System (see, e.g., Revenue Procedure 2018-52).
 
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ARTICLE 8
 
VESTING
 
Section 8.1      Vesting Schedules .
 
(a)  100% Vesting .  A Participant shall be at all times 100% vested in his or her Elective Deferrals, Roth Elective Deferrals, Rollover Contributions and Employer Safe Harbor Basic Contributions, and earnings thereon.  A Participant shall be at all times 100% vested in any dividends paid with respect to his or her investments in the Company Stock Fund for which the Participant was given the opportunity to make a Cash ESOP Dividend Payment Election pursuant to Section 7.2(d) and Code section 404(k).  A Participant shall become 100% vested in the entire balance of the Participant’s Accounts if the Participant, while still an Employee, attains age 65, dies, or suffers a Total Disability.
 
(b)  Two to Six Year Graded Vesting .  A Participant shall vest in his Employer Discretionary Contributions and Employer Matching Contributions as set forth in the following schedule.
 
 
Participant’s Period of Service
(Measured in Completed Years)
 
 
Vested Percentage
 
Less than 2
 
0%
 
Less than 3 but more than 2
 
20%
 
Less than 4 but more than 3
 
40%
 
Less than 5 but more than 4
 
60%
 
Less than 6 but more than 5
 
80%
 
6 or more
 
100%

 
(c)  Vesting in Amounts in Plans That Merged Into This Plan .  A Participant who was a participant in the Dime ESOP shall be at all times 100% vested in amounts attributable to his or her balance therein as of the KSOP Effective Date, and earnings thereon.  A Participant who was a participant in any other plan that merged into this Plan (for example, the Pioneer Savings Bank, FSB Tax Deferral Savings Plan in RSI Retirement Trust which merged into this Plan effective March 1, 1997) shall be vested in amounts attributable to his or her balance in such plan pursuant to the terms of the documents supporting such plan and/or merger resolutions as applicable.
 
Section 8.2     Forfeiture of Unvested Amounts .  A Participant who terminates employment with the Company’s Controlled Group before vesting in all of his or her Accounts established under the Plan (as applicable) pursuant to Section 8.1 shall not be entitled to a distribution of any unvested amounts.  These unvested amounts shall be forfeited from the Participant’s Accounts as soon as administratively practicable following the earlier of: (i) the date the Participant’s entire vested Account balance is distributed from the Plan, and (ii) the date the Participant incurs a five-year Period of Severance.  For purposes of this Section 8.2, a Participant who terminates employment at a time when he or she has no vested interested in any Account shall be deemed to have received a distribution of his or her entire vested Account balance.
 
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(a)  Use of Forfeitures .  Any amount forfeited under this Section 8.2 shall be used to pay any administrative expenses of the Plan (including the cost of restoring any forfeitures) or to fund Employer Discretionary Contributions or Employer Matching Contributions.  Except to the extent of any required restorations of forfeited amounts, a Participant shall not be entitled to an allocation of a forfeiture of any portion of his or her Account, or to an allocation of a forfeiture made from any portion of any other Participant’s Account.
 
(b)  Reinstatement of Forfeited Amounts .  A Participant who received a distribution from the Plan of the vested portion of his or her Account and whose unvested portion was forfeited as a result, and who has a Reemployment Commencement Date before incurring a five-year Period of Severance, may repay the full amount of the distribution (excluding amounts attributable to the Rollover Contributions Account) in a cash lump sum to the Trustee within five years following the Participant’s Reemployment Commencement Date.  If the Participant does so, the Plan shall restore the forfeited amount, without earnings.
 
(c)  Vested Status Following a Break .  In the case of a Participant who has a Period of Severance that lasts at least five years, such Participant’s Period of Service that was completed before the Period of Severance shall be considered in determining the Participant’s vested interest in the portion of the Participant’s Account balance that the Participant earns after the break only if either: (i) such Participant has any remaining nonforfeitable interest in the Account balance attributable to Employer contributions that were earned before the Period of Service Cutoff Date; or (ii) upon returning to service the length of the Participant’s Period of Severance is less than the Participants Period of Service, measured in completed years.  Separate accounts will be maintained for the Participant’s pre-break and post-break Employer-derived account balance.  Both accounts will share in the earnings and losses of the Trust.
 
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ARTICLE 9
 
DISTRIBUTIONS
 
Section 9.1      Time and Form of Distribution upon Termination of Employment .
 
(a)  Form of distribution .  Any distribution to which a Participant or Beneficiary becomes entitled pursuant to subsection (b) below shall be distributed by the Trustee in a single lump sum payment or in substantially equal installments, as elected by the Participant or Beneficiary.  Any distribution from the Plan shall be made in the form of cash or in-kind; provided, however, that a Participant may elect to receive the value of his Account that is invested in the Company Stock Fund in full shares of Company Stock and in cash for any fractional shares.
 
(b)  Time of Distributions .  A Participant shall be entitled to a distribution of the Participant’s vested Account balance as soon as administratively practicable after the date of the Participant’s severance from employment with the Employer, or, subject to the remaining provisions of this Section, may defer distribution to a later date; provided, however, that:
 
(1)  Consent .  The Participant’s Account shall not be distributed prior to the Participant’s 65 th birthday unless the Participant has consented in writing to such distribution.  Such consent shall be obtained in writing within the 180 day period ending on the first day of the first period for which an amount is paid.  The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant’s 65th birthday and of the consequences of failing to defer any distribution.  Such notification shall include a general description of the material features of the optional forms of benefit available under the Plan and a description of the Participant’s right to defer receipt of the distribution (where applicable), and shall be provided no less than 30 days and no more than 180 days prior to the first day of the first period for which an amount is paid.  However, distribution may commence less than 30 days after the notice described in the preceding sentence is given, provided the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects a distribution.  The Participant’s consent shall be in writing or, if authorized by the Plan Administrator, provided through an electronic medium that meets the requirements of Treasury regulation § 1.411(a)-11(f).  The Participant’s consent shall not be required to the extent that a distribution is required to satisfy Code section 401(a)(9) or 415.
 
(2)  Code Section 401(a)(14) .  Pursuant to Code section 401(a)(14), payment of benefits under the Plan shall begin no later than 60 days after the end of the Plan Year which contains the later of (i) the date of the Participant’s termination of employment, (ii) the tenth anniversary of the date the Participant commenced participation in the Plan and (iii) the Participant’s 65 th birthday; provided, however, that the Plan Administrator shall require such a Participant to file a claim for benefits before such payment of benefits shall commence.  If the Participant fails to file a claim for benefits prior to the later to occur of the events listed above, the Participant shall be deemed to have elected to defer such distribution until a date no later than April 1 of the calendar year following the calendar year in which the Participant attains age 70½.
 
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(3)  Required Minimum Distributions Under Code Section 401(a)(9) .   Notwithstanding anything in the Plan to the contrary, a Participant’s distribution(s) from this Plan shall begin no later than the Participant’s “required beginning date” (as defined in the next sentence) and shall be made in at least the amounts required by clause (i) below, in order to comply with Code Section 401(a)(9).  The “Participant’s “required beginning date” shall be the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70½ or the calendar year in which the Participant terminates employment, except as is otherwise provided in clause (iv) below (Special Rule for 5% Owners).
 
(i)    Amount .  A Participant’s benefit shall be distributed at least as rapidly as over the life of the Participant, or over the lives of such Participant and a Beneficiary, or over a period not extending beyond the life expectancy of such Participant or the joint life expectancy of such Participant and a Beneficiary, and shall follow the requirements of Treasury regulation § 1.401(a)(9)-5 (Required Minimum Distributions from Defined Contribution Plans).
 
