BCB Bancorp
Annual Report 2014

Plain-text annual report

Table of Contents (Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (cid:1) Annual Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934 For the fiscal ended December 31, 2014. or (cid:1) Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act of 1934 For the transition period from ______________ to ______________. Commission file number: 000-50275 BCB BANCORP, INC. (Exact name of registrant as specified in its charter) New Jersey (State or other jurisdiction of incorporation or organization) 104-110 Avenue C, Bayonne, New Jersey (Address of principal executive offices) 26-0065262 (I.R.S. Employer Identification No.) 07002 (Zip Code) Registrant's telephone number, including area code: (201) 823-0700 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, no par value Name of each exchange on which registered 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. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES (cid:1) NO (cid:1) YES (cid:1) NO (cid:1) 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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES (cid:1) NO (cid:1) Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files). YES (cid:1) NO (cid:1) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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 a ny amendment to this Form 10-K. (cid:1) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer (cid:1) (Do not check if a smaller reporting company) Accelerated filer (cid:1) Non-accelerated filer (cid:1) Smaller reporting company (cid:1) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:1) NO (cid:1) The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2014, as reported by the Nasdaq Global Market, was approximately $ 91.4 million. As of March 6, 2015, there were 8,393,791 shares of the Registrant’s Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: (1) Proxy Statement for the 2015 Annual Meeting of Stockholders of the Registrant (Part III). i Table of Contents Item ITEM 1. BUSINESS ITEM 1A. RISK FACTORS ITEM 1B. UNRESOLVED STAFF COMMENTS TAB LE OF CONTENTS ITEM 2. ITEM 3. ITEM 4. ITEM 5. ITEM 6. ITEM 7. PROPERTIES LEGAL PROCEEDINGS MINE SAFETY DISCLOSURES MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES SELECTED CONSOLIDATED FINANCIAL DATA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. ITEM 9. FINANICAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES ITEM 9A. CONTROLS AND PROCEDURES ITEM 9B. OTHER INFORMATION ITEM 10. ITEM 11. ITEM 12. ITEM 13. ITEM 14. ITEM 15. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE PRINCIPAL ACCOUNTANT FEES AND SERVICES EXHIBITS AND FINANCIAL STATEMENT SCHEDULES i i Page Number 1 21 24 25 26 26 27 29 30 39 40 40 41 42 43 43 43 43 43 43 Table of Contents I TEM 1. BUSINESS PART I This report on Form 10-K contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of BCB Bancorp, Inc. and subsidiaries. This document may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions and expectations, as reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or realized. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed below and under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise forward-looking statements except as may be required by law. BCB Bancorp, Inc. BCB Bancorp, Inc. (the “Company”) is a New Jersey corporation, and is the holding company parent of BCB Community Bank (the “Bank ; ” collectively, “we” or “our” ). The Company has not engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. Our telephone number is (201) 823-0700. At December 31, 201 4 we had approximately $1. 30 billion in consolidated assets, $ 1.03 billion in deposits and $ 102.3 million in consolidated stockholders’ equity. The Company is subject to extensive regulation by the Board of Governors of the Federal Reserve System. BCB Community Bank BCB Community Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. The Bank changed its name from Bayonne Community Bank t o BCB Community Bank in April 2007. At December 31, 201 4 , the Bank operated through thirteen branches in Bayonne, Colonia, Jersey City, Hoboken, Fairfield, Monroe Township, South Orange, and Woodbridge, New Jersey , through executive office s loca ted at 104-110 Avenue C and an administrative office located at 591- 595 Avenue C, Bayonne, New Jersey 07002. The Bank’s deposit accounts are insured by the Federal Dep osit Insurance Corporation “FDIC” and the Bank is a member of the Federal Home Loan Bank System . We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank, together with funds generated from operations, in loans and investment securities. We offer our customers: • • • Significant Event s loans, including commercial and multi-family real estate loans, one- to four-family mortgage loans, home equity loans, construction loans, consumer loans and commercial business loans. In recent years the primary growth in our loan portfolio has been in loans secured by commercial real estate and multi-family properties; FDIC-insured deposit products, including savings and club accounts, interest and non-interest bearing demand accounts, money market accounts, certificates of deposit and individual retirement accounts; and retail and commercial banking services including wire transfers, money orders, safe deposit boxes, a night depository, debit cards, online banking, mobile banking, gift cards, fraud detection (positive pay), and automated teller services. The Company has progressed on an organic branching initiative which is intended to mitigate the location risk of our strong Hudson County concentration, to develop our branch infrastructure in a manner more consistent with the expansion of lending markets and to fill in and grow our branch footprint in a more uniform and coherent fashion, which previously had grown predominately through M&A activity. To this end, the Company opened a branch in Colonia, New Jersey in July, 2014, one in Fairfield, New Jersey in November, 2014, and one branch in each of Staten Island, New York and Rutherford, New Jersey in February, 2015. The Company is also looking to open several more branches within the next ye ar. On October 30, 2013, the Company amended its Restated Certific ate of Incorporation to revise Article V to amend certa in terms related to the Series A 6% Noncumulative Perpetual Preferred Stock a nd to create a new Series B 6% - Noncumulative Perpetual Preferred Stock, which sets forth the number of shares to be included in such series, to fix the designation, powers, preferences, rights of the shares of each such series and any qualifications, limitations or restrictions thereof. Such amendment to the Restated Certificate of Incorporation was approved by the directors of BCB Bancorp, Inc. on February 20, 2013. On October 31, 2013, the Company closed a private placement of Series B Noncumulative Perpetual Preferred Stock, resulting in the issuance of 478 shares of Series B 6% Non-Cumulative Perpetual Preferred Shares (“Series B Shares”) for gross proceeds of $4 .78 millio n through December 31, 2014 . The costs associated with this private placement were approximately $24,000. The Series B S hares issued are callable by the Company after October 31, 2016, at $10,000 per share (liquidation preference value). There is no ability to convert the Series B Shares to common shares. Dividends on the Series B Shares , if and when declared, will be paid quarte rly in arrears. At December 31, 2012, the Company closed a private placement of its Series A 6% N oncumulative P erpetual P referred S tock, par value $0.01 per share (“ Series A Shares ”). The Company sold $8.65 million to certain investors at a purchase price of $10,000 per share. The net proceeds of th is private placement are expected to be used primarily to support the capital of BCB Community Bank. Business Strategy Our business strategy is to operate as a well-capitalized, profitable and independent community-oriented financial institution dedicated to providing the highest quality customer service. Management’s and the Board of Directors’ extensive knowledge of the markets we serve helps to differentiate us from our competitors. Our business strategy incorporates the following elements: maintaining a community focus, focusing on profitability, continuing our growth, concentrating on real estate - based lending, capitalizing on market dynamics, providing attentive and personalized service , and attracting highly qualified and experienced personnel. These attributes coupled with our desire to seek out under-served markets for banking products and services , facilitate our plan to grow our franchise footprint organically and synergistically. 1 Table of Contents Maintaining a community focus. Our management and Board of Directors have strong ties to the communities we serve. Many members of the management team are New Jersey natives and are active in the communities we serve through non-profit board membership, local business development organizations, and industry associations. In addit ion, our board members are well- established professionals and business leaders in the communities we serve. Management and the Board are interested in making a lasting contribution to these communities , and they have succeeded in attracting deposits and loans through attentive and personalized service. Strengthening our balance sheet. For the year ended December 31, 2014, our return on average equity was 7.42% and our return on average assets was 0.61%. Our earnings per diluted share was $0.81 for the year ended December 31, 2014 compared to $1.06 for the year ended December 31, 2013. Earnings per share results were lower in 2014 primarily as a result of the Company’s investment in growth with an increase in staffing, occupancy and equipment expenses related to retention of additional experienced business development and loan administration personnel, as well as new and anticipated branch openings. Management remains committed to strengthening the Bank’s statements of financial condition and maintaining profitability by diversifying the products, pricing and services we offer. As a result of our efforts, total past due loans have decreased from $14.8 million at December 31, 2012 to $7.0 million at December 31, 2013, to $6 .6 million at December 31, 2014, while gross loans increased from $934.7 million at December 31, 2012 to $1.224 billion at December 31, 2014. Concentrating on real estate-based lending. A primary focus of our business strategy is to originate loans secured by commercial and multi-family properties. Such loans generally provide higher returns than loans secured by one- to four-family properties . As a result of our underwriting practices, including debt service requirements for commercial real estate and multi-family loans, management believes that such loans offer us an opportunity to obtain higher returns without a measu rable increased level of risk. Capitalizing on market dynamics. The consolidation of the banking industry in northeast New Jersey has provided a un ique opportunity for a customer- focused banking institution, such as the Bank. We believe our local ro ots and community focus provide the Bank with an opportunity to capitalize on the consolidation in our market area. This consolidation has moved decision making away from local, community-based banks to much larger banks headqu artered outside of New Jersey. We believe our local ro ots and community focus provide the Bank with an opportunity to capitalize on the consolidation in our market area. Providing attentive and personalized service. Management believes that providing attentive and personalized service is the key to gaining deposit and loan relationships in the markets we serve and their surrounding communities. Since we began operations, our branches have bee n open seven (7) days a week. Attracting highly experienced and qualified personnel. An important part of our strategy is to hire bankers who have prior experience in the markets we serve, as well as pre-existing business relationships. Our management team averages over 20 years of banking experience, while our lenders and branch personnel have significant experience at community banks and regional banks throughout the region . Management believes that its knowledge of these markets has been a critical element in the success of the Bank. Management’s extensive knowledge of the local communities has allowed us to develop and implement a highly focused and disciplined approach to lending , and has enabled the Bank to attract a high percentage of low cost deposits. Our Market Area We are located in Bayonne, Jersey City and Hoboken in Hudson County, Colonia, Monroe Township and Woodbridge in Middlesex County, Rutherford in Bergen County and Fairfield and South Orange in Essex County, New Jersey. The Bank has also recently opened a branch in Staten Island , New York. The Bank’s locations are easily accessible and provide convenient services to businesses and individuals throughout our market area. Our market area includes Bayonne, Jersey City, Hoboken, Colonia, Fairfield, South Orange, Woodbridge, Rutherford and Monroe Township, New Jersey, and now includes the boroughs of New York City . These areas are all considered “bedroom” or “commuter” communities to Manhattan. Our market area is well-served by a network of arterial roadways , including Route 440 and the New Jersey Turnpike. Our market area has a high level of commercial business activity. Businesses are concentrated in the service sector and retail trade areas. Major employers in our market area include certain medical centers and local boards of education. Competition The banking industry in northeast New Jersey and New York City is extremely competitive. We compete for deposits and loans with existing New Jersey and out-of-state financial institutions that have longer operating histories, larger capital reserves and more established customer bases. Our competition includes large financial service s companies and other entities, in addition to traditional banking institutions , such as savings and loan associations, savings banks, commercial banks and credit unions. Our larger competitors have a greater ability to finance wide-ranging advertising campaigns through greater capital resources. Our marketing efforts depend heavily upon referrals from officers, directors, stockholders, advertising in local media and through a social media presence . We compete for business principally on the basis of personal service to customers, customer access to our business development and other officers and directors , and competitive interest rates and fees. In the financial services industry in recent years, intense market demands, techn ological and regulatory changes, and economic pressures have eroded industry classifications that were once clearly defined. Banks have diversified their services, competitively priced their deposit products and become more cost- effective as a result of competition with each other and with new types of financial service companies, including non-banking competitors. Some of these market dynamics have resulted in a number of new bank and non-bank competitors, increased merger activity, and increased customer awareness of product and service differences among competitors. 2 Table of Contents Lending Activities Analysis of Loan Portfolio . Set forth below is selected data relating to the composition of our loan portfolio by type of loan as a percentage of the respective portfolio. Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer Sub-total (1) (2) Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer Sub-total (1) (2) Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer Sub-total (1) (2) Total Loans Less: Deferred loan fees, net Allowance for loan losses Total loans, net __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. 2014 2013 At December 31, 2012 2011 2010 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent (Dollars in Thousands) $ 124,642 732,791 73,497 54,244 30,175 2,178 1,017,527 81,051 95,191 - 6,381 22,698 652 205,973 1,595 1,130 - 369 82 - 3,176 1,226,676 2,675 16,151 10.16 % $ 59.74 5.99 4.42 2.46 0.18 82.95 6.61 7.76 - 0.52 1.85 0.05 16.79 0.13 0.09 - 0.03 0.01 - 0.26 100.00 % 97,581 549,918 37,307 52,659 28,660 533 766,658 100,612 126,123 200 10,478 27,313 919 265,645 2,141 2,081 - 371 90 - 4,683 1,036,986 2,300 14,342 9.41 % $ 53.03 3.60 5.08 2.76 0.05 73.93 9.71 12.16 0.02 1.01 2.63 0.09 25.62 0.21 0.20 0.00 0.03 0.01 0.00 0.45 100.00 % $ 1,207,850 $ 1,020,344 $ 78,007 435,371 22,267 47,250 25,964 565 609,424 121,983 149,454 1,043 12,177 34,289 1,069 320,015 2,936 3,443 - 241 140 - 6,760 936,199 1,535 12,363 922,301 8.33 % $ 46.51 2.38 5.05 2.77 0.06 65.10 13.03 15.97 0.11 1.30 3.66 0.11 34.18 0.31 0.37 0.00 0.03 0.01 0.00 0.72 100.00 % $ 54,609 300,570 13,079 51,963 26,103 357 446,681 154,259 168,246 1,670 22,356 42,360 951 389,842 9,217 3,608 2,251 254 612 - 15,942 852,465 1,193 10,509 840,763 6.41 % $ 35.26 1.53 6.10 3.06 0.04 52.40 39,626 277,916 16,442 44,350 29,364 336 408,034 18.10 19.74 0.20 2.62 4.97 0.11 45.74 1.08 0.42 0.26 0.03 0.07 0.00 1.86 100.00 % 180,258 129,413 1,406 9,734 34,239 1,480 356,530 14,551 2,883 - 76 - - 17,510 782,074 556 8,417 $ 773,101 5.07 % 35.54 2.10 5.67 3.75 0.04 52.17 23.05 16.55 0.18 1.24 4.38 0.19 45.59 1.86 0.37 0.00 0.01 0.00 0.00 2.24 100.00 % 3 Table of Contents Loan Maturities. The following table sets forth the contractual maturity of our loan portfolio at December 31, 201 4 . The amount shown represents outstanding principal balances. