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TABLE OF CONTENTS

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Report of Independent Registered Public Accounting Firm

Plan Participants and Plan Administrator of Dime

Community Bank KSOP and the Employee Benefits Committee and the

Audit Committee of Dime Community Bank

300 Cadman Plaza West, 8th Floor

Brooklyn, New York

Opinion on the Financial Statements

We have audited the accompanying statements of net assets available for benefits of the Dime Community Bank KSOP (f/k/a “Dime Community Bank 401(k) Savings Plan”) (the "Plan") as of December 31, 2017 and 2016, the related statement of changes in net assets available for benefits for the year ended December 31, 2017 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2017 and 2016, and the changes in net assets available for benefits for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on the Plan's financial statements 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 Plan 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB.  As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting.  Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

Our audits 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. We believe that our audits provide a reasonable basis for our opinion.

Supplemental Information

The supplemental Schedule H, Line 4(a) – Schedule of Delinquent Participant Contributions and Schedule H, Line 4(i) – Schedule of Assets (Held at End of Year) as of December 31, 2017 and for the year then ended have been subjected to audit procedures performed in conjunction with the audit of Dime Community Bank KSOP’s financial statements.  The supplemental schedules are the responsibility of the Plan’s management.  Our audit procedures included determining whether the information presented in the supplemental schedules reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedules.  In forming our opinion on the supplemental schedules, we evaluated whether the supplemental schedules including their form and content, are presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  In our opinion, the supplemental schedules are fairly stated in all material respects in relation to the financial statements as a whole.

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The following is a reconciliation of activity for notes receivable from participants:

 

 

h.

Payment of Benefits – On termination of services due to death, disability, or retirement, or for termination of service for other reasons, a participant may elect to receive either a lump-sum amount equal to the value of the participant's vested balance in his or her account, or annual installments over a period not to exceed the participant’s life expectancy (or the assumed life expectancy of the participant and his or her beneficiary).

 

i.

Plan Termination – Although the Bank has not expressed any intent to terminate the Plan, it has the right to terminate the Plan subject to the provisions of ERISA. In the event of a Plan termination, participant accounts will become fully vested.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies followed by the Plan are as follows:

 

a.

Basis of Accounting – The accompanying financial statements have been prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

 

b.

Use of Estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires Plan management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements.  Actual results could differ from those estimates.

 

c.

Risks and Uncertainties – The Plan provides for various investment options.  Investments, in general, are exposed to various risks, such as interest rate, credit, and liquidity risks and overall market volatility.  Due to the level of risk associated with certain investments, and the sensitivity of certain fair values to changes in the valuation assumptions, it is reasonably possible that changes in the value of investments will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the financial statements.

 

d.

Investment Valuation and Income Recognition – The Plan's investments are stated at fair value.  All mutual fund investments of the Plan are publicly registered and traded on national securities exchanges, and are therefore carried at fair value based on their quoted market prices at the end of the year (level 1 inputs).

 

The Plan's Stable Value Collective Trust Fund investment (the "Fund") is measured at Net Asset Value (“NAV”), as reported by the manager of the Fund, and as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date.  The Fund provides for daily redemptions by the Plan participants. Full liquidation of the Fund requires a twelve-month advance notification.  There are no other redemption restrictions, provisions or advance notification requirements.

 

The employer stock, which is publicly traded, is carried at fair value based upon its quoted market price at the end of the year (level 1 input).  Prior to May 2017, the employer stock was held in the Employer Stock Fund which included an investment in liquid money market funds which was also deemed a level 1 valuation as it was readily convertible to cash.  At December 31, 2016, the liquid money market funds had a balance of $242,466. On May 22, 2017, the Employer Stock Fund was converted from a unitized stock fund to 581,732 shares of employer stock at $19.95, the closing price of Company common stock on May 22, 2017, and cash was allocated in the amount of $433,589. At December 31, 2017, the Plan held 2,708,401 shares of employer stock valued at $20.95, the closing price of Company common stock on December 29, 2017.

 

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

Net investment income consists of gains and losses realized from the sales of investments, the net change in the unrealized appreciation or depreciation on investments, and interest and dividends earned.

 

Purchases and sales are accounted for on a trade-date basis.  Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date.  Realized gains and losses from securities transactions are recorded on the average cost basis.

 

Management fees and operating expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are not separately reflected.  Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.

 

e.

Administrative Expenses - The Bank will pay the ordinary expenses of the Plan and compensation of the Trustee to the extent required, except that any expenses directly related to the Plan, such as transfer taxes, brokers’ commissions, registration charges, or administrative expenses of the Trustee, shall be paid from the Plan or from such investment account to which such expenses directly relate.  The Bank may charge participants all or part of the reasonable expenses associated with withdrawals and other distributions, loans or account transfers.

 

f.

Payment of Benefits - Benefits are recorded when paid.

 

3.