(ii)    Available Forms .  A Participant who has reached his or her required beginning date may elect to receive his or her benefit in any of the optional forms available under Section 9.1(a) (“Form of Distribution”), subject to the required minimum distribution provisions described in clause (i) above.
 
(iii)  Additional Election Available for Participants with Pre-1987 After-Tax Contributions .  A Participant whose account includes after-tax contributions made to the Plan before 1987 (“pre-1987 after-tax contributions”) may elect to receive his or her distribution, in lieu of in one of the optional forms described in clause (ii) above, in such amounts and at such times as the Participant may request until such time as the Participant’s pre-1987 after-tax contributions have been fully distributed from the Plan, subject to the required minimum distribution provisions described in clause (i) above .  This clause (iii) is intended to allow the Participant to take advantage of the tax relief afforded under Code Section 72(e)(8)(D) (“Investment in the Contract Before 1987”) by electing a form for the distribution of such pre-1987 after-tax contributions that does not constitute an “annuity” within the meaning of Code Section 72.
 
(iv)  Special Rule for 5% Owners .  In the case of a distribution to a Participant who is a “five percent owner” (as defined in Code section 416(i)) at any time during the Plan Year ending in the calendar year in which the Participant attains age 70½, the “required beginning date” for purposes of this Section 9.1(b)(3) shall the April 1 of the calendar year following the calendar year in which the Participant attains age 70½.
 
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(4)  Small Dollar Cashouts .  Notwithstanding any provision in this Section to the contrary, if the vested Account balance (which shall include the value of Rollover Contributions) of a terminated Participant does not exceed $1,000, such account shall be distributed in one lump sum payment in accordance with procedures established by the Plan Administrator.
 
(c)  Time of Distribution to Beneficiary .  If prior to the Participant’s death the distribution of his vested Account balance had not been made, then distribution of his vested Account balance shall be made to his Beneficiary as soon as administratively practicable after the first Valuation Date coinciding with or following his death; provided, however, that if the Participant’s Beneficiary is the Participant’s Spouse, distribution may be deferred, at the Beneficiary’s election, until as late as the date on which the Participant would have attained age 70½ had the Participant survived.  The Participant’s Account shall not be forfeited on account of his or her death.
 
(d)  Code Section 401(a)(9) Requirements .  Notwithstanding anything to the contrary contained in this Article 9, all distributions under this Plan shall be made in accordance with Code section 401(a)(9) and the Treasury regulations thereunder.  Provisions of the Plan regarding payment of distributions shall be interpreted and applied in accordance with Code section 401(a)(9) and the Treasury regulations thereunder.
 
(e)  Deemed Severance from Employment Distribution . A Participant who has performed qualified military service for more than 30 days shall elect to be treated as having a severance from employment for the purposes of requesting a distribution of his Elective Deferral contributions under Code section 414(u)(12)(B) during a period of uniformed services as defined in Code section 3401(h)(2)(A). If an Participant receives a distribution due to a deemed severance from employment, the individual may not make an Elective Deferral during the six-month period beginning on the date of the distribution;
 
(f)  Incidental Death Benefit .  If payment of a Participant’s benefit under this Plan is by a distribution directly to the Participant from such Participant’s Account, the minimum amount which must be distributed each calendar year shall be the amount determined by dividing the balance in the Participant’s Account by the “applicable divisor.”  The “applicable divisor” shall be determined under regulations issued by the Secretary of the Treasury under the incidental death benefit requirements of Code section 401(a)(9).
 
Section 9.2      Designation of Beneficiary .  Each Participant shall have the right to designate a Beneficiary or Beneficiaries (who may be designated contingently or successively and which may be an entity other than a natural person) to receive any distribution to be made upon the death of such Participant or, in the case of a Participant who dies subsequent to termination of his employment but prior to the distribution of the entire amount to which he is entitled, any undistributed balance to which such Participant was entitled; provided, however, that no such designation shall be effective if the Participant was married through the one-year period ending on the date of the Participant’s death unless such designation was consented to at the time of such designation by the person who was the Participant’s Spouse during such period, in writing, acknowledging the effect of such consent and witnessed by a notary public or a Plan representative, or it is established to the satisfaction of the Plan Administrator that such consent could not be obtained because the Participant’s Spouse cannot be located or such other circumstances as may be prescribed in applicable Treasury regulations.  A Participant may from time to time, without the consent of any designated Beneficiary, cancel any such designation.  Such designation and each cancellation thereof shall be made in the form prescribed by the Plan Administrator and shall be filed with the Plan Administrator.  If no Beneficiary has been designated by a deceased Participant, any such designation is not effective pursuant to the proviso contained in the first sentence of this Section, or the designated Beneficiary has predeceased the Participant, any undistributed vested balance of the deceased Participant shall be distributed at the direction of the Plan Administrator (a) to the surviving Spouse of such deceased Participant, if any, or (b) if there is no surviving Spouse, to the surviving children of such deceased Participant, if any, in equal shares, or (c) if there is no surviving Spouse or surviving children, to the surviving parents of the deceased Participant, if any, in equal shares, or (d) if there is no surviving parent, to the surviving siblings of the deceased Participant, if any, in equal shares, or (e) if there is no surviving sibling, to the executor or administrator of the estate of such deceased Participant, or (f) if no executor or administrator has been appointed for the estate of such deceased Participant within six months following the date of the Participant’s death, in equal shares to the person or persons who would be entitled under the intestate succession laws of the state of the Participant’s domicile to receive the Participant’s personal estate.  The marriage of a Participant shall be deemed to revoke any prior designation of a Beneficiary made by him and a divorce shall be deemed to revoke any prior designation of the Participant’s divorced Spouse if written evidence of such marriage or divorce shall be received by the Plan Administrator before distribution has been made in accordance with such designation.  For purposes of this Section, “marriage” shall mean a legal union between two people under applicable Federal law.
 
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Section 9.3     Investment of Distributee Accounts .  If distribution of the amount to which a Distributee becomes entitled is made later than the first Valuation Date coincident with or following the Participant’s termination of employment, the undistributed balance of such amount shall be credited as of such Valuation Date to an account established and maintained in the name of the Distributee entitled to receive the same (“Distributee Account”).  For purposes of investment elections that can be made pursuant to Section 7.2, the allocations prescribed in Section 7.3, and any distribution of assets pursuant to Section 15.4 upon termination of the Plan, a Distributee for whom a Distributee Account is established shall be deemed to be a Participant and such Account shall be deemed to be a Participant’s Account.
 
Section 9.4     Distributions to Minor and Disabled Distributees .  Any distribution under this Article which is payable to a Distributee who is a minor or to a Distributee who, in the opinion of the Plan Administrator, is unable to manage his affairs by reason of illness or mental incompetency may be made to or for the benefit of any such Distributee at such time consistent with the provisions of this Article and in such of the following ways as the legal representative of such Distributee shall direct:  (a) directly to any such minor Distributee if, in the opinion of such legal representative, he is able to manage his affairs, (b) to such legal representative, (c) to a custodian under a Uniform Gifts to Minors Act for any such minor Distributee, or (d) to some near relative of any such Distributee to be used for the latter’s benefit.  The Plan Administrator shall be required to see to the application by any third party other than the legal representative of a Distributee of any distribution made to or for the benefit of such Distributee pursuant to this Section.
 
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Section 9.5      45 Withdrawals from Accounts During Employment .
 