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as being due in one year or less. Variable-rate loans are shown as due at the time of repricing. The table does not include prepayments or scheduled principal repayments. One- to four-family Construction Commercial business (1) Commercial and multi-family (2) Home equity Consumer Total amount due __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Due within 1 Year Due after 1 through 5 Years Due After 5 Years Total $ $ 147 $ 54,691 9,903 6,728 1,301 1,895 74,665 $ (In Thousands) 5,286 $ 6,551 22,082 57,574 10,444 439 102,376 $ 201,855 $ 12,255 29,009 764,810 41,210 496 1,049,635 $ 207,288 73,497 60,994 829,112 52,955 2,830 1,226,676 Loans with Fixed or Floating or Adjustable Rates of Interest . The following table sets forth the dollar amount of all loans at December 31, 201 4 that are due after December 31, 201 5 , and have fixed interest rates and that have floating or adjustable interest rates. One- to four-family Construction Commercial business (1) Commercial and multi-family (2) Home equity Consumer Total amount due __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Fixed Rates Floating or Adjustable Rates Total 167,740 $ 39,401 $ (In Thousands) 1,130 10,093 153,705 34,227 675 367,570 $ 17,676 40,998 668,679 17,427 260 784,441 $ 207,141 18,806 51,091 822,384 51,654 935 1,152,011 $ $ 4 Table of Contents Commercial and Multi-family Real Estate Loans . Commercial real estate loans are secured by improved property such as office buildings, mixed use buildings retail stores, shopping centers, warehouses , and other non-residential buildings. Loans secured by multi-family residential units are properties consisting of five or more residential units. The Bank offers fully amortizing loans on commercial and multi-family properties at loan amounts up to 75% of the appraised value of the property. Commercial and multi-family real estate loans are generally made at rates that adjust above the (5) five year Federal Home Loan Bank of New York interest rate, with terms of up to (30) thirty years. The Bank also offers balloon loans with fixed interest rates which generally mature in (3) three to (5) five years with amortization periods up to (30) thirty years. As of December 31, 2014, the Bank’s largest commercial real estate loan had an outstanding principal balance of $18.3 million. This loan is secured by a 39 unit retail shopping center located in Jackson, New Jersey. This loan is pe rforming in accordance with its terms at December 31, 2014 . As of December 31, 2014, the Bank’s largest multi-family loan consist ed of (20) twenty units located in Bayonne, New Jersey having an outstanding principal balance of $3.6 million and is perf orming in accordance with its’ terms. Loans secured by commercial and multi-family real estate are generally larger and involve a greater degree of risk than one-to- four family residential mortgage loans. The borrower’s creditworthiness and the feasibility and cash flow potential of the project is of primary concern in commercial and multi-family real estate lending. Loans secured by owner occupied properties are generally larger and involve greater r isks than one-to- four family residential and non-owner occupied commercial mortgage loans because payments on loans secured by owner occupied properties are often dependent on the successful operation or management of the business. The Bank intends to continue emphasizing the origination of loans secured by commercial real estate and multi-family properties. Construction Loans . The Bank offers loans to finance the construction of various types of commercial and residential proper ties . Construction loans to builders generally are offered with terms of up to thirty months and interest rates tied to the prime rate plus a margin. These loans generally are offered as adjustable rate loans. The Bank will originate construction loans to customers provided all necessary plans and permits are in order. Construction loan funds are disbursed as the project progresses. The Bank also offers construction loans that convert to a permanent mortgage on the property upon completion of the construction and adherence to conditions established at the time the construction loan was first approved. Terms of such permanent mortgage loans are similar to other mortgage loans secured by similar properties, with the interest rate established at the time of conversion. As of December 31, 2014, the Bank’s largest construction loan has a borrowing capacity of $11.0 million, of which $7.8 million has been disbursed. This loan is pe rforming in accordance with its ’ term s at December 31, 2014 . Construction financing is generally considered to involve a higher degree of risk than commercial real estate loans or one-to- four family residential lending. To mitigate these risks the Bank will obtain a plan and cost review from a third party vendor to review the proposed construction budget in an effort to avoid cost overruns. The Bank also obtains multiple appraised values based up on various possible outcomes of the project . These values include “As Is,” “As Completed,” “As a Rental ,” “As Sellout ,” and “As a Bulk Sale”. Commercial Business Loans . The Bank offers a variety of commercial business loans in forms of either lines of credit or term loans that are fully amortized. Lines of credit are typically utilized for working capital purposes. These loans are either revolving or non- revolving and provide loan terms between one to three years. The re-payment is generally interest only and the interest rate is adjustable based upon , the Prime Rate. Term loans are typically for purchasing a business or equipment for a business. Term loans have loan terms between five to twenty-five years and are fully amortizing. The interest rate is adjustable and tied to the five year Federal Home Loan Bank of New York rate . Commercial business loans are underwritten on the basis of the borrower’s ability to service such debt from income. These loans are generally made to small and mid-sized companies located within the Bank’s primary and secondary lending areas. A commercial business loan may be secured by equipment, accounts receivable, inventory, chattel or other assets. As of December 31, 2014, the Bank’s largest commercial business loan is a revolving line of credit, secured by a 7-story office building located in Newark, New Jersey. The borrowing capacity is $8.1 million, of which $4.5 million has been dispersed. This loan is per forming in accordance with its ’ terms at December 31, 2014 . Commercial business loans generally have higher rates and shorter terms than one to four family residential loans, but they may also involve higher average balances and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business. SBA Lending. The Bank offers qualifying business loans guaranteed by the US Small Business Administration (“SBA”). To qualify the borrower may have low capitalization , inexperience in the industry , or a specialized industry or other unusual risks. As of December 31, 2014, the Bank’s largest SBA loan is secured by a 4-story hotel building located in Brooklyn, New York. The borrowing capacity is $6.0 million, of which $816 ,000 has been dispersed. This loan is perf orming in accordance with its ’ terms at December 31, 2014 . Residential Lending. Resid ential loans are secured by one-to- four family dwellings and condominiums. Residential mortgage loans are secured by properties located in our primary lending areas of Bergen, Essex, Middlesex, Hudson, Monmouth and Richmond Counties; adjoining counties are considered as our secondary lending areas. We generally originate residential mortgage loans up to 80 % loan-to- value at a maximum loan amount of $1,500,00 0 for primary residences. Loan-to- value is based on the lesser of the appraised value or the purchase price without the requirement of private mortgage insurance. We will originate loans with loan to value ratios up to 90% , provided the borrower obtain s private mortgage insurance approval. We originate both fixed rate and adjustable rate residential loans with a term of up to 30 years. We offer a 15, 20, and 30 year fixed, 15/30 year balloon and 3/1, 5/1, 7/1 and 10/1 adjustable rate loans with payments being calculated to include principal, interest, taxes and insurance. The 3/1 and 5/1 adjustable rate loans are qualified at 2% above the start rate; all other loans are qualified at the start rate. We have a number of correspondent relationships with third party lenders in which we deliver closed first mortgage loans , in addit ion to reverse mortgages , on one-to- four family homes and condominiums. Our correspondent banking relationships allow us to offer customers competitive long term fixed rate and adjustable rate loans we c ould not otherwise originate , while providing the Bank a source of fee income. During 2014, we originated for sale approximately $ 24.5 million in residential loans and recognized gains of approximately $ 1.1 million from the sale of such loans. Home Equity Loans and Home Equity Lines of Credit . The Bank offers home equity loans and lines of credit that are secured by either the borrower’s primary residence, a secondary residence or an investment. Our home equity loans can be structured as loans that are disbursed in full at closing or as lines of credit. Home equity loans and lines of credit are offered with terms up to 20 years. Virtually all of our home equity loans are originated with fixed rates of interest and home equity lines of credit are originated with adjustable interest rates tied to the prime rate. Home equity loans and lines of credit are underwritten under the same criteria that we use to underwrite one to four family residential loans. Home equity loans and lines of credit may be underwritten with a loan-to-value ratio of up to 80% when combined with the principal balance of the existing mortgage loan. At December 31, 2014, the outstanding balances of home equity loans and lines of credit totaled $ 53.0 million, or 4. 32 % of total loans. Consumer Loans . The Bank makes secured Passbook, Auto mobile and occasionally unsecured consumer loans. Consumer loans generally have terms between one and five years. They generally are made on a fixed rate basis, fully-amortizing. Loan Approval Authority and Underwriting . The Bank’s Lending Policy has established lending limits for executive management. The President or the Chief Lending Officer, togethe r with two Credit Officers, have authority to approve loan requests up to $1,000,000. Loan requests in excess of $1,000,000 shall be presented to the Bank’s Board of Directors Loan Committee , which shall be comprised of a quorum of the Bank’s Board of Directors. Loan requests in excess of $2,000,000 must be ratified by the entire Bank Board of Directors. 5 Table of Contents Upon receipt of a completed loan application including all appropriate financial information from a prospective borrower, the Bank will conduct its due diligence analysis. Property valuations or appraisals are required for all real estate collateralized loans. Appraisals are prepared by a state certified independent appraiser approved by the Bank Board of Directors. Loan Commitments . Written commitments are given to prospective borrowers on all approved loans. Generally, we honor commitments for up to 60 days from the date of issuance. At December 31, 2014, our outstanding loan origination commitments totaled $ 106.7 million, standby letters of credit totaled $ 1.8 million, undisbursed construction funds totaled $ 47.8 million and undisbursed lines of credit funds totaled $ 61.2 million. Loan Delinquencies . Notices of nonpayment are generated to borrowers once the loan account(s) becomes either (10) ten or (15) fifteen days past due , as specified in the applicable promissory note. A nonresponsive borrower(s) will receive collection calls and a site visit from a bank representative in addition to follow - up delinquency notices. If such payment is not received after (60) sixty days, a notice of right to cure default is sent to the borrower providing (30) thirty additional days to bring the loan current before foreclosure or other remedies are commenced. The Bank utilizes various reporting tools to closely monitor the performance and asset quality of the loan portfolio. The Bank complies with all federal, state and local laws regarding collection of its delinquent accounts. Non-Accrual Status . Loans are placed on a non-accrual status when the loan becomes more than 90 days delinquent or when, in our opinion, the collection of payment is doubtful. Once placed on non-accrual status, the accrual of interest income is discontinued until the loan has been returned to normal accrual. At December 31, 2014, the Bank had $19.6 million in non-accruing loans. The largest exposure of non-performing loans consisted of a combined borrowing relationship in which the loans are collateralized by multiple properties whose combined balance at December 31, 2014 was $3.3 million. Impairment Status. A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Impaired loans can be loans which are more than 90 days delinquent, troubled debt restructured, part of our special residential program, in the process of foreclosure, or a forced Bankruptcy plan. We have determined that first mortgage loans on one- to four-family properties and all consumer loans represent large groups of smaller-balance homogeneous loans that are collectively evaluated. Additionally, we have determined that an insignificant delay (less than 90 days) will not cause a loan to be classified as impaired if we expect to collect all amounts due including interest accrued at the contractual interest rate for the period of delay. We independently evaluate all loans identified as impaired. We estimate credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment will be derived from the sale or operation of such collateral. Impaired loans, or portions of such loans, are charged off when we determine a realized loss has occurred. Until such time, an allowance for loan losses is maintained for estimated losses. Cash receipts on impaired loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an impaired loan is also a nonaccrual loan, in which case the portion of the receipts related to interest is applied to principal. At December 31, 2014, we had 156 loans with unpaid principal balances totaling $51.9 million which are classified as impaired and on which loan loss allowances totaling $2.9 million have been established. During 2014, interest income of $1.5 million was recognized on impaired loans dur ing the time of impairment. Troubled Debt Restructuring. A troubled debt restructuring (“TDR”) is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally included, but not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. The total troubled debt restructured loans were $30.7 million and $34.5 million at December 31, 2014 and December 31, 2013, respectively. The Bank has allocated $904,000 and $1.4 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2014 and December 31, 2013, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or charge-off to the allowance. This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms. 6 Table of Contents T he following table s set forth delinquencies in our loan portfolio as of the dates indicated: Real estate mortgage : One-to-four family residential Construction Home equity Commercial and multi-family Total Commercial business Consumer Total delinquent loans Delinquent loans to total loans Real estate mortgage : One-to-four family residential Construction Home equity Commercial and multi-family Total Commercial business Consumer Total delinquent loans Delinquent loans to total loans At December 31, 2014 At December 31, 2013 60-90 Days Greater than 90 Days 60-90 Days Greater than 90 Days Number of Loans Principal Balance of Loans Number of Loans Principal Balance of Loans Number of Loans Principal Balance of Loans Number of Loans Principal Balance of Loans (Dollars in Thousands) 12 $ — 5 6 23 2 1 26 $ 4,096 — 552 1,815 6,463 748 9 7,220 0.59 % 10 $ — 7 8 25 2 — 27 $ 2,303 — 216 3,712 6,231 391 — 6,622 0.54 % 10 $ — 2 7 19 — 1 20 $ 2,787 — 175 2,882 5,844 — 2 5,846 11 $ — 2 12 25 2 — 27 $ 2,148 — 176 4,352 6,676 290 — 6,966 0.56 % 0.67 % At December 31, 2012 At December 31, 2011 60-90 Days Greater than 90 Days 60-90 Days Greater than 90 Days Number of Loans Principal Balance of Loans Number of Loans Principal Balance of Loans Number of Loans Principal Balance of Loans Number of Loans Principal Balance of Loans (Dollars in Thousands) 10 $ 1 7 11 29 2 — 31 $ 1,941 1,174 717 5,245 9,077 152 — 9,229 10 $ 1 12 22 45 9 — 54 $ 2,348 130 1,516 9,275 13,269 1,514 — 14,783 8 $ 1 13 14 36 — 1 37 $ 2,495 130 1,018 6,340 9,983 — 10 9,993 38 $ 8 19 56 121 11 — 132 $ 11,847 3,660 1,181 21,080 37,768 1,785 — 39,553 0.99 % 1.58 % 1.17 % 4.64 % 7 Table of Contents Real estate mortgage : One-to-four family residential Construction Home equity Commercial and multi-family Total Commercial business Consumer Total delinquent loans Delinquent loans to total loans 60-90 Days Greater Than 90 Days At December 31, 2010 Number of Loans Principal Balance of Loans Number of Loans (Dollars in Thousands) Principal Balance of Loans 9 — 7 9 25 4 1 30 $ $ 3,706 — 694 5,391 9,791 456 5 10,252 1.31 % 48 7 20 64 139 5 4 148 $ $ 15,115 2,773 1,632 21,147 40,667 861 283 41,811 5.35 % 8 Table of Contents The table below sets forth the amounts and categories of non-performing assets in the Bank’s loan portfolio. Loans are placed on non-accrual status when delinquent more than 90 days or when the collection of principal and/or interest become doubtful. Foreclosed assets include assets acquired in settlement of loans. Non-accruing loans : One-to four-family residential Construction Home equity Commercial and multi-family Commercial business Consumer Total Accruing loans delinquent more than 90 days : One-to four-family residential Construction Home equity Commercial and multi-family Commercial business Consumer Total Total non-performing loans Foreclosed assets 2014 2013 At December 31, 2012 (Dollars in Thousands) 2011 2010 $ 7,679 — 943 10,355 627 — 19,604 — — — — — — — $ 4,829 521 1,203 11,733 2,279 — 20,565 — — — — — — — 19,604 3,485 20,565 2,227 $ 2,163 130 1,564 13,043 3,159 — 20,059 1,223 — 227 1,386 — — 2,836 22,895 3,274 $ 15,511 $ 15,115 4,040 1,729 22,280 4,265 — 47,825 — — — — — — — 2,773 1,632 21,147 861 283 41,811 — — — — — — — 47,825 6,570 41,811 3,602 Total non-performing assets $ 23,089 $ 22,792 $ 26,169 $ 54,395 $ 45,413 Total non-performing assets as a percentage of total assets Total non-performing loans as a percentage of total loans 1.77 % 1.60 % 1.89 % 1.98 % 2.23 % 2.45 % 4.47 % 5.61 % 4.10 % 5.35 % For the year ended December 31, 201 4 , gross interest income which would have been recorded had our non-accruing loans been current in accordance with their original terms amounted to $ 1. 06 million. We received and recorded $ 7 84 ,000 in interest income for such loans for the year ended December 31, 201 4 . 9 Table of Contents Classified Loans . The Bank’s Lending Policy contains a classification system which evaluates the overall risk of a problem loan. When a loan is classified and determined to be impaired, the Bank may establish specific allowances for loan losses. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. At December 31, 2014, the Bank reported $ 28.7 million in classified assets. The loans classified are represented by loans secured either by one - to - four family or commercial real es tate. The Bank’s internal classification system is defined by risk rating grades in accordance with guidance offered by the banking regulatory agencies. The grades of excellent, good, satisfactory and bankable with care (1-4 rating) are considered as a “pass” rating. The “classified” risk ratings of (5-8 rating) are detailed below. 5 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency. 6 – Substandard - Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and corrective attention. 7 – Doubtful - Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status. 8 – Loss - Continuance as a bankable asset is not warranted. However, this does not preclude future attempts of recovery. Effective January 2015, the Bank has revised its’ risk rating scale expanding the grades to a one to nine scale. Grades one through five will be a considered a pass grade where as six through nine will be considered a classified grade. The grades are determined through the uses of a qualitative matrix taking into account various characteristics of the loan such as quality of management, principals’/guarantors’ character, balance sheet strength, collateral quality, cash flow coverage, position within the industry, lo an structure and documentation. Allowances for Loan Losses . A provision for loan losses is charged to operations based on management’s evaluation of the losses that may be incurred in our loan portfolio. In addition, our determination of the amount of the allowance for loan losses is subject to review by the New Jersey Department of Banking and Insurance and the FDIC, as part of their examination process. After a review of the information available, our regulators might require the establishment of an additional allowance. Any increase in the loan loss allowance required by regulators would have a negative impact on our earnings. Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Bank ’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements. These elements include a general allocated allowance for non-impaired loans, a specific allowance for impaired loans , and an unallocated portion. The Bank consistently applies the following comprehensive methodology. During the quarterly review of the allowance for loan losses, the Bank considers a variety of factors that include: • • • • • • • General economic conditions. Trends in charge-offs. Trends and levels of delinquent loans. Trends and levels of non-performing loans, including loans over 90 days delinquent. Trends in volume and terms of loans. Levels of allowance for specific classified loans. Credit concentrations The methodology includes the segregation of the loan portfolio into two division s of performing lo ans and loans determined to be i mpaired. Loans which are performing are evaluated homogeneously by loan class or loan type. The allowance of performing loans is evaluated based on historical loan experience, including consideration of peer loss analysis, with an adjustment for qualitative factors due to economic conditions in the market. Impaired loans can be loans which are more than 90 days delinquent, troubled debt restructured, part of our special residential program, in the process of foreclose, or a forced Bankruptcy plan. These loans are individually evaluated for loan loss either by current appraisal, estimated economic factor, or net present value. Management reviews the overall estimate for feasibility and bases the loan loss provision accordingly. As of December 31, 2014, non-accrual loans differed from the amount of total loans past due greater than 90 days due to troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated their ability to satisfy the terms of the restructured loan. The Bank also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates lack some element of precision. Management must make estimates using assumptions and information that is often subjective and subject to change. 