FAIR VALUE MEASUREMENTS

 

In accordance with Accounting Standards Codification ("ASC") 820 the Plan classifies its investments into Level 1, which refers to securities valued using quoted prices from active markets for identical assets; Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available; or Level 3, which refers to securities valued based on significant unobservable inputs that reflect the Plan’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following tables set forth by level within the fair value hierarchy a summary of the Plan’s investments measured at fair value on a recurring basis at the dates indicated.

 

(1)

Investments measured at fair value using net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the hierarchy tables for such investments are intended to permit reconciliation of the fair value hierarchy to the investments at fair value line item presented in the statement of net assets available for benefits.

There were no transfers between Level 1 and Level 2 during 2017.

 

 

(1)

Investments measured at fair value using net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the hierarchy tables for such investments are intended to permit reconciliation of the fair value hierarchy to the investments at fair value line item presented in the statement of net assets available for benefits.

 

4.

EXEMPT PARTY-IN-INTEREST TRANSACTIONS

 

Parties-in-interest are defined under Department of Labor regulations as any fiduciary of the Plan, any party rendering service to the Plan, the employer, and certain others.  Certain administrative functions are performed by officers and employees of the Company or the Bank.  No such officer or employee receives compensation from the Plan for the administrative functions he or she performs.

 

At December 31, 2017 and 2016, the Plan held 2,708,401 and 570,585 shares, respectively, of common stock of the Company.  Dividend income received on these shares of common stock totaled $971,570 during the year ended December 31, 2017.

 

Notes receivable from participants reflect party-in-interest transactions.

 

The Plan's payments of administrative expenses for recordkeeping fees to Pentegra Services, Inc. in the amount of $178,522 also qualify as party-in-interest transactions.  Certain administrative fees are paid by the Plan Sponsor. Investment management fees, which are considered party-in-interest transactions, are charged to the Plan as a reduction of investment return and included in the investment income (loss) reported by the Plan.

 

5.

FEDERAL INCOME TAX STATUS

 

The Internal Revenue Service has determined and informed the Company by a letter dated April 13, 2013 that the Plan complies with applicable sections of the Internal Revenue Code (the “Code”). Although the Plan has been amended and restated since that date to provide for the merger of the ESOP with and into the Plan, the Committee believes that the Plan is currently designed and being operated in compliance with applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the Plan. The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2017 and 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing authorities, however, there are currently no audits for any tax periods in progress.  The plan administrator believes it is no longer subject to income tax examinations for years prior to 2014.

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SUPPLEMENTAL SCHEDULES

 

DIME COMMUNITY BANK KSOP

		Contributions not Corrected				Contributions Corrected Outside of VFCP				Contributions Pending Correction in VFCP				Total Fully Corrected Under VCFP and PTE 2002-51
Participant Contributions Transferred Late to Plan		$	-			$	4,486			$	-			$	-

 

DIME COMMUNITY BANK KSOP

(a)

(b)

(c)

(d)

(e)

Party In Interest

Identity of Issue

Description of Investments

Cost

Current Value

REGISTERED MUTUAL FUNDS:

American Beacon

Large Cap Value Fund

**

$

2,507,956

Dimensional Fund Advisors

US Small Cap Portfolio Fund

**

4,689,320

American Europacific

International Growth Fund R6

**

2,067,955

T Rowe Price

Blue Chip Growth Fund Advisor

**

2,697,119

Vanguard

REIT Index Admiral Fund

**

260,732

Vanguard

Target Retirement 2015 Fund

**

372,311

Vanguard

Target Retirement 2020 Fund

**

1,936,177

Vanguard

Target Retirement 2025 Fund

**

2,573,033

Vanguard

Target Retirement 2030 Fund

**

790,264

Vanguard

Target Retirement 2035 Fund

**

164,194

Vanguard

Target Retirement 2040 Fund

**

48,716

Vanguard

Target Retirement 2045 Fund

**

217,370

Vanguard

Target Retirement 2050 Fund

**

294,552

Vanguard

Target Retirement 2055 Fund

**

253,845

Vanguard

Target Retirement 2060 Fund

**

160,618

Vanguard

Mid Cap Index Admiral Fund

**

2,046,736

Vanguard

500 Index Admiral

**

5,182,523

Dodge & Cox

Income Fund

**

3,701,481

Vanguard

Target Retirement Income  Fund

**

1,434,598

Vanguard

Inflation-Protected Securities Fund

**

371,555

Federated Investors

Government Obligations Fund

**

6,696

Total Registered Mutual Funds

$

31,777,751

STABLE VALUE COLLECTIVE TRUST FUND:

Wells Fargo

Wells Fargo Stable Value Class C Fund

**

$

13,844,432

EMPLOYER STOCK:

*

Dime Community Bancshares, Inc.

Shares of common stock

**

56,741,001

PARTICIPANT LOANS:

*

Participant Loans Receivable (interest rates ranging from 4.25% to 5.25%) and maturity to 2030

**

908,541

TOTAL

$

103,271,725

 

*	Party-in-interest.

**	Cost information is not required for participant directed investments and, therefore, is not included.