(a)  Rollover Account . Subject to such terms and conditions as the Plan Administrator may establish from time to time, a Participant may withdraw in cash all or any portion of  his Rollover Contributions account.
 
(b)  Withdrawals upon incurring financial hardship .  Subject to the satisfaction of the conditions set forth in this section 9.5(b), a Participant whom the Plan Administrator determines has incurred a “financial hardship” may elect to withdraw vested amounts in cash from his Plan Accounts in cash.  The amount of withdrawal on account of hardship shall not exceed the amount the Plan Administrator determines is necessary to satisfy such hardship.  A Participant may apply for a hardship withdrawal pursuant to this subsection (b) in accordance with the rules and procedures established by the Plan Administrator.  The Plan Administrator may assess Participants a fee for processing hardship withdrawal applications.
 
(1)  Limit of Two a Year .  No more than two hardship withdrawals may be made to a Participant during a Plan Year.
 
(2)  Eligible Amounts .  In no event may hardship withdrawals be taken from amounts invested in the Company Stock Fund.  Hardship withdrawals may be made only from the following types of contributions:
 
(i)  Elective Deferrals. including earnings thereon .
 
No other amounts are eligible for withdrawal on account of hardship, including Rollover Contributions, Employer Safe Harbor Basic Contributions and earnings thereon, qualified nonelective contributions or qualified matching contributions (see, for example, Section 4.4(e), Designation of Qualified Nonelective Contributions and Qualified Matching Contributions) and earnings thereon, and earnings allocated to Elective Deferrals or other elective deferrals after December 31, 1988.  Prior to the KSOP Effective Date, hardship withdrawals were available from some other accounts (for example, the Bank Contribution Account and Pioneer Prior Matching Contribution Account), but these accounts are no longer available for hardship withdrawal.
 
(3)  Determination of Financial Hardship .  The determination of the existence of “financial hardship” and the amount required to be distributed to satisfy the need created by the hardship will be made by the Plan Administrator in a uniform and non-discriminatory manner.  A financial hardship shall be deemed to exist only if the Participant certifies to the Plan Administrator that the financial need is for one or more of the following reasons, to the extent permitted under the safe harbor hardship distribution rules set forth in Treasury regulation § 1.401(k)-1(d)(3)(ii)(B):
 
(i)   Expenses for (or necessary to obtain) medical care that would be deductible under Code section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income), as well as, such medical care for a Participant’s primary Beneficiary;
 
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(ii)   Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant;
 
(iii) The payment of tuition, related educational fees, and room and board expenses for the next twelve months of post-secondary education for the Participant, the Participant’s Spouse, children, Dependents (defined without regard to Code sections 152(b)(1), (b)(2) and (d)(1)(B)), or primary Beneficiary;
 
(iv)  The need to prevent eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;
 
(v)   Burial or funeral expenses for the Participant’s deceased parent, Spouse, children, Dependents (defined without regard to Code section 152(d)(1)(B)) or primary Beneficiary; or
 
(vi)  Expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income).
 
The Participant shall be required to submit any additional supporting documentation as may be requested by the Plan Administrator.
 
(4)  Immediate and Heavy Financial Need .  No distributions on account of hardship shall be made pursuant to this subsection unless the Plan Administrator determines that all of the following conditions are satisfied, based upon the Participant’s representation and such other facts as are known to the Plan Administrator:
 
(i)    The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant (including any amounts necessary to pay any federal, state, or local taxes or penalties reasonably anticipated to result from the distribution); and
 
(ii)   The Participant has obtained all distributions, other than hardship distributions, all nontaxable loans currently available under all plans maintained by the Employer (to the extent the loan would not increase the hardship) and has made a Cash ESOP Dividend Payment Election to the extent such an election is currently available to the Participant at the time the hardship withdrawal is being requested.
 
The Participant shall be required to submit any additional supporting documentation as may be requested by the Plan Administrator.  The Plan Administrator’s determination of the amount necessary to satisfy any financial hardship can, in the Plan Administrator’s sole discretion, include consideration of the amounts that will be necessary for the Participant to pay any federal, state or local income taxes or penalties reasonably anticipated to result from a withdrawal made on account of a financial hardship.
 
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(c)  Age 59½ Withdrawals .  A Participant who is an Employee and who has attained age 59½ may elect to withdraw as of any Valuation Date all or a portion of the vested balance in his or her Accounts, in cash, in the time and manner prescribed by the Plan Administrator.  Such withdrawal may not be greater than the combined value of the vested amounts held in such Accounts as of such Valuation Date.  Amounts in the Company Stock Fund are not eligible for in-service withdrawal.
 
(d)  Distributions from a Participant’s Rollover Account .  A Participant who is an Employee may elect to withdraw as of any Valuation Date all or a portion of the vested balance in his Rollover Account, in cash, in the time and manner prescribed by the Plan Administrator.  Amounts in the Company Stock Fund are not eligible for in-service withdrawal.
 
Section 9.6      Loans to Participants .
 
(a)  Making of Loans .  Subject to the restrictions set forth in this Section, the Plan Administrator shall establish a loan program whereby any Participant who is an Employee may request, in accordance with the rules and procedures established by the Plan Administrator, to borrow funds from the Plan.  The principal balance of any such loan cannot be less than $1,000 and shall not exceed the lesser of (1) 50% of the aggregate of the Participant’s vested Account balance as of the Valuation Date coinciding with or immediately preceding the day on which the loan is made, and (2) $50,000 reduced by the highest outstanding loan balance of the Participant under all plans maintained by his Employer during the period of time beginning one year and one day prior to the day such loan is to be made and ending on the day prior to the day such loan is to be made.  The details of the Plan’s participant loan program are set forth in the Plan’s written loan procedures.
 
(b)  Restrictions on Loans .  Any loan approved by the Plan Administrator pursuant to subsection (a) of this Section shall be made only upon the following terms and conditions:
 
(1)  Amounts invested in the Company Stock Fund are not eligible to be taken as a loan.
 
(2)  No loan shall be made unless the Participant consents to have such loan repaid in substantially equal installments deducted from the regular payments of the Participant’s compensation during the term of the loan.
 
(3)  No Participant may have more than two loans outstanding at any time.
 
(4)  The period for repayment of the loan shall be arrived at by mutual agreement between the Plan Administrator and the Participant but such period shall not exceed five years from the date of the loan; except in the case of a loan the purpose of which (as determined by the Plan Administrator) is to acquire any dwelling unit which within a reasonable time is to be used as the principal residence of the Participant.  A loan may be prepaid in whole or in part, without penalty, by delivery to the Plan Administrator of cash in an amount equal to the amount of the prepayment.

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(5)  A Participant who terminates employment with the Employer must repay all outstanding loans following such termination of employment.
 
(6)  If a Participant fails to comply with the terms of this section 9.7 and the loan program or fails to make any installment payment on any loan (each a “Default”) before the end of the calendar quarter following the calendar quarter in which the installment payment was first due, the entire unpaid principal amount of such loan, together with any accrued and unpaid interest thereon, shall immediately become due and payable. A Default shall also be deemed to occur if a Participant who has incurred a severance from employment requests a distribution on his account without having repaid the outstanding balance of his loan.
 
(7)  Loan repayments under the Plan shall be suspended with respect to Participants in Military Service as permitted under Code section 414(u)(4).
 
(8)  Each loan shall be evidenced by the Participant’s collateral promissory note for the amount of the loan, with interest, payable to the order of the Trustee, in substantially equal installments (payable at least quarterly), and shall be secured by an assignment of 50% of the Participant’s vested benefit under the Plan.
 