10 Table of Contents The following table sets forth an analysis of the Bank’s allowance for loan losses. Balance at beginning of year Charge-offs : One- to four-family residential Construction Commercial business (1) Commercial and multi-family Home equity (2) Consumer Total charge-offs Recoveries Net charge-offs Provisions charge to operations Ending balance Ratio of non-performing assets to total assets at the end of year Allowance percent as outstanding losses loan for a Ratio of net charge-offs during the period to total loans outstanding at end of the year Ratio of net charge-offs during the period to non-performing loans __________ (1) Includes business lines of credit. (2) Includ es home equity lines of credit. 2014 2013 2012 2011 2010 Years Ended December 31, (Dollars in Thousands) $ 14,342 $ 12,363 $ 10,509 $ 8,417 $ 6,644 28 — 208 1,143 56 2 1,437 446 991 2,800 16,151 1.77 % 1.32 % 0.08 % 5.06 % 40 132 374 123 302 — 971 200 771 $ 2,750 14,342 $ 1.89 % 1.38 % 0.09 % 3.75 % 793 292 612 1,360 24 — 3,081 35 3,046 4,900 12,363 2.23 % 1.32 % 0.33 % 13.30 % $ 122 687 24 1,173 — 27 2,033 25 2,008 4,100 10,509 4.47 % 1.23 % 0.24 % 4.20 % $ — 15 351 323 — — 689 12 677 2,450 8,417 4.10 % 1.08 % 0.09 % 1.62 % of total loans $ 11 Table of Contents Allocation of the Allowance for Loan Losses . The following table illustrates the allocation of the allowance for loan losses for each category of loan. The allocation of the allowance to each category is not necessarily indicative of future loss in any particular category and does not restrict our use of the allowance to absorb losses in other loan categories. 2014 2013 December 31, 2012 2011 2010 Originated loans: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity (2) (1) Consumer Unallocated Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business (1) (2) Home equity Consumer Unallocated Sub-total Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity (2) (1) Consumer Unallocated Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Percent of Loans in each Category in Total Loans Amount Percent of Loans in each Category in Total Loans Percent of Loans in each Category in Total Loans Percent of Loans in each Category in Total Loans Amount Amount Percent of Loans in each Category in Total Loans Amount Amount $ $ $ $ $ 2,364 10,028 1,080 876 333 449 121 15,251 417 102 - - 58 - - 577 64 23 - 233 3 - - 10.16 % $ 59.74 % 5.99 % 4.42 % 2.46 % 0.18 % -% 82.95 % $ 6.61 % $ 7.76 % -% 0.52 % 1.85 % 0.05 % -% 1,729 7,419 700 1,295 363 3 83 9.41 % $ 53.03 % 3.60 % 5.08 % 2.76 % 0.05 % 0.00 % 1,143 7,088 866 576 284 41 32 8.33 % $ 46.50 % 2.38 % 5.05 % 2.77 % 0.06 % 0.00 % 1,086 4,769 183 795 329 10 - 11,592 73.93 % $ 10,030 65.10 % $ 7,172 832 1,744 1 44 129 - - 9.71 % $ 12.16 % 0.02 % 1.01 % 2.63 % 0.09 % 0.00 % 719 963 93 244 191 18 - 13.03 % $ 15.96 % 0.11 % 1.30 % 3.66 % 0.11 % 0.00 % 1,012 559 6 92 315 - - 16.79 % $ 2,750 25.62 % $ 2,228 34.18 % $ 1,984 0.13 % $ 0.09 % -% 0.03 % 0.01 % -% -% - - - - - - - 0.21 % $ 0.20 % 0.00 % 0.04 % 0.01 % 0.00 % 0.00 % 105 - - - - - - 0.31 % $ 0.37 % 0.00 % 0.03 % 0.01 % 0.00 % 0.00 % 581 470 115 154 33 - - 6.41 % $ 35.26 % 1.53 % 6.10 % 3.06 % 0.04 % 0.00 % 52.40 % $ 18.10 % $ 19.74 % 0.2 % 2.62 % 4.97 % 0.11 % 0.00 % 45.73 % $ 1.08 % $ 0.42 % 0.26 % 0.03 % 0.07 % 0.00 % 0.00 % 171 6,179 426 1,286 204 18 133 8,417 - - - - - - - - - - - - - - - $ $ 323 16,151 0.26 % $ 100.00 % $ - 14,342 0.45 % $ 100.00 % $ 105 12,363 0.72 % $ 100.00 % $ 1,353 10,509 1.87 % $ 100.00 % $ - 8,417 5.07 % 35.54 % 2.10 % 5.67 % 3.75 % 0.04 % 0.00 % 52.17 % 23.05 % 16.55 % 0.18 % 1.24 % 4.38 % 0.19 % 0.00 % 45.59 % 1.86 % 0.37 % 0.00 % 0.01 % 0.00 % 0.00 % 0.00 % 2.24 % 100.00 % 12 Table of Contents Investment Activities Investment Securities . We are required under federal regulations to maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments. The level of liquid assets varies depending upon several factors, including: (i) the yields on investment alternatives, (ii) our judgment as to the attractiveness of the yields then available in relation to other opportunities, (iii) expectation of future yield levels, and (iv) our projections as to the short-term demand for funds to be used in loan origination and other activities. Investment securities, including mortgage-backed securities, are classified at the time of purchase, based upon management’s intentions and abilities, as securities held-to-maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are classified as held-to-maturity and are stated at cost and adjusted for amortization of premium and accretion of discount, which are computed using the level yield method and recognized as adjustments of interest income. All other debt and equity securities are classified as available for sale to serve principally as a source of liquidity. Current regulatory and accounting guidelines regarding investment securities require us to categorize securities as held-to-maturity, available for sale or trading. As of December 31, 2014, there were no securities classified as held-to-maturity. We had $9.8 million in securities classified as available for sale, and no securities classified as trading. Securities classified as available for sale are reported for financial reporting purposes at the fair value with net changes in the fair value from period to period included as a separate component of stockholders’ equity, net of income taxes. Changes in the fair value of securities classified as held-to-maturity or available for sale do not affect our income, unless we determine there to be an other-than-temporary impairment for those securities in an unrealized loss position. As of December 31, 2014, management concluded that all unrealized losses were temporary in nature since they are related to interest rate fluctuations rather than any underlying credit quality of the issuers. Additionally, the Bank has no plans to sell these securities and has concluded that it is unlikely it would have to sell these securities prior to the anticipated rec overy of the unrealized losses. In 2013, management decided to sell certain mortgage-backed securities that were issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). While these securities were classified as held to maturity, with the intent to hold to maturity, ASC 320 (formerly FAS 115) allows sales of securities so designated, provided that a substantial portion (at least 85%) of the principal balance purchased has been amortized prior to the sale. Sales of securities that had been classified as held to maturity, and do not meet any of the safe harbor exemptions under ASC 320, would then require that all remaining securities be transferred to the available for sale category and the Company would be prohibited from using the held to maturity classification for at least a two-year period. In July 2014, the Company transferred all of its remaining held-to-maturity investments to the available-for-sale category. Management determined that it no longer had the positive intent to hold its investment in securities classified as held-to- maturity, and in July 2014, proceeds from the sales of securities previously classified as held to maturity totaled approximately $99.2 million, and resulted in gross gains of $2.76 million and gross losses of $470,000. Sales of held-to-maturity securities that met the 85% threshold for the twelve months ended December 31, 2014 totaled approximately $537,000, and resulted in gross gains of approximately $40,000, and gross losses of approximately $1,000. During the year ended December 31, 2013, proceeds from sales of securities held to maturity meeting the 85% threshold totaled approximately $9.5 million and resulted in gross gains of $401,00 0 and gross losses of $23,000. As of December 31, 201 4 , our investment policy allowed investments in instruments such as: (i) U.S. Treasury obligations; (ii) U.S. federal agency or federally sponsored enterprise obligations; (iii) mortgage-backed securities; and (iv) certificates of deposit. The Board of Directors may aut horize additional investments. As a source of liquidity and to supplement our lending activities, we have invested in residential mortgage-backed securities. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees or credit enhancements that reduce credit risk. Mortgage-backed securities can serve as collateral for borrowings and, through repayments, as a source of liquidity. Mortgage-backed securities represent a participation interest in a pool of single-family or other type of mortgages. Principal and interest payments are passed from the mortgage originators, through intermediaries (generally government-sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors, like us. The government- sponsored enterprises guarantee the payment of principal and interest to investors and include Freddie Mac, Ginnie Mae, and Fannie Mae. Mortgage-backed securities typically are issued with stated principal amounts. The securities are backed by pools of mortgage loans that have interest rates that are within a set range and have varying maturities. The underlying pool of mortgages can be composed of either fixed rate or adjustable rate mortgage loans. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. The interest rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate or adjustable rate) and the prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers may have the right to call or prepay obligations with or without prepayment penalties. 13 Table of Contents Securities Portfolio . The following table sets forth the carrying value of our securities portfolio and FHLB stock at the dates indicated. Securities available for sale: Mortgage-backed securities Equity securities Total securities available for sale Securities held to maturity: Mortgage-backed securities Municipal obligations Trust originated preferred security Total securities held to maturity FHLB stock Total investment securities The following table shows our securities held-to-maturity purchase sale and repayment activities for the years indicated. Purchases: Fixed-rate Sales: Fixed-rate Principal Repayments: Repayment of principal (Decrease) in other items, net Net (decrease) 2014 At December 31, 2013 (In Thousands) 2012 $ 9,768 $ — $ — 9,768 — — — — $ 8,830 18,598 $ 1,104 1,104 112,859 1,357 — 114,216 7,840 123,160 $ — 1,240 1,240 162,909 1,363 376 164,648 7,698 173,586 2014 Years Ended December 31, 2013 (In Thousands) 2012 $ 3,034 $ 5,059 $ 57,331 $ (96,850) $ (9,115) $ (30,235) (10,372) $ (10,028) (114,216) $ (44,957) $ (1,419) (50,432) $ (67,489) (1,924) (42,317) $ $ 14 Table of Contents Maturities of Securities Portfolio . The following table sets forth information regarding the scheduled maturities, carrying values, estimated market values, and weighted average yields for the Bank’s debt securities portfolio at December 31, 201 4 by contractual maturity. The following table does not take into consideration the effects of scheduled repayments or the effects of possible prepayments. Within one year More than One to five years More than five to ten years More than ten years Total investment securities Carrying Value Average Yield Carrying Value Average Yield Carrying Value Average Yield Carrying Value Average Yield Fair Value Carrying Value Average Yield December 31, 2014 (Dollars in Thousands) Mortgage-backed securities $ — $ —% — $ —% 3,485 $ 2.31 % 6,213 $ 2.85 % $ 9,768 9,698 2.66 % 15 Table of Contents Sources of Funds Our major external source of funds for lending and other investment purposes are deposits. Funds are also derived from the receipt of payments on loans, prepayment of loans, maturities of investment securities and mortgage-backed securities and borrowings. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions. Deposits . Consumer and commercial deposits are attracted principally from within our primary market area through the offering of a selection of deposit instruments including demand, NOW, savings and club accounts, money market accounts, and term certificate accounts. Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit, and the interest rate. The interest rates paid by us on deposits are set at the direction of our senior management. Interest rates are determined based on our liquidity requirements, interest rates paid by our competitors, our growth goals, and applicable regulatory restrictions and requirements. As of December 31, 201 4 and December 31, 201 3 we had $ 56.0 million and $ 8.5 million in brokered deposits, respectively. Deposit Accounts . The following table sets forth the dollar amount of deposits in the various types of deposit programs we offered as of the dates indicated. 2014 December 31, 2013 2012 Weighted Average Rate (1) Amount Weighted Average Rate (1) Amount Weighted Average Rate (1) Amount — 0.21 0.15 0.30 1.07 0.59 % $ % $ 127,308 155,044 283,872 49,709 412,623 1,028,556 — 0.19 0.14 0.30 1.21 0.65 (Dollars in Thousands) % $ % $ 107,613 148,804 264,319 67,153 380,781 968,670 — 0.25 0.18 0.39 1.33 0.78 % $ % $ 85,950 120,765 256,769 63,834 413,468 940,786 Demand NOW Savings and club accounts Money market Certificates of deposit Total __________ (1) Represents the average rate paid during the year. 16 Table of Contents The following table sets forth our deposit flows during the years indicated. Beginning of year Net deposits (1) Interest credited on deposit accounts Total (decrease) increase in deposit accounts Ending balance Percent (decrease) increase 2014 2013 2012 Years Ended December 31, (Dollars in Thousands) $ $ $ 968,670 54,693 5,193 59,886 1,028,556 $ 6.18 % 940,786 22,256 5,628 27,884 968,670 2.88 % $ $ 977,623 (43,702) 6,865 (36,837) 940,786 (3.77) % Jumbo Certificates of Deposit . As of December 31, 201 4 , the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $ 274.1 million. The following table indicates the amount of our certificates of deposit of $100,000 or more by time remaining until maturity. Maturity Period Within three months Three through twelve months Over twelve months Total At December 31, 2014 (In Thousands) 58,351 113,819 101,919 274,089 $ $ The following table presents, by rate category, our certificate of deposit accounts as of the dates indicated. 2014 At December 31, 2013 2012 Amount Percent Amount Percent Amount Percent Certificate of deposit rates: 0.00% - 0.99% 1.00% - 1.99% 2.00% - 2.99% 3.00% - 3.99% 4.00% - 4.99% 5.00% - 5.99% Total $ $ 224,148 109,109 75,978 3,160 228 - 412,623 (Dollars in Thousands) 206,648 84,991 59,777 29,365 - - 380,781 54.27 % $ 22.32 15.70 7.71 - - 100.00 % $ 210,897 108,379 53,719 39,757 36 680 413,468 51.01 % 26.21 12.99 9.62 0.01 0.16 100.00 % 54.32 % $ 26.44 18.41 0.77 0.06 - 100.00 % $ 17 Table of Contents The following table presents, by rate category, the remaining period to maturity of certificate of deposit accounts outstanding as of December 31, 201 4 . Interest rate: 0.00% - 0.99% 1.00% - 1.99% 2.00% - 2.99% 3.00% - 3.99% 4.00% - 4.99% Total 1 Year or Less Over 1 to 2 Years Maturity Date Over 2 to 3 Years (In Thousands) Over 3 Years Total $ $ 188,697 52,242 24,508 3,059 — 268,506 $ $ 33,319 25,317 17,611 — 228 76,475 $ $ 2,078 12,257 16,256 — — 30,591 $ $ 54 19,293 17,603 101 — 37,051 $ $ 224,148 109,109 75,978 3,160 228 412,623 Borrowings . The Overnight A dvance permits the Bank to borrow overnight up to its maximum borrowing capacity at the FHLBNY. At December 31, 20 14 , the Bank’s total credit exposure cannot exceed 50% of its total assets, or $ 6 51.0 million, based on the borrowing limitations outlined in the Federal Home Loan Bank of New York’s member products guide. The total credit exposure limit to 50% of total assets is recalculated each quarter. Additionally, at December 31, 201 4 we had a floating rate junior subordinated debenture of $ 4.1 million which has been callable at the Bank ’s option since June 17, 2009 , and quarterly thereafter. The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated. Balance at end of year Average balance during year Maximum outstanding at any month end Weighted average interest rate at end of year Average interest rate during year Employees 2014 2013 2012 At or For the Years Ended December 31, (Dollars in Thousands) $ $ $ $ $ $ 26,000 13,591 45,500 0.38 % 0.32 % $ $ $ 18,000 133 25,800 0.37 % 0.40 % 17,000 145 17,000 0.31 % 0.31 % At December 31, 201 4 , we had 327 full-time equivalent employees. None of our employees is represented by a collective bargaining group. We believe that our relationship with our employees is good. Subsidiaries We have three non-bank subsidiaries. BCB Holding Company Investment Corp. was established in 2004 for the purpose of holding and investing in securities. Only securities authorized to be purchased by BCB Community Bank are held by BCB Holding Company Investment Corp. At December 31, 201 4 , this company held $ 9.8 million in securities. With the merger with Pamrapo Bancorp. Inc., we acquired Pamrapo Service Corporation which has been inactive since May 2010. BCB New York Management, Inc. was established in October 2012 for the purpose of holding and investing in various loan products and investing in securities. For the year ended December 31, 201 4 , there was no activity related to this subsidiary. 18 Table of Contents Supervision and Regulation Bank holding companies and banks are extensively regulated under both federal and state law. These laws and regulations are primarily intended to protect depositors and the deposit insurance funds, rather than to protect shareholders and creditors. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effec ts on the Company or the Bank. Set forth below is a summary of certain material and regulatory requirements applicable to the Company and the Bank. These and any other changes in applicable laws or regulations, whether by Congress or regulatory agencies, may have a material effect on the business and prospects of the Company and the Bank. These and any other changes in applicable laws or regulations, whether by Congress or regulatory agencies, may have a material effect on the business and prospec ts of the Company and the Bank. The Dodd-Frank Act The Dodd-Frank Act changed the bank regulatory structure and is affect ing the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act eliminated the Office of Thrift Supervision and requires that federal savings associations be regulated by the Office of the Comptroller of the Currency (the primary federal regulator for national banks). The Dodd-Frank Act also authorizes the Board of Governors of the Federal Reserve Board (“Federal Reserve”) to supervise and regulate all savi ngs and loan holding companies. In July, 2013, the FDIC and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets, to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million (which is currently proposed to increase to $1.0 billion) or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), sets a uniform minimum Tier 1 leverage ratio of 4.0%, increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets. The final rule became effective for us on January 1, 2015. The capital conservation buffer requirement is being phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. In addition, the Dodd-Frank Act excludes proceeds of trust preferred securities from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months. These new leverage and capital requirements must take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives. The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives the state attorneys general the ability to enforce applicable federal consumer protection laws. The Dodd- Frank Act also broadens the base for FDIC insurance assessments. In accordance with the Dodd-Frank Act, t he FDIC has promulgate d rules under which assessments are based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor. Lastly, the Dodd-Frank Act increases stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate and solicit votes for their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded. B ank Holding Company Regulation As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, the Company is subject to the regulation and supervision applicable to bank holding companies by the Federal Reserve. The Company is also subject to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey Banking Act”) and the regulations of the Commissioner of the New Jersey Department of Banking and Insurance (“Commissioner”). The Company is required to file reports with the Federal Reserve and the Commissioner regarding its business operations and those of its subsidiaries. Federal Regulation. The Bank Holding Company Act requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire all or substantially all of the assets of any other bank, (ii) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank (unless it owns a majority of such company’s voting shares) or (iii) merge or consolidate with any other bank holding company. The Federal Reserve will not approve any acquisition, merger, or consolidation that would have a substantially anti-competitive effect, unless the anti-competitive impact of the proposed transaction is clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial resources and future prospects of the companies and the banks concerned, together with the convenience and needs of the community to be served, when reviewing acquisitions or mergers. The Bank Holding Company Act generally prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or performing services for its subsidiaries, unless such non-banking business is determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be properly incident thereto. The Bank Holding Company Act has been amended to permit bank holding companies and banks, which meet certain capital, management and Community Reinvestment Act standards, to engage in a broader range of non-banking activities. In addition, bank holding companies which elect to become financial holding companies may engage in certain banking and non-banking activities without prior Federal Reserve approval. At this time, the Company has not elected to become a financial holding company, as it does not engage in any activities not permissible for banks. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance funds in the event the depository institution is 19 Table of Contents in danger of default. Under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. The Federal Reserve also has the authority under the Bank Holding Company Act to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. The Federal Reserve has adopted risk-based capital guidelines for bank holding companies. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. As described above, effective January 1, 2015, t he Company became subject to regulatory capital requirements and guidelines imposed by the Federal Reserve, which are substantially similar to those imposed by the FDIC on depository institutions within their jurisdictions. If the capital requirements were effective at December 31, 2014, the Company w ould have been considered to be a well capitalized Bank Holding Company. The Federal Reserve may set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company and must file certain reports with the Commissioner and is subject to examination by the Commissioner. Under the New Jersey Banking Act, as well as Federal law, no person may acquire control of the Company or the Bank without first obtaining approval of such acquisition of control from the Federal Reserve and the Commissioner. Bank Regulation As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision, and examination of the Commissioner. As a state-chartered Bank , the Bank is subject to the regulation, supervision and examination of the FDIC as its primary federal regulator . The regulations of the FDIC and the Commissioner impact virtually all of our activities, including the minimum level of capital we must maintain, our ability to pay dividends, our ability to expand through new branches or acquisitions and various other matters. Insurance of Deposit Accounts. The FDIC insures deposits at FDIC insured financial institutions such as the Bank. Deposit accounts in the Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self -directed retirement accounts. Under the FDIC’s current risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Assessments are based on an institution’s risk category and certain specified adjustments with higher assessments applying to institutions deemed most risky. In February 2011, the FDIC published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefine d the assessment base used for calculating deposit insurance assessments effective April 1, 2011. Under the new rule, assessments are based on an institution’s average consolidated total assets minus average tangible equity as opposed to total deposits. Since the new base is much larger than the current base, the FDIC also lowered assessment rates so that the total amount of revenue collected from the industry is not significantly altered. Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance. In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the year ended December 31, 201 4 , we paid $ 71 ,000 in FICO assessments. Capital Adequacy Guidelines . The FDIC has promulgated risk-based capital rules, which are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Under these rules, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. These rules are substantially similar to the Federal Reserve rules discussed above. In addition to the risk-based capital rules, the FDIC has adopted a minimum Tier 1 capital (leverage) ratio. This measurement is substantially similar to the Federal Reserve leverage capital measurement discussed above. At December 31, 201 4 , the Bank’s ratio of total capital to risk-weighted assets was 11.73 %. Our Tier 1 capital to risk-weighted assets was 10.48 %, and our Tier 1 capital to average assets was 8.33 %. In July 2013, the FDIC and the Federal Reserve approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to the Bank and the Company. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions. Transactions with Affiliates. Transactions between banks and their related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, Sections 23A and 23B of the Federal Reserve Act and Regulation W (i) limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as 20 Table of Contents those provided to non-affiliates. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions. In addition, loans or other extensions of credit by the financial institution to the affiliate are required to be collateralized in accordance with the requirements set forth in Section 23A of the Federal Reserve Act. The Sarbanes-Oxley Act of 2002 generally prohibits loans by a company to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws assuming such loans are also permitted under the law of the institution’s chartering state. Under such laws, the Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such person’s control, is limited. The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are further limited by specific categories. The Dodd-Frank Act requires that the Federal Reserve make certain changes to the regulations governing transactions with affiliates described above. It is uncertain when such changes will become effective. Dividends . The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50% of the Bank capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums. Federal Securities Laws The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the S ecurities Exchange Act of 1934. Under the Exchange Act, we are required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and controls. For the year ended December 31, 201 4 , our auditors are required to audit our internal control over financial reporting. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. We have prepared policies, procedures and systems designed to ensure compliance with these regulations. Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to conduct a comprehensive review and assessment of the adequacy of our existing financial systems and controls. Our Annual Report is available on our website, www.bcbbancorp.com. We will also provide our Annual Report on Form 10-K free of charge to shareholders who write to the Corporate Secretary at 104-110 Avenue C, Bayonne, New Jersey 07002. AVAILABILITY OF ANNUAL REPORT IT EM 1A. RISK FACTORS Our loan portfolio consists of a high percentage of loans secured by commercial real estate and multi-family real estate. These loans are riskier than loans secured by one- to four-family properties. At December 31, 201 4 , $ 829.1 million, or 67.6 % of our loan portfolio consisted of commercial and multi-family real estate loans. We intend to continue to emphasize the origination of these types of loans. These loans generally expose a lender to greater risk of nonpayment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation and income stream of the collateral that is pledged . Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. We may not be able to successfully maintain and manage our growth. The Company has progressed on an organic branching initiative which is intended to mitigate the location risk of our strong Hudson County concentration, to develop our branch infrastructure in a manner more consistent with the expansion of lending markets and to fill in and grow our branch footprint in a more uniform and coherent fashion, which previously had grown predominately through M&A activity. To this end, the Company opened a branch in Colonia, New Jersey in July, 2014, one in Fairfield, New Jersey in November, 2014, and one branch in each of Staten Island, New York and Rutherford, New Jersey in February, 2015. The Company is also looking to open several more branches within the next year. We cannot be certain as to our ability to manage increased levels of assets and liabilities. We may be required to make additional investments in equipment and personnel to manage higher asset levels and loans balances, which may adversely impact our efficiency ratio, earnings and shareholder returns. If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease. Our loan customers may not repay their loans according to the terms of their loans, and the collateral securing the payment of their loans may be insufficient to assure repayment. We may experience significant credit losses, which could have a material adverse effect on our operating results. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions prove to be incorrect, our allowance for loan losses may not cover losses in our loan portfolio at the date of the financial statements. Material additions to our allowance would materially decrease our net income. At December 31, 201 4 , our allowance for loan losses totaled $ 16.2 million, representing 1.3 2 % of total loans or 82.39% of non-performing loans . 21 Table of Contents While we have only been operating for t hirteen years, we have experienced significant growth in our loan portfolio, particularly our loans secured by commercial real estate. Although we believe we have underwriting standards to manage normal lending risks, and although we had $ 23.1 million, or 1. 77 % of total assets consisting of non-performing assets at December 31, 201 4 , it is difficult to assess the future performance of our loan portfolio due to the relatively recent origination of many of these loans. We can give you no assurance that our non-performing loans will not increase or that our non-performing or delinquent loans will not adversely affect our future performance. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition. We depend primarily on net interest income for our earnings rather than fee income. Net interest income is the most significant component of our operating income. We have significantly less reliance on traditional sources of fee income utilized by some community banks, such as fees from sales of insurance, securities or investment advisory products or services. For the years ended December 31, 201 4 and 201 3 , our net interest income was $ 49.9 million and $ 46.8 million, respectively. The amount of our net interest income is influenced by the overall interest rate environment, competition, and the amount of interest-earning assets relative to the amount of interest-bearing liabilities. In the event that one or more of these factors were to result in a decrease in our net interest income, we do not have significant sources of fee income to make up for decreases in net interest income. Changes in interest rates could hurt our profits. Our profitability, like most financial institutions, depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our contr ol, may affect interest rates. If interest rates rise, and if rates on our deposits reprice upwards faster than the rates on our long-term loans and investments, we would experience compression of our interest rate spread, which would have a negative effect on our profitability. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might als o negatively impact our income. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Further, a prolonged period of exceptionally low market interest rates, such as we are currently experiencing, and the Federal Reserve has indicated it intends to maintain, limits our ability to lower our interest expense, while the average yield on our interest-earning assets may continue to decrease as our loans reprice or are originated at these low market rates. Accordingly, our net interest income may continue to decrease, which may have an adverse affect on our profitability. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results. While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates can still have a material adverse effect on our financial condition and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. For further discussion of how changes in interest rates could impact us, see “Item 7A. – Quantitative and Qualitative Disclosure About Market Risk.” The building of market share through de novo branching and expansion of our commercial real estate and multi-family lending capacity could cause our expenses to increase faster than revenues. We intend to continue to build market share through de novo branching and expansion of our commercial real estate and multi-family lending capacity. Since January 1, 2014, we have opened de novo branches including the two in 2014 and two in 2015. Pursuant to our de novo branch expansion strategy, during the year ended December 31, 2014 we hired 78 new full-time equivalent employees, primarily in the areas of business development, loan administration and customer service. There are considerable costs involved in opening branches and expansion of lending capacity that generally require a period of time to generate the necessary revenues to offset their costs, especially in areas in which we do not have an established presence. Accordingly, any such business expansion can be expected to negatively impact our earnings for some period of time until certain economies of scale are reached. Our expenses could be further increased if we encounter delays in the opening of any of our new branches. Finally, our business expansion may not be successful after establishment of the new branches. The Dodd-Frank Act, among other things, created a new CFPB, tightened capital standards and will continue to result in new laws and regulations that are expected to increase our costs of operations. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, some of the details and impact of the Dodd-Frank Act may not yet be known. Our operating and compliance costs have materially increased and it is expected that the legislation and implementing regulations will continue to increase our operating and compliance costs. The Dodd-Frank Act created the CFPB with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or less in assets will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws. The Dodd-Frank Act requires minimum leverage (Tier 1) and risk-based capital requirements for bank and savings and loan holding companies that are no less than those applicable to banks, which will exclude certain instruments that previously have been eligible for inclusion by bank holding companies as Tier 1 capital, such as trust preferred securities. Effective July 21, 2011, the Dodd-Frank Act eliminated the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts, which could result in an increase in our interest expense. 22 Table of Contents The Dodd-Frank Act also broadens the base for FDIC deposit insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution, rather than deposits. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor. The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. It also provides that the listing standards of the national securities exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive compensation paid to executive officers in connection with accounting restatements. The legislation also directs the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives. Effective December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of less than 100% loans that are not registered with the Securities and Exchange Commission and from engaging in hedging activities that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking entities, including the Company, unless an exception applies. We have become subject to more stringent capital requirements, which may adversely impact our return on equity, or constrain us from paying dividends or repurchasing shares. In July 2013, the FDIC and the Federal Reserve approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to the Bank and the Company. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions. The application of more stringent capital requirements for the Bank and the Company could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were to be unable to comply with such requirements. New regulations could restrict our ability to ori ginate and sell mortgage loans. The CFPB has issued a rule designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-repay standard. Under the CFPB’s rule, a “qualified mortgage” loan must not contain certain specified features, including: • • • • excessive upfront points and fees (those exceeding 3% of the total loan amount, less "bona fide discount points" for prime loans); interest-only payments; negative-amortization; and terms longer than 30 years. Also, to qualify as a “qualified mortgage,” a borrower’s total debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The CFPB’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could limit our growth or profitability. Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings. Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches (including privacy breaches and cyber-attacks), but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we take protective measures, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have an impact on information security. In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our 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. There have been increasing efforts on the part of third parties, including through cyber attacks, to breach data security at financial institutions or with respect to financial transactions. There have been several recent instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data. In addition, because the techniques used to cause such security breaches change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. The ability of our customers to bank remotely, including online and through mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches. The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations. 