(9)  Each loan granted or renewed hereunder shall bear a reasonable rate of interest on the unpaid balance thereof for its full term at a rate per annum equal to the prime interest rate on the first business day of each calendar quarter as reported in the Wall Street Journal, plus one percent.
 
(10)  Each Participant requesting a loan shall, as a condition of receiving such loan, pay any reasonable loan processing fee and/or loan maintenance fee as shall be set from time to time by the Plan Administrator.  Such fee(s) may be paid from the loan proceeds or deducted from the Participant’s Account.
 
(c)  Applicability .  The provisions of this Section shall apply to each Participant and Beneficiary of a deceased Participant if such Participant or Beneficiary is a “party in interest” as defined in ERISA section 3(14).  Each reference in this Section to “Participant” shall include such Beneficiaries of deceased Participants except that the requirements of subsection (b) above shall not apply to a loan made to any Participant or Beneficiary who is a “party in interest” after the Participant’s termination of employment.
 
Section 9.7      Direct Rollovers.
 
(a)  Election .  A Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the Distributee in a direct rollover.
 
(b)  Definitions .  For purposes of this Section:
 
(1)  An “eligible rollover distribution” is any distribution being made pursuant to the terms of the Plan of all or any portion of the balance to the credit of the Distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code section 401(a)(9); and the portion of any distribution that is not includible in gross income and any distribution that is a hardship distribution under Code section 401(k)(2)(B).
 
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(2)  An “eligible retirement plan” includes any of the following that accepts the Distributee’s eligible rollover distribution:
 
(i)    An individual retirement account described in Code section 408(a), an individual retirement annuity described in Code section 408(b), and a qualified trust described in Code section 401(a).
 
(ii )   An annuity plan described in Code section 403(a) and an annuity contract described in Code section 403(b).
 
(iii)   An eligible plan under Code section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from the Plan.
 
(iv)  A Roth IRA described in Code section 408A(b).
 
(3)  A “Distributee” includes (A) an Employee or former Employee, (B) the Employee’s or former Employee’s surviving Spouse and the Employee’s or former Employee’s Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code section 414(p) but only with regard to the interest of the Spouse or former Spouse, and (C) the Participant’s nonspousal primary Beneficiary who is the Participant’s “designated Beneficiary” under Code section 401(a)(9)(E) and the regulations thereunder (except that in this case the definition of eligible retirement plan is modified to mean only an individual retirement account described in Code section 408(a) and an individual retirement annuity described in Code section 408(b) established by the non-spouse Beneficiary for purposes of receiving the direct rollover).
 
(4)  A “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the Distributee.
 
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ARTICLE 10
 
PARTICIPANTS’ STOCKHOLDER RIGHTS
 
Section 10.1   Company Stock .  a)The Trustee shall vote, in person or by proxy, shares of Company Stock which are allocated to a Participant’s Account and the Participant’s “proportionate share” (as determined pursuant to the last sentence of this Section 10.1(a)) of the votes attributable to the non-voted shares of Company Stock in accordance with instructions obtained from such Participant (or, if applicable, his Beneficiary).  Each Participant (or Beneficiary) shall be entitled to give voting instructions with respect to the number of shares of Company Stock allocated to his Account as of the valuation date prior to the shareholder record date for such vote.  Written notice of any meeting of stockholders of the Dime Community Bancshares, Inc. and a request for voting instructions shall be given by the Plan Administrator or the Trustee, at such time and in such manner as the Plan Administrator shall determine, to each Participant (or Beneficiary) entitled to give instructions for voting shares of Company Stock at such meeting.  A Participant’s “proportionate share” of non-voted shares of Company Stock shall be a fraction, the numerator of which shall be the number of votes attributable to shares of Company Stock that are held in such Participant’s Account for which instructions are timely provided to the Trustee and the denominator of which shall be the number of votes attributable to all shares of Company Stock held in Participants’ Account under the Company Stock Fund for which voting instructions are provided to the Trustee.
 
(b)  Other Securities .  The Trustee shall vote, in person or by proxy, shares of securities other than Company Stock held in the Trust in accordance with voting instructions provided by the Plan Administrator.
 
Section 10.2    Tender Offers .
 
(a)  Rights of Participants .  In the event a tender or exchange offer is made generally to the shareholders of the Company to transfer all or a portion of their shares of Company Stock in return for valuable consideration, including but not limited to, offers regulated by section 14(d) of the Securities Exchange Act of 1934, as amended, the Trustee shall respond to such tender or exchange offer in respect of shares of Company Stock allocated to a Participant’s Account and the Participant’s “proportionate share” (as determined pursuant to the last sentence of this Section 10.2(a)) of the votes attributable to the unallocated shares of Company Stock held in the Company Stock Fund in accordance with instructions obtained from such Participant (or, if applicable, his Beneficiary).  Each Participant (or Beneficiary) shall be entitled to give instructions with respect to tendering or withdrawal from tender of such shares.  A Participant (or Beneficiary) shall not be limited in the number of instructions to tender or withdraw from tender which he can give but a Participant (or Beneficiary) shall have the right to give instructions to tender or withdraw from tender after a reasonable time established by the Trustee pursuant to subsection (c) below.  The Trustee shall respond to any such tender or exchange offer in respect of all shares of Company Stock allocated to Participants’ (or Beneficiaries’) Accounts in accordance with the terms of the Trust.  All instructions from the Participant (or Beneficiary) shall be kept confidential and shall not be disclosed to any person, including the Company.  A Participant’s “proportionate share” of unallocated shares of Company Stock held in the Company Stock Fund shall be a fraction, the numerator of which shall be the number of shares of Company Stock that are held in such Participant’s Account for which instructions are timely provided to the Trustee and the denominator of which shall be the number of all shares of Company Stock held in Participants’ Accounts under the Company Stock Fund for which voting instructions are provided to the Trustee.
 
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(b)  Duties of the Plan Administrator .  Within a reasonable time after the commencement of a tender or exchange offer, the Plan Administrator or the Trustee shall provide to each Participant:
 
(1)  The offer to purchase or exchange as distributed by the offeror to the shareholders of the Company,
 
(2)  A statement of the shares of Company Stock allocated to his Account, and
 
(3)  Directions as to the means by which a Participant can give instructions with respect to the tender or exchange offer.
 
The Plan Administrator shall establish and pay for a means by which a Participant (or Beneficiary) can expeditiously deliver to the Plan Administrator instructions addressed to the Trustee with respect to a tender or exchange offer.  The Plan Administrator shall transmit to the Trustee aggregate numbers of shares to be tendered or withheld from tender representing instructions of Participants (or Beneficiaries).  The Plan Administrator, at its election, may engage an agent to receive instructions from Participants (or Beneficiaries) and transmit them to the trustee.
 
(c)  Duties of the Trustee .  The Trustee shall follow the instructions of the Participants (or Beneficiaries) with respect to the tender or exchange offer as transmitted to the Trustee.  The Trustee may establish a reasonable time, taking into account the time restrictions of the tender or exchange offer, after which it shall not accept instructions of Participants (or Beneficiaries).
 
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ARTICLE 11
 
ADMINISTRATION
 
Section 11.1    The Plan Administrator .
 
(a)  The “named fiduciary” of the Plan within the meaning of ERISA section 402 shall be the Plan Administrator for purposes of administration of the Plan and the Plan’s investments (except to the extent otherwise provided with respect to the Company Stock Fund in Section 7.2).  The Company, as Plan Administrator, shall have responsibility for the Plan’s ministerial and fiduciary duties (except to the extent otherwise provided with respect to the Company Stock Fund in Section 7.2).  The Company may appoint a committee or a third party administrator to serve in this role, and the committee or third party administrator shall also serve as the named fiduciary to the Plan within the meaning of ERISA section 402(a) as a result of this delegation.  Any such delegation shall be reduced to writing and such writing and kept with any other Plan records.  The named fiduciary and any other parties designated as fiduciaries, as defined in ERISA section 3(21), by such named fiduciary in accordance with the terms of the Plan and the Trust Agreement, shall be fiduciaries only with respect to their specific responsibilities in connection with the Plan and Trust, and shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under this Plan or the Trust Agreement.  The Plan Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in this Plan and the Trust Agreement.  The Plan Administrator may designate any person, partnership, corporation or combination thereof to carry out any of its duties and responsibility with respect to administrator of the Plan.  Each fiduciary may rely upon any direction, information or action of another fiduciary as being proper under this Plan or the Trust, and is not required under this Plan or the Trust instrument to inquire into the propriety of any direction, information or action.  It is intended under this Plan and the Trust instrument that each fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and the Trust instrument and shall not be responsible for any act or failure to act of another fiduciary.  No fiduciary guarantees the Trust in any manner against investment loss or depreciation in asset value.  The Plan Administrator shall be the Plan’s agent for service of legal process.  The Plan Administrator shall have all powers necessary or appropriate to carry out the provisions of the Plan, as set forth in this Article.  To the extent permitted by law, all findings of fact, determinations, interpretations and decisions of the Plan Administrator shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan.
 
(b)  The Plan Administrator shall have the authority to request from any person or entity such data and information as the Plan Administrator shall require in the performance of its duties.
 
(c)  The Plan Administrator shall direct the Trustee to make payments of amounts to be distributed from the Trust under Article 9 and to withhold applicable taxes therefrom.
 
(d)  If the Plan Administrator position is filled by more than one person, those persons may allocate their responsibilities among themselves and may designate any person, persons, partnership, corporation or combination thereof to carry out any of their duties and responsibilities with respect to administration of the Plan.  Any such allocation or designation shall be reduced to writing and such writing shall be kept with the records of the meetings of the Plan Administrator.
 
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(e)  No person serving as a Plan Administrator shall receive any compensation or fee for his or her services unless otherwise agreed between such person and the Company, but the Company shall reimburse persons serving as the Plan Administrator for any necessary expenditures incurred in the discharge of their duties as Plan Administrator.
 
(f)  The Plan Administrator may employ such counsel (who may be of counsel for any Employer) and agents and may arrange for such clerical and other services as it may require in carrying out the provisions of the Plan.
 
(g)  The Plan Administrator shall have the responsibility and authority to appoint one or more investment advisors and to set out the investment objectives and parameters for the Plan.
 
Section 11.2    Claims Procedure .  If any Participant or Distributee (a “claimant”) believes he is entitled to benefits in an amount greater than those which he is receiving or has received, he may file a claim with the Plan Administrator.
 
(a)  Initial Claim .  Such a claim shall be in writing and state the nature of the claim, the facts supporting the claim, the amount claimed, and the address of the claimant.  The Plan Administrator shall review the claim and, unless special circumstances require an extension of time, within 90 days after receipt of the claim, give written notice by registered or certified mail to the claimant of his decision with respect to the claim.  If special circumstances require an extension of time, the claimant shall be so advised in writing within the initial 90-day period and in no event shall such an extension exceed 90 days.  The notice of the decision of the Plan Administrator with respect to the claim shall be written in a manner calculated to be understood by the claimant and, if the claim is wholly or partially denied, set forth the specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary.  The Plan Administrator shall also advise the claimant that he or his duly authorized representative may request a review by the Plan Administrator of the denial by filing with the Plan Administrator within 65 days after notice of the denial has been received by the claimant, a written request for such review.  The claimant shall be informed that he may have reasonable access to pertinent documents and submit comments in writing to the Plan Administrator within the same 65-day period.
 
(b)  Appeal .  If a request is so filed, review of the denial shall be made by the Plan Administrator within, unless special circumstances require an extension of time, 60 days after receipt of such request, and the claimant shall be given written notice of the resulting final decision.  If special circumstances require an extension of time, the claimant shall be so advised in writing within the initial 60-day period and in no event shall such an extension exceed 60 days.  The notice of the final decision shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based and shall be written in a manner calculated to be understood by the claimant.
 
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(c)  Claimant Must Exhaust the Plan’s Claims Procedures .  Before filing any Claim (including a suit or other action) in court or in another tribunal, a Claimant must first fully exhaust all of the Claimant’s rights under the claims procedures of this Section.
 
(1)  Upon review by any court or other tribunal, the exhaustion requirement of this Section 11.2(c) is intended to be interpreted to require exhaustion in as many circumstances as possible (and any steps necessary to clarify or effect this intent may be taken).
 
(2)  In any action or consideration of a Claim in court or in another tribunal following exhaustion of the Plan’s claims procedure as described in this Section 11.2(c), the subsequent action or consideration shall be limited, to the maximum extent permissible, to the record that was before Plan Administrator in the claims procedure.
 
(3)  The exhaustion requirement of this Section 11.2(c) shall apply: (i) regardless of whether other Disputes that are not Claims (including those that a court might consider at the same time) are of greater significance or relevance, (ii) to any rights the Plan Administrator may choose to provide in connection with novel Disputes or in particular situations, (iii) regardless of whether the rights are actual or potential and (iv) even if the Plan Administrator has not previously defined or established specific claims procedures that directly apply to the submission and consideration of such Claim (in which case the Plan Administrator (upon notice of the Claim) shall either promptly establish such claims procedures or shall apply (or act by analogy to) the claims procedures of Section 11.2 that apply to claims for benefits).
 
(4)  The Plan Administrator may make special arrangements to consider a Claim on a class basis or to address unusual conflicts concerns, and such minimum arrangements in these respects shall be made as are necessary to maximize the extent to which exhaustion is required.
 
(5)  For purposes of this Section 11.2(c), the following definitions apply.
 
(i)     A “Dispute” is any claim, dispute, issue, action or other matter.
 
(ii)    A “Claim” is any Dispute that implicates in whole or in part any one or more of the following –
 
(A)  The interpretation of the Plan;
 
(B)  The interpretation of any term or condition of the Plan;
 
(C)  The interpretation of the Plan (or any of its terms or conditions) in light of applicable law;
 
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(D)  Whether the Plan or any term or condition under the Plan has been validly adopted or put into effect;
 
(E)  The administration of the Plan;
 
(F)  Whether the Plan, in whole or in part, has violated any terms, conditions or requirements of ERISA or other applicable law or regulation, regardless of whether such terms, conditions or requirements are, in whole or in part, incorporated into the terms, conditions or requirements of the Plan;
 
(G)  A request for Plan benefits or an attempt to recover Plan benefits;
 
(H)  An assertion that any entity or individual has breached any fiduciary duty; or
 
(I)  Any Claim that: (i) is deemed similar to any of the foregoing by the Plan Administrator, or (ii) relates to the Plan in any way.
 
(iii)  A “Claimant” is any Employee, former Employee, Participant, former Participant, Beneficiary (or the spouse, former spouse, estate, heir or representative of any of the foregoing individuals), or any other individual, person, entity with a relationship to any of the foregoing individuals or the Plan, as well as any group of one or more of the foregoing, who has a Claim.
 