23 Table of Contents The Bank’s reliance on brokered deposits could adversely affect its liquidity and operating results. Among other sources of funds, we rely on brokered deposits to provide funds with which to make loans and provide for other liquidity needs. On December 31, 2014, brokered deposits totaled $56.0 million, or approximately 5% of total deposits. The Bank’s primary source for brokered money market deposits is CDARS. Generally brokered deposits may not be as stable as other types of deposits. In the future, those depositors may not replace their brokered deposits with us as they mature, or we may have to pay a higher rate of interest to keep those deposits or to replace them with other deposits or other sources of funds. Not being able to maintain or replace those deposits as they mature would adversely affect our liquidity. Paying higher deposit rates to maintain or replace brokered deposits would adversely affect our net interest margin and operating results. Strong competition within our market area may limit our growth and profitabi lity. Competition is intense within the banking and financial services industry in New Jersey and New York. In our market area, we compete with 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. Many of these competitors have substantially greater resources, higher lending limits and offer services that we do not or cannot provide. This competition makes it more difficult for us to originate new loans and retain and attract new deposits. Price competition for loans may result in originating fewer loans, or earning less on our loans and price competition for deposits may result in a reduction of our deposit base or paying more on our deposits. Adverse events in New Jersey, where our business is concentrated, could adversely affect our results and future growth. Our business, the location of our branches and the real estate collateralizing our real estate loans are concentrated in New Jersey. As a result, we are exposed to geographic risks. The occurrence of an economic downturn in New Jersey, or adverse changes in laws or regulations in New Jersey, could impact the credit quality of our assets, the business of our customers and our ability to expand our business. Our success significantly depends upon the growth in population, income levels, deposits and housing in our market area. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may be negatively affected. In addition, the economies of the communities in which we operate are substantially dependent on the growth of the economy in the State of New Jersey. To the extent that economic conditions in New Jersey are unfavorable or do not continue to grow as projected, the economy in our market area would be adversely affected. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our market area if they do occur. In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of December 31, 201 4 , approximately 98 % of our total loans were secured by real estate. Adverse developments affecting commerce or real estate values in the local economies in our primary market areas could increase the credit risk associated with our loan portfolio. In addition, a significant percentage of our loans are to individuals and businesses in New Jersey. Our business customers may not have customer bases that are as diverse as businesses serving regional or national markets. Consequently, any decline in the economy of our market area could have an adverse impact on our revenues and financial condition. In particular, we may experience increased loan delinquencies, which could result in a higher provision for loan losses and increased charge-offs. Any sustained period of increased non-payment, delinquencies, foreclosures or losses caused by adverse market or economic conditions in our market area could adversely affect the value of our assets, revenues, results of operations and financial condition. We operate in a highly regulated environment and may be adversely affected by changes in federal, state and local laws and regulations. We are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local legislation could have a substantial impact on us and our operations. Additional legislation and regulations that could significantly affect our powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory authority may have a negative impact on our results of operations and financial condition. Like other bank holding companies and financial institutions, we must comply with significant anti-money laundering and anti-terrorism laws. Under these laws, we are required, among other things, to enforce a customer identification program and file currency transaction and suspicious activity reports with the federal government. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws or make required reports. Because we operate our business in the highly urbanized greater Newark/New York City metropolitan area, we may be at greater risk of scrutiny by government regulators for compliance with these laws. We could be adversely affected by failure in our internal controls. A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us. We continue to devote a significant amount of effort, time and resources to continually strengthening our controls and ensuring compliance with complex accounting standards and banking regulations. I TEM 1B. UNRESOLVED STAFF COMMENTS None. 24 Table of Contents IT EM 2. PROPERTIES The Bank conducts its business through an executive offi ce, one administrative office, and thirteen branch offices. Eight offices have drive-up facilities. The Bank has eighteen automatic teller machines at its branch facilities and two other off-site locations. The following table sets forth information relating to each of the Bank’s offices as of December 31, 201 4 . The total net book value of the Bank’s premises and equipment at December 31, 201 4 was $ 14. 3 million. Year Office Opened Net Book Value (In Thousands) $ 2,622 Location Executive Office 104-110 Avenue C Bayonne, New Jersey Administrative and Other Offices 591-597 Avenue C Bayonne, New Jersey 27 West 18th Street Bayonne, New Jersey Branch Offices 860 Broadway Bayonne, New Jersey 510 Broadway Bayonne, New Jersey 401 Washington St. Hoboken, New Jersey 987 Broadway Bayonne, New Jersey 473 Spotswood Englishtown Rd Monroe Township, New Jersey 611 Avenue C Bayonne, New Jersey 181 Avenue A Bayonne, New Jersey 211-A Washington Street Jersey City, New Jersey 200 Valley Street S. Orange, New Jersey 34 Main Street Woodbridge, New Jersey 3499 Route 9 North Suite 2A Freehold, New Jersey 1379 St. George Avenue Colonia, New Jersey 165 Passaic Avenue Fairfield, New Jersey Net book value of properties Furnishings and equipment Total premises and equipment (1) Leased Property (2) Includes off-site ATM’s 2003 2010 2014 2000 2003 2010 2010 2010 2010 2010 2010 2011 2011 2012 2014 2014 $ 25 1,968 (1) 206 (1) 744 (1) 372 (1) 47 664 196 2,692 (1) 4 (1) 23 1,360 (1) 159 (1) 20 (1) 191 (1) 163 11,431 (2) 2,865 14,296 Table of Contents IT EM 3. LEGAL PROCEEDINGS We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. Other than as set forth below, as of December 31, 2014, we were not involved in any material legal proceedings the outcome of which, if determined in a manner adverse to the Company, would have a material adverse affect on our financial cond ition or results of operations. The Company, as the successor to Pamrapo Bancorp, Inc., and in its own corporate capacity, is a named defendant in a shareholder class action lawsuit, Kube v. Pamrapo Bancorp, Inc., et al., filed in the Superior Court of New Jersey, Hudson County, Chancery Division, General Equity (the "Action'). On May 9, 2012, the Company obtained partial summary judgment, dismissing three of the five Counts of the plaintiff's Complaint. On May 9, 2012, plaintiff’s counsel was awarded interim legal fees of approximately $350,000. The Company’s obligation to p ay that amount has been stayed. The Company filed a motion for summary judgment, seeking the dismissal of the remaining two Counts of the plaintiff's Complaint . That motion was denied, without p rejudice, on February 19, 2014. Since that date, the parties have conferred in an effort to resolve the Action. The terms of a proposed Stipulation of Settlement ("Stipulation") have been agreed to by the plaintiff class and the Company. In consideration for the full settlement and release of all Released Claims (as that term is defined in the Stipulation), and the dismissal of the Action with prejudice, the Company has agreed to pay $1,950,000 to the Class. This amount, less any insurance reimbursements, has been accrued for as of December 31, 2014. On January 9, 2015, the court entered an Order Granting Preliminary Approval of the Proposed Class Settlement and Authorizing the Dissemination of Notice to the Class . Pursuant to the court rules, a "Fairness Hearing" to determine if the proposed settlement is fair, reasonable and adequate has been scheduled by the court for May 22, 2015. The Company has brought a lawsuit against Progressive Insurance Company ("Progressive"), the Directors' and Officers' Liability insurance carrier for Pamrapo Bancorp, Inc., at the time of its merger with the Company on July 6, 2010, and Colonial American Insurance Company ("Colonial"), the Directors' and Officers' Liability insurance carrier for the Company at the time of the merger. The lawsuit seeks, among other claims, indemnification, payment of and/or contribution toward the above award of interim attorney's fees to the plaintiff class's counsel, and reimbursement of the attorney's fees and defense costs incurred by the Company in defending the Kube v. Pamrapo Bancorp, Inc., et al., case. Progressive made a motion to dismiss the Company's lawsuit against it. The Company opposed that motion. That motion was administratively terminated by Order of the court, date d December 3, 2014. By Order of the court, dated December 3, 2014, the Company's motion to file an A mended Complaint was granted. Discovery has been exchanged among the parties. The Company vigorously is pursuing full recover y in this case. ITEM 4. MI NE SAFETY DISCLOSURE Not applicable. 26 Table of Contents ITEM 5. MA RKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II The Company’s common stock trades on the Nasdaq Global Market under the symbol “BCBP.” In order to list common stock on the Nasdaq Global Market, the presence of at least three registered and active market makers is required. The Company has at least three market makers. The following table sets forth the high and low closing prices for the Company’s common stock for the periods indicated. As of December 31, 201 4 , there were 8, 3 93,791 shares of the Company’s common stock outstanding. At December 31, 201 4 , the Company had approximately 2,000 stockholders of record. Fiscal 2014 Quarter Ended December 31, 2014 Quarter Ended September 30, 2014 Quarter Ended June 30, 2014 Quarter Ended March 31, 2014 Fiscal 2013 Quarter Ended December 31, 2013 Quarter Ended September 30, 2013 Quarter Ended June 30, 2013 Quarter Ended March 31, 2013 $ $ High 13.30 13.50 13.75 13.57 High 14.37 10.99 11.30 10.23 $ $ Low 11.72 12.60 13.01 12.77 Low 10.70 10.25 9.85 8.75 $ $ Cash Dividend Declared 0.14 0.14 0.14 0.12 Cash Dividend Declared 0.12 0.12 0.12 0.12 Please see “Item 1. Business—Bank Regulation—Dividends” for a discussion of restrictions on the ability of the Bank to pay the Company dividends. Compensation Plans Set forth below is information as of December 31, 201 4 regarding equity compensation plans that have been approved by shareholders. The Company has no equity based benefit plans that wer e not approved by shareholders. ,296 Plan Equity compensation plans approved by shareholders Equity compensation plans not approved by shareholders Total Number of securities to be issued upon exercise of outstanding options and rights Weighted average Exercise price (2) Number of securities remaining available for issuance under plan 289,720 (1) — — 289,720 11.18 11.18 — 609,000 609,000 _____________________________ (1) Consists of options to purchase (i) 5,762 shares of common stock under the 2002 Stock Option Plan and (ii) 21,458 shares of common stock under the 2003 Stock Option Plan and (iii) 262,500 shares under the 2011 Stock Option Plan. (2) The weighted average exercise price reflects the exercise prices ranging from $ 10.50 to $15.65 per share for options granted under the 2003 Stock Option Plan and ranging from $ 15.60 to $15.65 per share for options under the 2002 Stock Option Plan and at $8.93 -$ 13.32 per share for options under the 2011 Stock Option Plan. 27 Table of Contents Set forth hereunder is a stock performance graph comparing (a) the cumulative total return on the common stock for the period beginning with the closing sales price on January 1, 20 10 through December 31, 201 4 , (b) the cumulative total return on all publicly traded commercial bank stocks over such period, and (c) the cumulative total return of Nasdaq Market Index over such period. Cumulative return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed investment of $100. BCB Bancorp, Inc. Index BCB Bancorp, Inc. NASDAQ Composite SNL Bank 12/31/09 100.00 100.00 100.00 12/31/10 114.86 118.15 112.05 Period Ending 12/31/11 123.75 117.22 86.78 12/31/12 121.39 138.02 117.11 12/31/13 180.93 193.47 160.79 12/31/14 164.43 222.16 179.74 28 Table of Contents On May 9, 2012, the Company announced a sixth stock repurchase plan to repurchase 5% or 462,800 s hares of the Company’s common s tock. On June 28, 2012, the Company announced a seventh stock rep urchase plan to repurchase 5% or 440,000 shares of the Company’s common stock. On July 17, 2013, the Company announced a stock repur chase plan to repurchase up to 400,000 shares of the Company’s common stock. The Company made no s tock purchases for the three months ended December 31, 2014. ITEM 6. SE LECTED CONSOLIDATED FINANCIAL DATA The following tables set forth selected consolidated historical financial and other data of BCB Bancorp, Inc. at and for the years ended December 31, 201 4 , 201 3 , 201 2 , 20 1 1 and 2010 . The information is derived in part from, and should be read together with, the audited Consolidated Financial Statements and Notes thereto of BCB Bancorp, Inc. Per share data has been adjusted for all periods to reflect the common stock dividends paid by the Company. Total assets Cash and cash equivalents Securities available for sale Securities, held to maturity Loans receivable, net Deposits Borrowings Stockholders’ equity Net interest income Provision for loan losses Non-interest income (loss) Non-interest expense Income tax expense (benefit) Net income (loss) Net income (loss) per share: Basic Diluted Common Dividends declared per share 2014 2013 2012 2011 2010 Selected financial condition data at December 31, $ 1,301,900 $ 1,207,959 $ 1,171,358 $ 1,216,908 $ 1,106,888 (In Thousands) 32,123 9,768 - 1,207,850 1,028,556 137,124 102,252 29,844 1,104 114,216 1,020,344 968,670 132,124 100,060 34,147 1,240 164,648 922,301 940,786 131,124 91,581 117,087 1,045 206,965 840,763 977,623 129,531 100,048 2014 2013 2012 2011 2010 Selected operating data for the year ended December 31, $ 49,888 $ 46,779 $ 41,700 $ 39,582 $ (In thousands, except for per share amounts) $ $ $ $ 2,800 3,958 38,409 5,047 7,590 0.81 0.81 0.54 $ $ $ $ 29 2,750 3,375 31,437 6,551 9,416 1.06 1.06 0.48 $ $ $ $ 4,900 (7,225) 33,889 (2,252) (2,062) (0.23) (0.23) 0.48 $ $ $ $ 4,100 2,448 28,506 3,373 6,051 0.64 0.64 0.48 $ $ $ $ 121,127 1,098 165,572 773,101 886,288 114,124 98,974 26,432 2,450 14,207 22,358 1,505 14,326 2.06 2.05 0.48 Table of Contents Selected Financial Ratios and Other Data: Return (loss) on average assets (ratio of net income to average total assets) Return (loss) on average stockholders’ equity (ratio of net income to average stockholders’ equity) Non-interest income (loss) to average assets Non-interest expense to average assets Net interest rate spread during the year Net interest margin (net interest income to average interest earning assets) Ratio of average interest-earning assets to average interest-bearing liabilities Cash dividend payout ratio Asset Quality Ratios: Non-performing loans to total loans at end of year Allowance for loan losses to non-performing loans at end of year Allowance for loan losses to total loans at end of year Capital Ratios: Stockholders’ equity to total assets at end of year Average stockholders’ equity to average total assets Tier 1 capital to average assets (1) Tier 1 capital to risk weighted assets (1) __________ (1) Ratios are for BCB Community Bank only. At or for the Years Ended December 31, 2014 2013 2012 2011 2010 0.61 % 0.80 % (0.17) % 0.54 % 1.62 % 7.42 0.32 3.09 3.94 4.11 119.75 68.67 1.60 82.39 1.32 7.85 8.22 8.33 10.48 10.18 0.29 2.68 3.89 4.06 118.32 45.28 1.98 69.74 1.38 8.28 7.89 8.70 12.41 (2.26) (0.61) 2.86 3.44 3.60 115.23 (208.7) 2.45 54.00 1.32 7.82 7.72 8.38 12.79 6.14 0.22 2.52 3.40 3.60 116.03 75.00 5.61 21.97 1.23 8.22 8.73 8.66 15.34 22.67 1.61 2.53 2.81 3.05 115.05 23.30 5.35 20.13 1.08 8.94 7.14 9.16 14.95 IT EM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDIT ION AND RESULTS OF OPERATIONS General This discussion, and other written material, and statements management may make, may contain certain forward-looking statements regarding the Company’s prospective performance and strategies 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 Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in the Company’s Annual Report on Form 10-K and in other documents filed by the Company with the Securities and Exchange Commission. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by the use of the words “plan,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “may,” “will,” “should,” “could,” “predicts,” “forecasts,” “potential,” or “continue” or similar terms or the negative of these terms. The Company’s ability to predict results or the actual effects of its plans or strategies is inherently uncertain. Accordingly, actual results may differ mater ially from anticipated results. Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in market interest rates, general economic conditions, legislation, and regulation; changes in monetary and fiscal policies of the United States Government, including policies of the United States Treasury and Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, loans, deposits and investment products in the Company’s local markets; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical and technological factors affecting the Company’s operations, pricing and services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this discussion. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made. 30 Table of Contents Critical Accounting Policies Critical accounting policies are those accounting policies that can have a significant impact on the Company’s financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing the Company’s consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, see Note 2 of “Notes to Consolidated Financial Statements.” Allowance for Loan Losses Loans receivable are presented net of an allowance for loan losses and net deferred loan fees . In determining the appropriate level of the allowance, management considers a combination of factors, such as economic and industry trends, real estate market conditions, size and type of loans in portfolio, nature and value of collateral held, borrowers’ financial strength and credit ratings, and prepayment and default history. The calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the aforementioned factors, as well as other factors, on the ultimate realization of loans receivable. In addition, our determination of the amount of the allowance for loan losses is subject to review by the New Jersey Department of Banking and Insurance and the FDIC, as part of their examination process. After a review of the information available, our regulators might require the establishment of an additional allowance. Any increase in the loan loss allowance required by regulators would have a negative impact on our earnings. Other-than-Temporary Impairment of Securities If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities. Accordingly, temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity. Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through Other Comprehensive Income (“OCI”) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes. Conversely, the carrying values of held to maturity securities are not adjusted for temporary impairments. Information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is generally disclosed in the notes to the con solidated financial statements. Other-than-temporary impairments are accounted for based upon several considerations. First, other-than-temporary impairments on debt securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of the sale of debt securities are applicable, then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components. A credit-related impairment represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings and noncredit-related other-than-temporary impairments are recognized in OCI. Equity securities on which there is an unrealized loss that is deemed other-than-temporary are written down to fair value with the writ e-down recognized in earnings. Deferred Income Taxes The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or the consolidated and separate entity tax returns; (ii) are attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. In making this assessment, management considers the profitability of current core operations, future market growth, forecasted earnings, future taxable income, and ongoing, feasible and permissible tax planning strategies. Deferred tax assets have been reduced by a valuation allowance for all portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant. Fair Value Measurements Management uses its best judgment in estimating fair value measurements of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Management utilized various inputs to determine fair value including but not limited to the use of, valuation techniques based on various assumptions, including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, quoted market prices, and appraisals. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re- evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amo unts reported at each year-end. 31 Table of Contents Financial Condition at December 31, 2014 and 2013 Total assets increased by $93.9 million, or 7.8%, to $1.302 billion at December 31, 2014 from $1.208 billion at December 31, 2013. The increase in total as sets resulted primarily from an increase in net loans receivable of $187.5 million, partially offset by a decrease in securities held to maturity of $114.2 million. Management is focusing on maintaining adequate liquidity in anticipation of funding loans in the loan pipeline as well as seeking opportunities to purchase loans in the secondary market that provide competitive returns but meet our internal underwriting guidelines. It is our intention to grow our assets at a measured pace consistent with our capital levels and as business opportunities permit. Organic growth should occur consistent with our strategic plan under which we anticipate opening additional branch offices in 2015. Total cash and cash equivalents in creased by $2.3 million, or 7.6% , to $32.1 million at December 31, 2014 from $29.8 million at December 31, 2013. Investment securities classified as held-to-maturity, which totaled $114.2 million at December 31, 2013, were sold in 2014, except for approximately $9.8 million of such securities which were re-designated to available for sale securities. This decrease in investment securities held-to-maturity resulted primarily from sales of $99.2 million of mortgage-backed securities from the held-to- maturity portfolio and $10.3 million of repayments and prepayments in the mortgage-backed securities portfolio, partially offset by purchases of $3.0 million in investment securities. The cash proceeds received from the sales and normal amortization have been utilized to fund loan originations. Loans receivable, net increased by $187.5 million, or 18.4%, to $1.208 billion at December 31, 2014 from $1.020 billion at December 31, 2013. The increase resulted primarily from a $187.0 million increase in real estate mortgages comprising commercial and multi-family, construction and participation loans with other financ ial institutions along with an increase of $7.0 million in residential real estate loans, partially offset by a $2.5 million decrease in commercial business loans and commercial lines of credit, a $3.1 million decrease in home equity and home equity lines of credit and a $1.8 million increase in the allowance for loan losses. During the third quarter of 2014, the Company sold $10.4 million in a bulk sale of impaired loans in which a loss of $4.0 million was incurred. As of December 31, 2014, the allowance for loan losses was $16.2 million, or 82.4%, of non-performing loans and 1.3 2 % of gross loans. As a result of the loans acquired in the business combination transactions being recorded at their fair value, the balances in the allowance for loan losses that were on the balance sheets of the former Pamrapo Bancorp, Inc., and Allegiance Community Bank are precluded from being reported in the allowance balance previously discussed, consistent with generally accepted accounting principles. Deposit liabilities increased by $60.0 million, or 6.2%, to $1.029 billion at December 31, 2014 from $968.7 million at December 31, 2013. The increase resulted primarily from a $31.8 million increase in certificates of deposit, an increase of $19.6 million in savings and club deposits and a $25.9 million increase in non-interest bearing deposits, partly offset by a decrease of $17.4 million in money market interest bearing deposits. The increase in certificates of deposit primarily was the result of additional CDARS deposits of $51.7 million. Recognizing this shift in the mix of our deposits, the attraction and retention of non-interest bearing commercial deposits, and longer dated maturity deposits remains a focus of our retail deposit gathering philosophy. During 2014, the Federal Open Market Committee (FOMC) has continued its accommodative monetary policy. This extended environment of historically low short term market rates has resulted in continuing parallel low retail deposit account yields, directly decreasing interest expense. Short -term borrowings increased by $8.0 million, or 44.4%, to $26.0 million at December 31, 2014 from $18.0 million at December 31, 2013. Long-term borrowings increased by $23.0 million, or 20.9%, to $133.0 million at December 31, 2014 from $110.0 million at December 31, 2013. The pu rpose of the borrowings reflected the use of long term and short term Federal Home Loan Bank advances to augment deposits as the Company’s funding source for originating loans and investing in GSE investment securities. Stockholders’ equity increased by $2.2 million, or 2.2%, to $102.3 million at December 31, 2014 from $100.1 million at December 31, 2013. The increase in stockholders’ equity was primarily attributable to net income of $7.6 million, and an increase of $770,000 in preferred stock outstanding partly offset by cash dividends paid during 2014 totaling $4.4 million on outstanding common shares of stock and $800,000 on outstanding shares of preferred stock. The Company accrued a dividend payable for the fourth quarter on the preferred shares for $201,000 which will be paid in the first quarter of 2015. As of December 31, 2014, the Bank’s Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 8.33%, 10.48% and 11.73% respectively. 32 Table of Contents Analysis of Net Interest Income Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively. The following tables set forth balance sheets, average yields and costs, and certain other information for the years indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts and premiums, which are included in interest income. At December 31, 2014 Year ended December 31, 2014 Year ended December 31, 2013 Actual Balance Actual Yield/ Cost Average Balance Interest earned/paid Average Yield/Cost Average Balance Interest earned/paid Average Yield/Cost Interest-earning assets: Loans receivable (1) Investment securities(2) Interest-earning deposits Total interest-earning assets Interest-earning liabilities: Total interest-bearing demand deposits Money market deposits Savings deposits Certificates of deposit Borrowings $ 1,224,001 4.73 % $ 1,116,673 $ 18,598 21,914 1,264,513 12.27 0.25 73,419 24,715 4.76 % 1,214,807 $ 155,045 49,709 283,872 412,623 163,124 0.21 % $ 152,205 $ 0.38 0.14 1.04 3.13 62,691 269,151 400,455 129,984 Total interest-bearing liabilities 1,064,373 0.97 % 1,014,486 Net interest income Interest rate spread(3) Net interest margin(4) Ratio of interest-earning assets to $ 3.79 % 3.95 % interest-bearing liabilities ___________________________ (1) Excludes allowance for loan losses. (2) Includes Federal Home Loan Bank of New York stock. (3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net interest margin represents net interest income as a percentage of average interest-earning assets. 118.80% % 119.75% 33 (Dollars in Thousands) 57,858 2,282 55 60,195 318 189 406 4,287 5,107 10,307 49,888 5.18 % $ 980,844 $ 3.11 0.22 140,403 31,989 4.96 % 1,153,236 0.21 % $ 131,096 $ 0.30 0.15 1.07 3.93 64,955 264,346 396,646 117,658 1.02 % 974,701 $ 3.94 % 4.11 % 118.32% 53,521 3,786 52 57,359 247 197 363 4,795 4,978 10,580 46,779 5.46 % 2.70 0.16 4.97 % 0.19 % 0.30 0.14 1.21 4.23 1.09 % 3.89 % 4.06 % Table of Contents Analysis of Net Interest Income (Continued) Interest-earning assets: Loans receivable (1) Investment securities(2) Interest-earning deposits Total interest-earning assets Interest-earning liabilities: Interest-bearing demand deposits Money market deposits Savings deposits Certificates of deposit Borrowings Total interest-bearing liabilities Net interest income Interest rate spread(3) Net interest margin(4) $ $ Ratio of interest-earning assets to interest-bearing liabilities ___________________________ (1) Excludes allowance for loan losses. (2) Includes Federal Home Loan Bank of New York stock. (3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net interest margin represents net interest income as a percentage of average interest-earning assets. 34 Year ended December 31, 2012 (Dollars in Thousands) Average Balance Interest earned/paid Average Yield/Cost 864,561 204,417 88,798 1,157,776 119,175 67,825 260,314 439,757 117,651 1,004,722 $ $ $ 115.23 % 47,756 5,779 112 53,647 297 267 477 5,849 5,057 11,947 41,700 5.52 % 2.83 0.13 4.63 % 0.25 % 0.39 0.18 1.33 4.30 1.19 3.44 % 3.60 % Table of Contents Rate/Volume Analysis The table below sets forth certain information regarding changes in our interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in average volume (changes in average volume multiplied by old rate); (ii) changes in rate (change in rate multiplied by old average volume); (iii) changes due to combined changes in rate and volume; and (iv) the net change. Interest income: Loans receivable Investment securities Interest-earning deposits with other banks Total interest-earning assets Interest expense: Interest-bearing demand accounts Money market Savings and club Certificates of Deposits Borrowed funds Total interest-bearing liabilities Change in net interest income 2014 vs. 2013 Increase (Decrease) Due to 2013 vs. 2012 Increase (Decrease) Due to Years Ended December 31, Volume Rate Rate/Volume Total Increase (Decrease) Volume Rate Rate/Volume Total Increase (Decrease) $ 7,412 $ (1,806) (13) 5,593 40 (7) 6 46 520 (2,701) $ 578 20 (2,103) 27 (1) 37 (548) (356) (In thousands) 4,337 $ (1,504) 3 2,836 71 (8) 44 (507) 127 6,423 $ (1,810) (72) 4,541 30 (11) 7 (573) - (374) $ (276) (4) (654) 4 - 1 (5) (37) $ 605 4,988 $ (841) (1,262) $ (37) (617) $ (273) 3,109 $ (547) 5,088 $ 35 (580) $ (267) 32 (815) (72) (61) (119) (533) (79) (864) 49 $ (78) $ 84 (20) (14) (8) 2 (2) 52 - 44 (58) $ 5,765 (1,993) (60) 3,712 (50) (70) (114) (1,054) (79) (1,367) 5,079 Table of Contents Results of Operations for the Years Ended December 31, 2014 and 2013 Net income was $7.6 million for the year ended December 31, 2014, compared with $9.4 million for the year ended December 31, 2013. Net income decreased due to higher non-interest expense, partially offset by increases in net interest income and non-interest income for the year ended December 31, 2014, as compared with the year ended December 31, 2013. Net interest income increased by $3.1 million, or 6.6%, to $49.9 million for the year ended December 31, 2014 from $46.8 million for the year ended December 31, 2013. The increase in net interest income resulted primarily from an increase in the average balance of interest earning assets of $61.6 million, or 5.3%, to $1.215 billion for the year ended December 31, 2014 from $1.153 billion for year ended December 31, 2013, partly offset by a decrease in the average yield on interest earning assets of one basis point to 4.96% for the year ended December 31, 2014 from 4.97% for the year ended December 31, 2013. The average balance of interest-bearing liabilities increased by $39.8 million, or 4.0%, to $1.014 billion for the year ended December 31, 2014 from $974.7 million for the year ended December 31, 2013, while the average cost of interest bearing liabilities decreased by seven basis points to 1.02% for year ended December 31, 2014 from 1.09% for the year ended December 31, 2013. Net interest margin was 4.11% for the year ended December 31, 2014, and 4.06% for the year ended December 31, 2013. Interest income on loans receivable increased by $4.3 million, or 8.1%, to $57.9 million for the year ended December 31, 2014 from $53.6 million for the year ended December 31, 2013. The increase was primarily attributable to an increase in the average balance of loans receivable of $135.8 million, or 13.9%, to $1.117 billion for the year ended December 31, 2014 from $980.8 million for the year ended December 31, 2013 , partially offset by a decrease in the average yield on loans receivable to 5.18% for the year ended December 31, 2014 from 5.46% for the year ended December 31, 2013 . The increase in the average balance of loans receivable was the result of our comprehensive loan growth strategy. The decrease in average yield reflects the competitive price environment prevalent in the Company’s primary market area on loan facilities as well as the repricing downward of certain variable rate loans. Interest income on securities decreased by $1.5 million, or 39.7%, to $2.3 million for the year ended December 31, 2014 from $3.8 million for the year ended December 31, 2013. This decrease was primarily due to a decrease in the average balance of securities of $67.0 million or 47.7% to $73.4 million for the year ended December 31, 2014 from $140.4 million for the year ended December 31, 2013, partly offset by an increase in the average yield of securities to 3.11% for the year ended December 31, 2014 from 2.70% for the year ended December 31, 2014 . Investment securities classified as held-to-maturity, which totaled $114.2 million at December 31, 2013, were sold in the third quarter of 2014, except for approximately $9.8 million of such securities which were re-designated to available for sale securities. Interest income on other interest-earning assets increased by $3,000, or 5.8%, to $55,000 for the year ended December 31, 2014 from $52,000 for the year ended December 31, 2013. This increase was primarily due to an increase of the average yield on other interest-earning assets to 0.22% for the year ended December 31, 2014 from 0.16% for the year ended December 31, 2013, partly offset by a decrease of $7.3 million, or 22.7%, in the average balance of other interest-earning assets to $24.7 million for the year ended December 31, 2014 from $32.0 million for the year ended December 31, 2013.. The somewhat static nature of the average yield on other interest-earning assets reflects the current philosophy by the FOMC of keeping short term interest rates at historically low lev els for the last several years. Total interest expense decreased by $273,000, or 2.6%, to $10.3 million for the year ended December 31, 2014 from $10.6 million for the year ended December 31, 2013. The decrease resulted primarily from a decrease in the cost of interest-bearing liabilities of seven basis points to 1.02% for the year ended December 31, 2014 from 1.09% for the year ended December 31, 2013, partly offset by a increase in the average balance of interest bearing liabilities of $39.8 million, or 4.1%, to $1.015 billion for the year ended December 31, 2014 from $974.7 million for the year ended December 31, 2013. The decrease in the average cost of interest bearing liabilities reflects the Company’s reaction to the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products. The provision for loan losses totaled $2.80 million and $2.75 million for the years ended December 31, 2014 and 2013, respectively. The provision for loan losses is established based upon management’s review of the Company ’s loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the activity and fluctuating balance of loans receivable, and (5) the existing level of reserves for loan losses that are probable and estimable. During the year ended December 31, 2014, the Company experienced $1.0 million in net charge-offs (consisting of $1.4 million in charge-offs and $400,000 in recoveries). During the year ended December 31, 2013, the Company experienced $771,000 in net charge-offs (consisting of $971,000 in charge-offs and $200,000 in recoveries). The Company had non-performing loans totaling $19.6 million, or 1.60%, of gross loans at December 31, 2014 and $20.6 million, or 1.98%, of gross loans at December 31, 2013. The decrease in non-performing loans resulted primarily from the sales of approximately $10.4 million in non-performing loans during the third quarter of 2014. The sale resulted in a pre-tax loss of approximately $4.0 million. The primary reason for these transactions was the elimination of carrying and legacy costs associated with these non-interest earning assets. The allowance for loan losses was $16.2 million, or 1.32%, of gross loans at December 31, 2014 as compared to $14.3 million, or 1.38%, of gross loans at December 31, 2013. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in the aforementioned criteria. In addition various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Company to recognize additional provisions based on their judgment of information available to them at the time of their examination. Management believes that the allowance for loan losses was adequate at both December 31, 2014 and December 31, 2013. Total non-interest income increased by $583,000, or 17.3% to $4.0 million for the year ended December 31, 2014 compared with $3.4 million for the year ended December 31 , 2013, which included a $1.2 million gain on the sale of investment securities available for sale in the year ended December 31, 2014, with no comparable sale in the year ended December 31, 2013, and a $1.9 million increase in gains on the sale of investment securities held to maturity to $2.3 million for the years ended December 31, 2014 from $378,000 for the years ended December 31, 2013. In addition, non-interest income included an increase in gains on sales of loans originated for sale of $650,000 to $2.2 million for the years ended December 31, 2014 from $1.5 million for the years ended December 31, 2013. These increases in non-interest income were largely offset by a $4.0 million loss on the bulk sale of impaired loans in the year ended December 31, 2014, with no comparable sale in the year ended December 31, 2013. Total non-interest expense increased by $7.0 million, or 22.2%, to $38.4 million for the year ended December 31, 2014 from $31.4 million for the year ended December 31, 2013. Salaries and employee benefits expense increased by $4.4 million, or 28.4%, to $20.1 million for the year ended December 31, 2014 from $15.7 million for the year ended December 31, 2013. This increase in both salaries and employee benefits was mainly attributable to an increase of 78 full-time equivalent employees, or 31.3%, to 327 at December 31, 2014 from 249 at December 31, 2013 , which relates to the addition of business development and loan administration employees, and the openings and anticipated openings of new branch offices in 2014 and 2015, as well as providing health benefits to a greater number of existing employees. Occupancy expense increased by $627,000, or 17.8%, to $4.1 million for the year ended December 31, 2014 from $3.5 million for the year ended December 31, 2013. Equipment expense increased by $420,000, or 8.1%, to $5.6 million for the year ended December 31, 2014 from $5.2 million for the year ended December 31, 2013. The increases in occupancy and equipment expenses also related primarily to the openings and anticipated openings of new branch offices in 2014 and 2015. Advertising expense increased by $450,000, or 77.2%, to $1.0 million for the year ended December 31, 2014 from $583,000 for the year ended December 31, 2013. The increase in advertising was primarily due to our marketing efforts related to the previously mentioned expansion of our geographic footprint. Other non- interest expense increased by $1.0 million, or 42.7% to $3.4 million for the year ended December 31, 2014 from $2.4 million for the year ended December 31, 2013. Other non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communicatio n, and other fees and expenses. 36 Table of Contents Income tax provision decreased by $1.5 million, or 23.0%, to $5.0 million for the year ended December 31, 2014 from $6.5 million for the year ended December 31, 2013 . The decrease in income tax provision was a result of lower taxable income during the year ended December 31, 2014 as compared to the year ended December 31, 2013. The consolidated effective tax rate for the year ended December 31, 2014 was 39.9% compared to 41.0% for the year ended December 31, 2013. Results of Operations for the Years Ended December 31, 2013 and 2012 Net income was $9.42 million for the year ended December 31, 2013 compared with a net loss of ($2.06) million for the year ended December 31, 2012. Our net income reflects increases in net interest income and non-interest income and decreases in non-interest expense and provision for loan losses, partially offset by an increase in income tax provision. Net interest income increased by $5.1 million or 12.2% to $46.8 million for the year ended December 31, 2013 from $41.70 million for the year ended December 31, 2012. This increase in net interest income resulted primarily from an increase in the average yield of interest earning assets to 4.97% for the year ended December 31, 2013 from 4.63% for the year ended December 31, 2012, partially offset by a decrease of $4.5 million or 0.4% in the average balance of interest earning assets to $1.153 billion for the year ended December 31, 2013 from $1.158 billion for the year ended December 31, 2012. The average balance of interest bearing liabilities decreased by $30.0 million or 3.0% to $974.7 million for the year ended December 31, 2013 from $1.005 billion for the year ended December 31, 2012, while the average cost of interest bearing liabilities decreased to 1.09% for the year ended December 31, 2013 from 1.19% for the year ended December 31, 2012. As a consequence of the aforementioned, our net interest margin increased to 4.06% for the year ended December 31, 2013 from 3.60% for the year ended December 31, 2012. The increase in the average yield of interest earning assets and the decrease in the average cost of interest bearing liabilities represents management’s efforts to competitively price certain products to maximize profitability. The decrease in the average balance of both interest earning assets and interest bearing liabilities represents a pre-planned minor deleveraging of the balance sheet. Interest income on loans receivable increased by $5.76 million or 12.1% to $53.52 million for the year ended December 31, 2013 from $47.76 million for the year ended December 31, 2012. The increase was primarily attributable to an increase in the average balance of loans receivable of $116.2 million or 13.4% to $980.8 million for the year ended December 31, 2013 from $864.6 million for the year ended December 31, 2012, partially offset by a slight decrease in the average yield of loans receivable to 5.46% for the year ended December 31, 2013 from 5.52% for the year ended December 31, 2012. The increase in the average balance of loans is primarily attributable to the re-allocation of excess liquidity into higher yielding loan products. The decrease in average yield reflects the competitive price environment prevalent in the Company ’s primary market area on loan facilities as well as the repricing downward of variable rate loans. Interest income on securities decreased by $1.99 million or 34.4% to $3.79 million for the year ended December 31, 2013 from $5.78 million for the year ended December 31, 2012. This decrease was primarily due to a decrease in the average balance of securities of $64.0 million or 31.3% to $140.4 million for the year ended December 31, 2013 from $204.4 million for the year ended December 31, 2012, as well as a decrease in the average yield of investment securities to 2.70% for the year ended December 31, 2013 from 2.83% for the year ended December 31, 2012. The decrease in the average balance represents the amortization of the portfolio in the absence of any material purchases of investment securities. The decrease in the average yield reflects the persistent low interest rate environment during th e year ended December 31, 2013. Interest income on other interest-earning assets decreased by $60,000 or 53.6% to $52,000 for the year ended December 31, 2013 from $112,000 for the year ended December 31, 2012. This decrease was primarily due to a decrease of $56.8 million or 64.0% in the average balance of other interest-earning assets to $32.0 million for the year ended December 31, 2013 from $88.8 million for the year ended December 31, 2012. The average yield on other interest-earning assets increased slightly to 0.16% for the year ended December 31, 2013 from 0.13% for the year ended December 31, 2012. The somewhat static nature of the average yield on other interest-earning assets reflects the current philosophy by the FOMC of keeping short term interest rates at historically low lev els for the last several years. Total interest expense decreased by $1.37 million or 11.5% to $10.58 million for the year ended December 31, 2013 from $11.95 million for the year ended December 31, 2012. The decrease resulted primarily from a decrease in the average balance of interest bearing liabilities of $30.0 million or 3.0% to $974.7 million for the year ended December 31, 2013 from $1.005 billion for the year ended December 31, 2012 as well as a decrease in the cost of interest-bearing liabilities of ten basis points to 1.09% for the year ended December 31, 2013 from 1.19% for the year ended December 31, 2012. The decrease in the average cost of interest bearing liabilities reflects the Company’s reaction to the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products. The provision for loan losses totaled $2.75 million and $4.9 million for the years ended December 31, 2013 and 2012, respectively. The provision for loan losses is established based upon management’s review of the Company ’s loans and consideration of a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the activity and fluctuating balance of loans receivable, and (5) the existing level of reserves for loan losses that are probable and estimable. During the year ended December 31, 2013, the Company experienced $771,000 in net charge-offs (consisting of $971,000 in charge-offs and $200,000 in recoveries). During the year ended December 31, 2012, the Company experienced $3.05 million in net charge-offs (consisting of $3.08 million in charge-offs and $35,000 in recoveries). The Company had non-performing loans totaling $20.6 million or 1.98% of gross loans at December 31, 2013 and $22.9 million or 2.45% of gross loans at December 31, 2012. The decrease in non-performing loans resulted primarily from the sales of approximately $25.9 million in non-performing loans during the second and third quarters of 2012. The sale resulted in a pre-tax loss of approximately $10.8 million. The primary reason for these transactions was the elimination of carrying and legacy costs associated with these non-interest earning assets. The allowance for loan losses was $14.3 million or 1.38% of gross loans at December 31, 2013 as compared to $12.4 million or 1.32% of gross loans at December 31, 2012. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in the aforementioned criteria. In addition various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Company to recognize additional provisions based on their judgment of information available to them at the time of their examination. Management believes that the allowance for loan losses was adequate at both December 31, 2013 and December 31, 2012. Total non-interest income (loss) was $3.38 million for the year ended December 31, 2013 compared with a loss of ($7.23) million for the year ended December 31, 2012. The increase in our non-interest income was primarily due to a decrease in loss on sale of loans of $10.3 million for the year ended December 31, 2013 compared to December 31, 2012. During the year ended December 31, 2013, we reflected a loss on sale of loans for $474,000 compared with a loss of $10.8 million for the year ended December 31, 2012. Gain on sale of loans originated for sale increased by $309,000 or 25.3% to $1.53 million for the year ended December 31, 2013 from $1.22 million for the year ended December 31, 2012. The increase in gain on sale of loans originated for sale occurred primarily from an increase in gain on selling SBA originated loans. Gain on sale of securities held to maturity increased by $29,000 or 8.3% to $378,000 for the year ended December 31, 2013 from $349,000 for the year ended December 31, 2012. Fees and service charges and other non-interest income increased by $218,000 or 12.6% to $1.94 million for the year ended December 31, 2013 from $1.72 million for the year ended December 31, 2012. This increase was primarily due to increases in deposit account service charges of $425,000 partially offset by a decrease in late charges of $196,000. These increases were partially offset by a decrease in gain on sale of loans acquired as for the year ended December 31, 2012, the Company sold approximately $10.7 million of commercial business loans acquired in the Allegiance Community Bank acquisition which resulted in a gain of approximately $286,000. No such transaction occurred during th e year ended December 31, 2013. 37 Table of Contents Total non-interest expense decreased by $2.45 million or 7.2% to $31.44 million for the year ended December 31, 2013 from $33.89 million for the year ended December 31, 2012. Salaries and employee benefits expense increased by $674,000 or 4.5% to $15.69 million for the year ended December 31, 2013 from $15.02 million for the year ended December 31, 2012. The increase resulted primarily from an increase in employee salaries of $985,000, which more than offset decreases in overtime paid of $173,000 and employee group insurance of $185,000 compared to December 31, 2012. Occupancy expense decreased by $42,000 or 1.2% to $3.52 million for the year ended December 31, 2013 from $3.56 million for the year ended December 31, 2012. Equipment expense increased by $300,000 or 6.1% to $5.21 million for the year ended December 31, 2013 from $4.91 million for the year ended December 31, 2012. The primary component of this expense item is data service provider expense. Professional fees decreased by $240,000 or 9.6% to $2.25 million for the year ended December 31, 2013 from $2.49 million for the year ended December 31, 2012. The decrease resulted primarily from a decrease in legal and legacy costs associated with the sale of the non-performing loan portfolio in 2012. Director fees decreased by $56,000 or 7.7% to $672,000 for the year ended December 31, 2013 from $728,000 for the year ended December 31, 2012. Regulatory assessments decreased by $76,000 or 6.5% to $1.10 million for the year ended December 31, 2013 from $1.17 million for the year ended December 31, 2012 primarily due to the new assessment base methodology pursuant to Dodd-Frank which lowered the Company’s deposit insurance premiums. Advertising expense increased by $99,000 or 20.5% to $583,000 for the year ended December 31, 2013 from $484,000 for the year ended December 31, 2012. The increase was primarily due to our marketing efforts to increase business at the Woodbridge Branch location. Other real estate owned expense decreased by $1.89 million or 97.6% to $46,000 for the year ended December 31, 2013 from $1.94 million for the year ended December 31, 2012. The decrease in OREO expenses was primarily due to a decrease in write-downs of OREO properties of $1.07 million or 111.4% to a write-up of ($110,000) for the year ended December 31, 2013 compared to a write-down of $965,000 for the year ended December 31, 2012 along with a decrease in loss on sale of OREO properties of $786,000 or 115.6% to a gain of $106,000 for the years ended December 31, 2013 from a loss on sale of OREO properties of $680,000 for the year ended December 31, 2012 along with a decrease in OREO expenses of $100,000 or 24.2% to $313,000 for the year ended December 31, 2013 from $413,000 for the year ended December 31, 2012, partially offset by a decrease in OREO rental income of $70,000 or 57.9% to ($51,000) for the year ended December 31, 2013 from ($121,000) for the year ended December 31, 2012 . Other non-interest expense decreased by $1.22 million or 33.9% to $2.38 million for the year ended December 31, 2013 from $3.60 million for the year ended December 31, 2012. The decrease was primarily due to the sale of the non-performing loan portfolio in 2012 which alleviated the carrying and legacy costs associated with these non-performing loans which totaled approximately $1.06 million. O ther non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communicatio n, and other fees and expenses. Income tax provision was $6.55 million for the year ended December 31, 2013 compared with an income tax benefit of $2.25 million for the year ended December 31, 2012, reflecting increased taxable income during the year ended December 31, 2013. The consolidated effective tax rate for the year ended December 31, 2013 was a tax provision of 41.0% compared to a tax benefit of 52.2% for th e year ended December 31, 2012. Liquidity The overall objective of our liquidity management practices is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities. The Company manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings and other obligations as they mature, and to fund loan and investment portfolio opportunities as they arise. The Company’s primary sources of funds to satisfy its objectives are net growth in deposits (primarily retail), principal and interest payments on loans and investment securities , proceeds from the sale of originated loans and FHLB and other borrowings. The scheduled amortization of loans is a predictable source of funds. Deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including unsecured overnight lines of credit and other collateralized borrowings from the FHLB and other correspondent banks. At December 31, 2014, the Company had overnight borrowings outstanding with the FHLB of $26.0 million compared to $18.0 million at December 31, 2013. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $163.1 million at December 31, 2014 as compared to $132.1 million at December 31, 2013. The Company had the ability at December 31, 2014 to obtain additional funding from the FHLB of $95.4 million, utilizing unencumbered loan collateral. The Company expects to have sufficient funds available to meet current loan commitments in the normal course of business through typical sources of liquidity. Time deposits scheduled to mature in one year or less totaled $268.5 million at December 31, 2014. Based upon historical experience data, management estimates that a significant portion of such deposits will remain with the Company. 38 Table of Contents Contractual Obligations and Commitments The following table sets forth our contractual obligations and commercial commitments at December 31, 201 4 . Contractual obligations Total Less than 1 Year 1-3 Years More than 3-5 Years More than 5 Years Payments due by period Benefit Plans Borrowed money Lease obligations Certificates of deposit Total $ $ 6,109 $ 634 $ 1,281 $ 1,295 $ (In Thousands) 159,000 12,989 412,623 26,000 1,959 268,506 110,000 3,500 107,066 - 2,212 37,051 590,721 $ 297,099 $ 221,847 $ 40,558 $ 2,899 23,000 5,318 - 31,217 ITE M 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management of Market Risk Qualitative Analysis. The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior management monitors the level of interest rate risk on a regular basis and the Asset/Liability Committee, which consists of senior management and outside directors operating under a policy adopted by the Board of Directors, meets as needed to review our asset/liability policies and interest rate risk position. Quantitative Analysis. The following table presents the Company’s net portfolio value (“NPV”). These calculations were based upon assumptions believed to be fundamentally sound, although they may vary from assumptions utilized by other financial institutions. The information set forth below is based on data that included all financial instruments as of December 31, 201 4 . Assumptions have been made by the Company relating to interest rates, loan prepayment rates, core deposit duration, and the market values of certain assets and liabilities under the various interest rate scenarios. Actual maturity dates were used for fixed rate loans and certificate accounts. Investment securities were scheduled at either the maturity date or the next scheduled call date based upon management’s judgment of whether the particular security would be called in the current interest rate environment and under assumed interest rate scenarios. Variable rate loans were scheduled as of their next scheduled interest rate repricing date. Additional assumptions made in the preparation of the NPV table include prepayment rates on loans and mortgage-backed securities, core deposits without stated maturity dates were scheduled with an assumed term of 48 months, and money market and noninterest bearing accounts were scheduled with an assumed term of 24 months. The NPV at “PAR” represents the difference between the Company’s estimated value of assets and estimated value of liabilities assuming no change in interest rates. The NPV for a decrease of 200 to 300 basis points has been excluded since it would not be meaningful in the interest rate environment as of December 31, 201 4 . The following sets forth the Company’s NPV as of December 31, 201 4 . Change in calculation Net Portfolio Value $ Change from PAR % Change from PAR NPV Ratio Change NPV as a % of Assets +300bp +200bp +100bp PAR -100bp $ 127,142 143,918 159,463 170,415 198,557 $ (43,273) (26,497) (10,952) - 28,142 (25.39) (15.55) (6.43) - 16.51 % 10.22 11.22 12.07 12.55 14.18 (233) (133) (48) 0 163 bps bps bps bps bps _________ bp-basis points 39 Table of Contents The table above indicates that at December 31, 201 4 , in the event of a 100 basis point increase in interest rates, we would experience a 6. 