(6)  Exclusive Discretionary Authority .  The Plan Administrator shall have the exclusive discretionary authority to construe and to interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters are final and conclusive.  As a result, benefits under this Plan will be paid only if the Plan Administrator decides in its discretion that the Participant (or other claimant) is entitled to them.  The Plan Administrator’s discretionary authority is intended to be absolute, and in any case where the extent of this discretion is in question, the Plan Administrator is to be accorded the maximum discretion possible.  Any exercise of this discretionary authority shall be reviewed by a court under the arbitrary and capricious standard (i.e., the abuse of discretion standard).
 
Section 11.3   Procedures for Domestic Relations Orders .  If the Plan Administrator receives any written judgment, decree or order (including approval of a property settlement agreement) pursuant to State domestic relations or community property law relating to the provision of child support, alimony or marital property rights of a Spouse, former Spouse, child or other Dependent of a Participant and purporting to provide for the payment of all or a portion of the Participant’s Account balances under the Plan to or on behalf of one or more of such persons (such judgment, decree or order being hereinafter called a “domestic relations order”), the Plan Administrator shall promptly notify the Participant and each other payee specified in such domestic relations order of its receipt and of the following procedures.  After receipt of a domestic relations order, the Plan Administrator shall determine whether such order constitutes a “qualified domestic relations order,” as defined in subsection (b) of Section 13.2, and shall notify the Participant and each payee named in such order in writing of its determination.  Such notice shall be written in a manner calculated to be understood by the parties and shall set forth specific reasons for the Plan Administrator’s determination, and shall contain an explanation of the review procedure under the Plan.  The Plan Administrator shall also advise each party that he or his duly authorized representative may request a review by the Plan Administrator of its determination by filing with the Plan Administrator a written request for such review.  The Plan Administrator shall give each party affected by such request notice of such request for review.  Each party also shall be informed that he may have reasonable access to pertinent documents and submit comments in writing to the Plan Administrator in connection with such request for review.  Each party shall be given written notice of the Plan Administrator’s final determination, which notice shall be written in a manner calculated to be understood by the parties and shall include specific reasons for such final determination.  If within a reasonable time after receipt of written evidence of such order, it is determined that such domestic order constitutes a qualified domestic relations order, amounts subject to a domestic relations order which are payable to the alternate payee shall be segregated in a separate account and distributed in accordance with the terms of the order.  If within such reasonable period of time it is determined that such order does not constitute a qualified domestic relations order, the amounts so segregated (plus any interest thereon) shall be paid to the Participant or such other persons, if any, entitled to such amounts at such time.  Any determination regarding the status of such order after such reasonable time period shall be applied only to payments on or after the date of such determination.  Prior to the issuance of regulations, the Plan Administrator shall establish the time periods in which the Plan Administrator’s initial determination, a request for review thereof and the review by the Plan Administrator shall be made, provided that the total of such time periods shall not be longer than 18 months from the date written evidence of a domestic relations order is received by the Plan Administrator.  The duties of the Plan Administrator under this Section may be delegated by the Plan Administrator to one or more persons.
 
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Section 11.4   Notices to Participants, Etc .  All notices, reports and statements given, made, delivered or transmitted to a Participant or Distributee or any other person entitled to or claiming benefits under the Plan shall be deemed to have been duly given, made or transmitted when mailed by first class mail with postage prepaid and addressed to the Participant or Distributee or such other person at the address last appearing on the records of the Plan Administrator.  A Participant or Distributee or other person may record any change of his address from time to time by written notice filed with the Plan Administrator.
 
Section 11.5 Notices to Company, Employers or Plan Administrator .  Written directions, notices and other communications from Participants or Distributees or any other person entitled to or claiming benefits under the Plan to the Company, Employers or the Plan Administrator shall be deemed to have been duly given, made or transmitted either when delivered to such location as shall be specified upon the form prescribed by the Plan Administrator for the giving of such directions, notices and other communications or when mailed by first class mail with postage prepaid and addressed to the addressee at the address specified upon such forms.
 
Section 11.6   New Technologies .  Any references in this Plan to communications, notices, forms or agreements given under the Plan may be given in any form acceptable to the Plan Administrator including but not limited to electronic or other paperless forms (whether electrical, digital, magnetic, wireless, optical, electromagnetic, or other comparable technologies), facsimile, telephonic voice response systems or internet protocols, subject to the requirements of Department of Labor regulation section 2520.104b-1 or other applicable regulatory guidance.  Record retention may be in any form acceptable to the Plan Administrator.  Signatures (including signatures that must be notarized or acknowledged) will be accepted electronically to the extent the procedures for electronic signatures are acceptable to the Plan Administrator.
 
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Section 11.7   Records .  The Plan Administrator shall keep a record of all of its proceedings and shall keep or cause to be kept all books of account, records and other data as may be necessary or advisable in its judgment for the administration of the Plan.
 
Section 11.8   Reports of Accounting to Participants .  The Plan Administrator shall keep on file, in such form as it shall deem convenient and proper, all reports concerning the Trust Fund and the Plan Administrator shall, as soon as possible after the close of each Plan Year, advise each Participant and Distributee of the balance credited to any account for his benefit as of the close of such Plan Year pursuant to Article 7 hereof.
 
Section 11.9   Limitations on Actions .  Effective for claims and actions filed on or after January 1, 2020, any claim filed under Section 11.2 and any action filed in state or federal court by or on behalf of a former or current Employee, Participant, Beneficiary or any other individual, person or entity (collectively, a “Petitioner”) for the alleged wrongful denial of Plan benefits or for the alleged interference with or violation of ERISA-protected rights must be brought within two years of the date the Petitioner’s cause of action first accrues.  For purposes of this subsection, a cause of action with respect to a Petitioner’s benefits under the Plan shall be deemed to accrue not later than the earliest of (i) when the Petitioner has received the calculation of the benefits that are the subject of the claim or legal action (ii) the date identified to the Petitioner by the Plan Administrator on which payments shall commence, or (iii) when the Petitioner has actual or constructive knowledge of the facts that are the basis of his claim.  For purposes of this subsection, a cause of action with respect to the alleged interference with ERISA-protected rights shall be deemed to accrue when the claimant has actual or constructive knowledge of the acts that are alleged to interfere with ERISA-protected rights.  Failure to bring any such claim or cause of action within two-year time frame shall preclude a Petitioner, or any representative of the Petitioner, from filing the claim or cause of action.  Correspondence or other communications following the mandatory appeals process described in Section 11.2 shall have no effect on this two-year time frame.
 
Section 11.10 Restriction of Venue .  Any claim or action filed in a court or any other tribunal in connection with the Plan by or on behalf of a Petitioner (as defined in Section 11.9) shall only be brought or filed in the United States District Court for the Southern District of New York.
 
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ARTICLE 12
 
ADOPTION OF THIS PLAN
 
Section 12.1   Adoption of Plan By Entity in Company’s Controlled Group .  With the consent of the Company, any entity within the Company’s Controlled Group may become a participating Employer under the Plan for the benefit of its Eligible Employees.  An entity that becomes a participating Employer under the Plan shall compile and submit all information required by the Company with reference to its Eligible Employees.
 
Section 12.2   Withdrawal from Participation .  Any Employer may withdraw from participation in the Plan at any time by duly notifying the Company and submitting any information required by the Company in connection with its withdrawal.
 
Section 12.3   Company and Plan Administrator as Agent for Employers .  Each entity which shall become a participating Employer pursuant to Section 12.1 by so doing shall be deemed to have appointed the Company and the Plan Administrator its agent to exercise on its behalf all of the powers and authorities hereby conferred upon the Company and the Plan Administrator by the terms of the Plan, including, but not by way of limitation, the power of the Company to amend and terminate the Plan.  The authority of the Company and the Plan Administrator to act as such agent shall continue unless and until Employer withdraws from participation pursuant to Section 12.2 and the Trust no longer contains Plan assets related to the employees of that Employer.
 
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ARTICLE 13
 
MISCELLANEOUS
 
Section 13.1   Expenses .  All costs and expenses incurred in administering the Plan and the Trust, including the fees of counsel and any agents for the Company and Plan Administrator, the fees and expenses of Trustee, the fees of counsel for the Trustee and other administrative expenses shall be paid from the Trust Fund to the extent not paid by the Company or the Employers, except for any expenses that are appropriate to be paid by a particular Participant (for example, any loan-processing fees assessed in accordance with Section 8.9(b)(7) shall be paid by the Participant requesting the loan).  The Company, in its sole discretion, shall determine the portion of each expense which is to be borne by a particular Employer.
 
Section 13.2    Non-Assignability .
 
(a)  In General .  It is a condition of the Plan, and all rights of each Participant and Distributee shall be subject thereto, that no right or interest of any Participant or Distributee in the Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, but excluding devolution by death or mental incompetency, and no right or interest of any Participant or Distributee in the Plan shall be liable for, or subject to, any obligation or liability of such Participant or Distributee, including claims for alimony or the support of any Spouse.  Notwithstanding any provision of the Plan to the contrary, the rule against assignability in the foregoing shall not apply, to the extent permitted by law, to any offset of a Participant’s benefits under the Plan against an amount that the Participant is ordered or required to pay to the Plan pursuant to (i) a judgment of conviction for a crime involving the Plan, (ii) a civil judgment in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA or (iii) a settlement agreement between the Secretary of Labor and the Participant or the Pension Benefit Guaranty Corporation and the Participant in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA.
 
(b)  Exception for Qualified Domestic Relations Orders .  Notwithstanding any provision of the Plan to the contrary, if a Participant’s Account balance under the Plan, or any portion thereof, is the subject of one or more qualified domestic relations orders, as defined below, such Account balance or portion thereof shall be paid to the person and at the time and in the manner specified in any such order.  For purposes of this paragraph, “qualified domestic relations order” shall mean any “domestic relations order” as defined in Section 11.3 which creates (or recognizes the existence of) or assigns to a person other than the Participant (an “alternate payee”) rights to all or a portion of the Participant’s Account balance under the Plan.
 
The Qualified Domestic Relations Order must clearly specify:
 

1.
The name and last known mailing address (if any) of the Participant and each alternate payee covered by such order,
 
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2.
The amount or percentage of the Participant’s benefits to be paid by the Plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
 

3.
The number of payments to, or period of time for which, such order applies, and
 
  4.
Each plan to which such order applies;
 
The Qualified Domestic Relations Order does not require:
 

1.
The Plan to provide any type or form of benefit or any option not otherwise provided under the Plan at the time such order is issued,
 

2.
The Plan to provide increased benefits (determined on the basis of actuarial equivalence), and
 

3.
The payment of benefits to an alternate payee which at the time such order is issued already are required to be paid to a different alternate payee under a prior qualified domestic relations order;
 
All as determined by the Plan Administrator pursuant to the procedures contained in Section 11.3.
 
Section 13.3    Employment Non-Contractual .  The Plan confers no right upon an Employee to continue in employment.
 
Section 13.4   Limitation of Rights .  A Participant or Distributee shall have no right, title or claim in or to any specific asset of the Trust Fund, but shall have the right only to distributions from the Trust on the terms and conditions herein provided.
 
Section 13.5   Merger or Consolidation with Another Plan .  A merger or consolidation with, or transfer of assets or liabilities to, any other plan shall not be effected unless the terms of such merger, consolidation or transfer are such that each Participant, Distributee, Beneficiary or other person entitled to receive benefits from the Plan would, if the Plan were to terminate immediately after the merger, consolidation or transfer, receive a benefit equal to or greater than the benefit such person would be entitled to receive if the Plan were to terminate immediately before the merger, consolidation, or transfer.
 
Section 13.6   Gender and Plurals .  Wherever used in the Plan, words in the masculine gender shall include masculine or feminine gender, and, unless the context otherwise requires, words in the singular shall include the plural, and words in the plural shall include the singular.
 
Section 13.7   Applicable Law .  The Plan and all rights hereunder shall be governed by and construed in accordance with the laws of the State of New York to the extent such laws have not been preempted by applicable federal law.
 
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Section 13.8   Severability .  If a provision of the Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included in the Plan.
 
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ARTICLE 14
 
TOP-HEAVY PLAN REQUIREMENTS
 
Section 14.1    Top-Heavy Plan Determination .  If as of the determination date (as defined in Section 14.2) for any Plan Year (a) the sum of the Account balances under the Plan and all other defined contribution plans in the aggregation group (as defined in Section 14.2) and (b) the present value of accrued benefits under all defined benefit plans in such aggregation group of all participants in such plans who are key employees (as defined in Section 14.2) for such Plan Year exceeds 60% of the aggregate of the Account balances and present value of accrued benefits of all participants in such plans as of the determination date, then the Plan shall be a top-heavy plan for such Plan Year, and the requirements of Sections 14.3 shall be applicable for such Plan Year as of the first day thereof.  If the Plan shall be a top-heavy plan for any Plan Year and not be a top-heavy plan for any subsequent Plan Year, the requirements of this Article 14 shall not be applicable for such subsequent Plan Year.
 
Section 14.2    Definitions and Special Rules.
 
(a)  Definitions .  For purposes of this Article 14, the following definitions shall apply:
 
(1)  Determination Date .  The determination date for all plans in the aggregation group shall be the last day of the preceding Plan Year, and the valuation date applicable to a determination date shall be (i) in the case of a defined contribution plan, the date as of which account balances are determined which is coincident with or immediately precedes the determination date, and (ii) in the case of a defined benefit plan, the date as of which the most recent actuarial valuation for the Plan Year which includes the determination date is prepared, except that if any such plan specifies a different determination or valuation date, such different date shall be used with respect to such plan.
 
(2)  Aggregation Group .  The aggregation group shall consist of (a) each plan of an Employer in which a key employee is a Participant, (b) each other plan which enables such a plan to be qualified under Code section 401(a) or 410, and (c) any other plans of an Employer which the Employer shall designate as part of the aggregation group and which shall permit the aggregation group to continue to meet the requirements of Code sections 401(a) and 410 with such other plan being taken into account.
 
(3)  Key Employee .  The term key employee shall have the meaning set forth in Code section 416(i).  “Key employee” means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the Determination Date was an officer of an Employer having annual Code Section 415 Compensation greater than $130,000 (as adjusted under Code section 416(i))(1)) for Plan Years beginning after December 31, 2002), a 5-percent owner of an Employer, or a 1-percent owner of an Employer having annual Code Section 415 Compensation of more than $150,000.  For this purpose, annual Code Section 415 Compensation shall not include any amounts paid to such nonresident alien which are (i) excludable from gross income and (ii) not effectively connected with the conduct of a trade or business within the United States.  The determination of who is a key employee will be in accordance with Code section 416(i)(1) and the applicable Treasury regulations and other guidance of general applicability thereunder.
 
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(b)  Special Rules .  For purposes of this Article 14, the following special rules shall apply:
 
(1)  For the purpose of determining the accrued benefit or account balance of a participant, the accrued benefit or account balance of any person who has not performed services for an Employer at any time during the five-year period ending on the determination date shall not be taken into account pursuant to this Section, and any person who received a distribution from a plan (including a plan which has terminated) in the aggregation group during the five-year period ending on the last day of the preceding Plan Year shall be treated as a participant in such plan, and any such distribution shall be included in such participant’s account balance or accrued benefit, as the case may be.
 
(2)  The present values of accrued benefits and the amounts of account balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Code section 416(g)(2) during the one-year period ending on the Determination Date.  The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Code section 416(g)(2)(A)(i).  In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “five-year period” for “one-year period.”  The accrued benefits and accounts of any individual who has not performed services for an Employer during the one-year period ending on the Determination Date shall not be taken into account.
 
Section 14.3   Minimum Contribution for Top-Heavy Years .  Notwithstanding any provision of the Plan to the contrary, the Employer Matching Contributions under Article 4 allocated to the Account of a Participant during any Plan Year (other than to the Account of a key employee) and the forfeitures allocated to the Account of a Participant during any Plan Year (other than to the Account of a key employee) for which the Plan is a top-heavy plan shall in no event be less than the lesser of (i) 3 percent of such Participant’s Code Section 415 Compensation during such Plan Year and (ii) the highest percentage at which contributions are made on behalf of any key employee for such Plan Year.  Such minimum contribution shall be made even if, under other provisions of the Plan, the Participant would not otherwise be entitled to receive an allocation or would receive a lesser allocation for the year because of (i) the Participant’s failure to complete 1,000 Hours of Service, or (ii) Code Section 415 Compensation of less than a stated amount.  If during any Plan Year for which this Section is applicable a defined benefit plan is included in the aggregation group and such defined benefit plan is a top-heavy plan for such Plan Year, the percentage set forth in the clause (i) above shall be 5 percent.  The percentage referred to in clause (ii) of the first sentence of this Section shall be obtained by dividing the aggregate of contributions made pursuant to Article 4 and pursuant to any other defined contribution plan which is required to be included in the aggregation group (other than a defined contribution plan which enables a defined benefit plan which is required to be included in such group to be qualified under Code section 401(a)) during the Plan Year on behalf of such key employee by such key employee’s Code Section 415 Compensation for the Plan Year.
 
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ARTICLE 15
 
AMENDMENT, ESTABLISHMENT OF SEPARATE
PLAN AND TERMINATION
 
Section 15.1    Amendment or Termination .  The Plan may at any time and from time to time be amended or modified by resolution of the Company, or a duly appointed delegate thereof.  Any such amendment or modification shall become effective on such date as the amendment shall specify, including retroactively to the extent permitted by law, and may apply to Participants in the Plan at the time thereof as well as to future Participants.  The Plan may be terminated on any date specified by resolution of the Company.
 
Section 15.2   Establishment of Separate Plan .  If an Employer shall withdraw from the Plan under Section 12.2 the Company shall determine the portion of the Trust Fund held by the Trustee which is applicable to the Participants and former Participants of such Employer and direct the Trustee to segregate such portion in a separate Trust.  Such separate Trust shall thereafter be held and administered as a part of the separate plan of such Employer.  The portion of the Trust applicable to the Participants and former Participants of a particular Employer shall be the sum of:
 
(a)  The total amount credited to all Accounts which are applicable to the Participants and former Participants of such Employer and
 
(b)  An amount which bears the same ratio to the excess, if any, of
 
(1)  The total value of the Trust, over
 
(2)  The total amount credited to all Accounts as the total amount credited to the Accounts which are applicable to the Participants and former Participants of such Employer bears to the total amount credited to such Accounts of all Participants and former Participants.
 
Section 15.3   Full Vesting upon Termination of Participation, Partial Plan Termination or Complete Discontinuance of Contributions .  In the event of the termination or partial termination of the Plan or upon the complete discontinuance of contributions under the Plan, the Accounts of all affected Employees shall become fully vested and shall not thereafter be subject to forfeiture.
 
Section 15.4   Distribution upon Termination of the Plan .  Any Employer may at any time terminate its participation in the Plan by written instrument executed on behalf of the Employer by resolution of its board of directors to that effect.  In the event of any such termination the Company shall determine the portion of the Trust Fund held by the Trustee which is applicable to the Participants and former Participants of such Employer and direct the Trustee to distribute such portion to Participants ratably in proportion to the balances of their respective Accounts as follows:
 
(a)  The balance in any Account shall be distributed to the Distributee entitled to receive such Account.
 
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(b)  The remaining assets of the Trust Fund shall be distributed to Participants ratably in proportion to the balances of their respective Accounts. A complete discontinuance of contributions by an Employer shall be deemed a termination of such Employer’s participation in the Plan for purposes of this Section.  Notwithstanding he foregoing or any provision of the Plan to the contrary, no distribution shall be made in violation of the distribution restrictions of Code section 401(k).
 
Section 15.5   Trust Fund to Be Applied Exclusively for Participants and Their Beneficiaries .  Subject only to the provisions of Section 4.6 (Return of Employer Contributions) and the provisions of Section 15.4 (Distribution upon Termination of the Plan) and any other provision of the Plan to the contrary notwithstanding, it shall be impossible for any part of the Trust Fund to be used for or diverted to any purpose not for the exclusive benefit of Participants and their Beneficiaries either by operation or termination of the Plan, power of amendment or other means.
 
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SIGNATURE
 
IN WITNESS WHEREOF, the Company has adopted the Plan on this ____ day of ______________, 2018.
 
 
DIME COMMUNITY BANK
 

 
By:
   


63
EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-220175 on Form S-3, and 333-153174 and 333-197277 on Form S-8 of Dime Community Bancshares, Inc. and Subsidiaries of our report dated March 14, 2019, relating to the financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K.

Crowe LLP
Livingston, New Jersey
March 14, 2019


EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 17 CFR 240.13a-14(a) / 15d-14(a)

I, Kenneth J. Mahon, certify that:

1.
I have reviewed this annual report on Form 10-K of Dime Community Bancshares, Inc.;

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

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

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


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


b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter In the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:


a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 14, 2019

/s/ KENNETH J. MAHON
 
Kenneth J. Mahon
 
President and Chief Executive Officer


EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 17 CFR 240.13a-14(a) / 15d-14(a)

I, Avinash Reddy, certify that:

1.
I have reviewed this annual report on Form 10-K of Dime Community Bancshares, Inc.;

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

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

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


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


b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter In the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:


a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 14, 2019

/s/ AVINASH REDDY
 
Avinash Reddy
 
Executive Vice President and Chief Financial Officer (Principal Financial Officer)


Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K (the "Report") for the period ended December 31, 2018 of Dime Community Bancshares, Inc., (the "Company") as filed with the Securities and Exchange Commission on the date hereof, I, Kenneth J. Mahon, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2019

By:
/s/ KENNETH J. MAHON
 
 
Kenneth J. Mahon
 
 
President and Chief Executive Officer


Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K (the "Report") for the period ended December 31, 2018 of Dime Community Bancshares, Inc., (the "Company") as filed with the Securities and Exchange Commission on the date hereof, I, Avinash Reddy, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2019

By:
/s/ AVINASH REDDY
 
 
Avinash Reddy
 
 
Executive Vice President and Chief  Financial Officer (Principal Financial Officer)