43 % decrease in NPV. Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in NPV require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the NPV table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income, and will differ from actual results. IT EM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements identified in Item 15(a)(1) hereof are included as Exhibit 13 and are incorporated hereunder. ITE M 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUN TING AND FINANCIAL DISCLOSURE Not applicable. 40 Table of Contents I TEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 (e) and 15d-15(e) under the Exchange Act) as of December 31, 201 4 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings. (b) Management’s Annual Report on Internal Control over Financial Reporting . Management of BCB Bancorp, Inc., and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s system of internal control is designed under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors; and 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 our consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections on any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. As of December 31, 201 4 , management assessed the effectiveness of the Company’s internal control over financial reporting based upon the framework established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ), which was subsequently updated in 2013 . Based upon its assessment, management believes that the Company’s internal control over financial reporting as of December 31, 201 4 is effective and meets the criteria of the Internal Control – Integrated Framework (1992) . 41 Table of Contents (c) Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders BCB Bancorp, Inc. Bayonne, New Jersey We have audited BCB Bancorp, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 201 4 , based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) . BCB Bancorp, Inc.’s management is responsible 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 Report on Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. 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 audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 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 accounting principles generally accepted in the United States of America. 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. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 201 4 , based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows of the Company, and our report dated March 1 2 , 201 5 expressed an unqualified opinion. /s/ Baker Tilly Virchow Krause, LLP Baker Tilly Virchow Krause, LLP Clark, New Jersey March 1 2 , 201 5 (d) Changes in Internal Controls Over Financial Reporting. On May 14, 2013, COSO issued an updated version of its Internal Control—Integrated Framework, referred to as the 2013 COSO Framework and has indicated that after December 15, 2014, the 1992 Framework will be considered superseded after December 31, 2014. Our Management’s assessment of the overall effectiveness of our internal controls over financial reporting for the year ending December 31, 2014 was based on the 1992 COSO Framework. Management will change from the 1992 Framework to the 2013 COSO Framework in 2015 and it is not expected to be significant to our overall control structure over financial reporting. There were no significant changes made in our internal controls during the fourth quarter of 201 4 or, to our knowledge, in other factors that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting. See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. IT EM 9B. OTHER INFORMATION None. 42 Table of Contents IT EM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III The Company has adopted a Code of Ethics that applies to the Company’s chief executive officer, chief financial officer or, controller or persons performing similar functions. The Code of Ethics is available for free by writing to: President and Chief Executive Officer, BCB Bancorp, Inc., 104-110 Avenue C, Bayonne, New Jersey 07002. The Code of Ethics was filed as an exhibit to the Form 10-K for the year ended December 31, 2004. The “Proposal I—Election of Directors” section of the Company’s definitive Proxy Statement for the Company’s 201 5 Annual Meeting of Stockholders (the “201 5 Proxy Statement”) is incorporated herein by reference in response to the disclosure requirements of Items 401, 405, 406, 407(d)(4) and 407(d)(5) of Regulation S-K. The information concerning directors and executive officers of the Company under the caption “Proposal I-Election of Directors” and information under the captions “Section 16(a) Beneficial Ownership Compliance” and “The Audit Committee” of the 201 5 Proxy Statement is incorporated herein by reference. There have been no changes during the last year in the procedures by which security holders may recommend nominees to the Company’s board of directors. IT EM 11. EXECUTIVE COMPENSATION The “Executive Compensation” section of the Company’s 201 5 Proxy Statement is incorporated herein by reference. ITE M 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The “Proposal I—Election of Directors” section of the Company’s 201 5 Proxy Statement is incorporated herein by reference. ITE M 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The “Transactions with Certain Related Persons” section and “Proposal I-Election of Directors—Board Independence” of the Company’s 201 5 Proxy Statement is incorporated herein by reference. I TE M 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by Item 14 is incorporated by reference to the Company’s Proxy Statement for the 201 5 Annual Meeting of Stockholders, “Proposal II-Ratification of the Appointment of Independent Auditors—Fees Paid to Baker Tilly Virchow Krause, LLP .” IT EM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The exhibits and financial statement schedules filed as a part of this Form 10-K are as follows: (A) Report of Independent Registered Public Accounting Firm (B) Consolidated Statements of Financial Condition as of December 31, 201 4 and 201 3 PART IV (C) Consolidated Statements of Operations for each of the Years in the Three-Year period ended December 31, 201 4 (D) Consolidated Statements of Comprehensive Income (Loss) for each of the Years in the Three-Year period ended December 31, 201 4 ( E ) Consolidated Statements of Changes in Stockholders’ Equity for each of the Years in the Three-Year period ended December 31, 201 4 ( F ) Consolidated Statements of Cash Flows for each of the Years in the Three-Year period ended December 31, 201 4 ( G ) Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated statements or the notes thereto. 43 Table of Contents (b) Exhibits 3.1 3.2 3.3 4 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 Restated Certificate of Incorporation of BCB Bancorp, Inc. (1) Bylaws of BCB Bancorp, Inc. (2) Certificate of Amendment to Restated Certificate of Incorporation (18) Specimen Stock Certificate (3) BCB Community Bank 2002 Stock Option Plan (4) BCB Community Bank 2003 Stock Option Plan (5) Amendment to 2002 and 2003 Stock Option Plans (6) 2005 Director Deferred Compensation Plan (7) Employment Agreement with Donald Mindiak (8) Employment Agreement with Thomas M. Coughlin (9) Employment Agreement with Kenneth Walter (10) Executive Agreement with Donald Mindiak (11) Executive Ag reement with Thomas M. Coughlin (12) 10.10 Executive Agreement with Kenneth Walter (13) 10.11 10.12 10.13 10.14 10.15 10.16 13 14 21 23 31.1 31.2 32 Consulting Agreement with Dr. August Pellegrini, Jr. (14) Consulting Agreement with James E. Collins (15) BCB Bancorp, Inc. 2011 Stock Option Plan (16) Employment Agreement with Amer Saleem (19) Separation Agreement with Amer Saleem (20) Employment Agreement with Joseph Javitz Consolidated Financial Statements Code of Ethics (17) Subsidiaries of the Company (2 1 ) Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ________________ (1) Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended, (Commission File Number 333-128214) originally filed with the Securities and Exchange Commission on September 9, 2005. (2) Incorporated by reference to Exhibit 3 to the Form 8-K filed with the Securities and Exchange Commission on October 12, 2007. (3) Incorporated by reference to Exhibit 4 to the Form 8-K-12g3 filed with the Securities and Exchange Commission on May 1, 2003. (4) Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange C ommission on January 26, 2004. (5) Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange C ommission on January 26, 2004. (6) Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2006. (7) Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, as amended, (Commission File Number 333-128214) originally filed with the Securities and Exchange Commission on September 9, 2005. (8) Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Securities and Exchange Commission on July 30, 2012 . (9) Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange Commission on July 30, 2012 . (10) Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the Securities and Exchan ge Commission on July 8, 2010. (11) Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Securities and Exchange Co mmission on December 15, 2008. (12) Incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the Securities and Exchange Co mmission on December 15, 2008. 44 Table of Contents (13) Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Securities and Exchan ge Commission on July 8, 2010. (14) Incorporated by reference to Exhibit 10.7 to the Form 8-K filed with the Securities and Exchan ge Commission on July 8, 2010. (15) Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange Co mmission on September 1, 2010. (16) Incorporated by reference to Appendix A to the proxy statement for the Company’s Annual Meeting of Shareholders (File No. 000-50275), filed by the Company with the Securities and Exchange Commission on Schedule 14A on March 28, 2011. (17) Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2004. (18) Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 5, 2013. (19) Incorpor ated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 14, 2013. (20) Incorporated by reference to Exhibit 10.1 to the Company’s Form 10 - Q filed with the Securities and Exchange Commission on August 7, 2014 . (21) Incorporated by reference to Exhibit 21 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2014. 45 Table of Contents Pursuant to the requirements of Section 13 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. Signatures Date: March 12, 2015 BCB BANCORP, INC. By: /s/ Thomas Coughlin Thomas Coughlin President and Chief Executive Officer (Principal Executive Officer) (Duly Authorized Representative) Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Thomas Coughlin Thomas Coughlin /s/ Thomas P. Keating Thomas P. Keating /s/ Mark D. Hogan Mark D. Hogan /s/ Robert Ballance Robert Ballance /s/ Judith Q. Bielan Judith Q. Bielan /s/ Joseph J. Brogan Joseph J. Brogan /s/ James E. Collins James E. Collins /s/ Joseph Lyga Joseph Lyga President, Chief Executive Officer and Director Chief Financial Officer (Principal Financial and Accounting Officer) Chairman of the Board Director Director Director Director Director 46 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 Table of Contents /s/ Alexander Pasiechnik Alexander Pasiechnik /s/ August Pellegrini, Jr. August Pellegrini, Jr. /s/ James Rizzo James Rizzo /s/ Spencer B. Robbins Spencer B. Robbins /s/ Gary S. Stetz Gary S. Stetz Director Director Director Director Director 47 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 March 12, 2015 Table of Contents EXHIBIT 13 CONSOLIDATED FINANCIAL STATEMEN TS Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Financial Report December 31, 201 4 and 201 3 Table of Contents Table of Contents Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Statements of Financial Condition Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Changes in Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 1 2 3 4 5 7 Table of Contents Board of Directors and Stockholders BCB Bancorp, Inc. Bayonne, New Jersey RE PORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have audited the accompanying consolidated statements of financial condition of BCB Bancorp, Inc. and Subsidiaries (collectively the “Company”) as of December 31, 201 4 and 201 3 , and the related consolidated statements of operations, comprehensive income (loss) , changes in stockholders' equity and cash flows for each of the years in the th ree-year period ended December 3 1, 201 4 . These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BCB Bancorp, Inc. and Subsidiaries as of December 31, 201 4 and 201 3 , and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 201 4 , in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31 , 201 4 , based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1 2 , 201 5 , expressed an unqualified opinion thereon. /s/ Baker Tilly Virchow Krause, LLP Clark, New Jersey March 1 2 , 201 5 Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Statements of Financial Condition ASSETS Cash and amounts due from depository institutions Interest-earning deposits Total cash and cash equivalents Interest-earning time deposits Securities available for sale Securities held to maturity, fair value $0 and $115,158 , respectively Loans held for sale Loans receivable, net of allowance for loan losses of $16,151 and $14,342 , respectively Federal Home Loan Bank of New York stock, at cost Premises and equipment, net Accrued interest receivable Other real estate owned Deferred income taxes Other assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Non-interest bearing deposits Interest bearing deposits Total deposits Short-term debt Long-term debt Subordinated debentures Other liabilities Total Liabilities STOCKHOLDERS' EQUITY Preferred stock: $0.01 par value, 10,000,000 shares authorized, issued and outstanding 1,343 shares of series A and B 6% noncumulative perpetual preferred stock (liquidation value $10,000 per share) Additional paid-in capital preferred stock Common stock; $0.064 par value; 20,000,000 shares authorized, issued 10,924,054 and 10,861,129 at December 31, 2014 and 2013, respectively, 8,393,791 shares and 8,331,750 shares, respectively outstanding Additional paid-in capital common stock Retained earnings Accumulated other comprehensive (loss) income Treasury stock, at cost, 2,530,263 and 2,529,379 shares, respectively Total Stockholders' Equity Total Liabilities and Stockholders' Equity See accompanying notes to consolidated financial statements . December 31, 2014 2013 (In Thousands, Except Share and Per Share Data) $ $ $ $ $ $ 11,202 20,921 32,123 993 9,768 - 3,325 1,207,850 8,830 14,295 4,454 3,485 9,703 7,074 1,301,900 127,308 901,248 1,028,556 26,000 133,000 4,124 7,968 1,199,648 - 13,326 699 92,686 25,983 (1,337) (29,105) 102,252 10,847 18,997 29,844 990 1,104 114,216 1,663 1,020,344 7,840 13,853 4,157 2,227 9,942 1,779 1,207,959 107,613 861,057 968,670 18,000 110,000 4,124 7,105 1,107,899 - 12,556 694 92,064 23,710 129 (29,093) 100,060 $ 1,301,900 $ 1,207,959 1 Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Statements of Operations Interest income: Loans, including fees Investments, taxable Investments, non-taxable Other interest-earning assets Total interest income Interest expense: Deposits: Demand Savings and club Certificates of deposit Borrowings Total interest expense Net interest income Provision for loan losses Net interest income, after provision for loan losses Non-interest income (loss): Fees and service charges Gain on sales of loans and other real estate owned Gain on sale of loans acquired Loss on bulk sale of impaired loans held in portfolio Gain on sale of securities held to maturity Gain on sale of securities available for sale Other Total non-interest income (loss) Non-interest expense: Salaries and employee benefits Occupancy expense of premises Equipment Professional fees Director fees Regulatory assessments Advertising Other real estate owned, net Other Total non-interest expense Income (loss) before income tax provision Income tax provision (benefit) Net Income (loss) Preferred stock dividends Net Income (loss) available to common stockholders Net Income (loss) per common share-basic and diluted Basic Diluted Weighted average number of common shares outstanding Basic Diluted See accompanying notes to consolidated financial statements. 2014 Years Ended December 31, 2013 (In Thousands, Except for Per Share Data) 2012 $ 57,858 2,254 28 55 60,195 507 406 4,287 5,200 5,107 10,307 49,888 2,800 47,088 2,188 2,179 - (4,012) 2,288 1,223 92 3,958 20,145 4,143 5,627 2,121 727 1,142 1,033 80 3,391 38,409 12,637 5,047 7,590 800 6,790 0.81 0.81 8,366 8,401 $ $ $ $ $ 53,521 3,737 49 52 57,359 444 363 4,795 5,602 4,978 10,580 46,779 2,750 44,029 1,822 1,529 - (474) 378 - 120 3,375 15,691 3,516 5,207 2,250 672 1,096 583 46 2,376 31,437 15,967 6,551 9,416 559 8,857 1.06 1.06 8,397 8,402 $ $ $ $ 47,756 5,730 49 112 53,647 564 477 5,849 6,890 5,057 11,947 41,700 4,900 36,800 1,595 1,220 286 (10,804) 349 - 129 (7,225) 15,017 3,558 4,907 2,490 728 1,172 484 1,936 3,597 33,889 (4,314) (2,252) (2,062) - (2,062) (0.23) (0.23) 8,943 8,943 $ $ $ $ $ 2 Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) Net Income (Loss) Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the period Less: reclassification for gains on sale of securities available for sale on Consolidated Statement of Income Tax effect (a) Net of tax effect Benefit Plans: Actuarial (loss) gain Tax effect Net of tax effect Other comprehensive (loss) income Comprehensive income (loss) (a ) Income tax provision on Consolidated Statement of Income includes $488,000 in 2014 related to the sale of securities available for sale. See accompanying notes to consolidated financial statements. 3 2014 Years Ended December 31, 2013 (In Thousands) 2012 $ $ 7,590 $ 286 (1,223) 383 (554) (1,542) 630 (912) (1,466) 6,124 $ 9,416 $ 863 - (353) 510 1,443 (589) 854 1,364 10,780 $ (2,062) 195 - (80) 115 (107) 44 (63) 52 (2,010) Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity Balance at January 1, 2012 $ — $ 692 $ 91,715 $ 25,255 $ (16,327) $ (1,287) $ 100,048 Preferred Stock Common Stock Additional Paid In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (In Thousands, except per share data) Proceeds from issuance of series A stock, net of issuance costs of $ 80 Exercise of stock options (29,661 shares) Stock compensation expense Treasury stock purchases ( 1,046,726 shares) Cash dividends ($0.48 per share) declared Net loss Other comprehensive income Balance at December 31, 2012 Proceeds from issuance of series B stock, net of issuance costs of $ 24 Exercise of stock options ( 51,612 shares) Stock-based compensation expense Treasury stock purchases ( 184,808 shares) Dividends payable on Series A and Series B 6% noncumulative perpetual preferred stock Cash dividends on common stock ($0.48 per share) declared Net income Other comprehensive income Balance at December 31, 2013 Proceeds from issuance of Series B preferred stock Exercise of stock options ( 127,539 shares) Stock-based compensation expense Treasury stock purchases ( 884 shares) Dividends payable on Series A and Series B 6% noncumulative perpetual preferred stock Cash dividends on common stock ($0.12 per share in February and $ 0.14 per share in May, August, and November) declared Dividend reinvestment plan Stock purchase plan Net income Other comprehensive income — — — — — — — — — — — — — — — — — 2 — — — — — 8,570 107 24 — — — — — — — — (4,310) (2,062) — 694 100,416 18,883 — — — — — — — — 3,986 157 61 — — — — — — — — — (559) (4,030) 9,416 — — — — (10,850) — — — (27,177) — — — (1,916) — — — — — — — — — — 52 (1,235) — — — — — — — 1,364 8,570 109 24 (10,850) (4,310) (2,062) 52 91,581 3,986 157 61 (1,916) (559) (4,030) 9,416 1,364 $ —$ 694 $ 104,620 $ 23,710 $ (29,093) $ 129 $ 100,060 — — — — — — — — — — — 5 — — — — — — — — 770 346 55 — — — 105 116 — — — — — — (800) (4,412) (105) — 7,590 — — — — (12) — — — — — — — — — — — — — — — (1,466) 770 351 55 (12) (800) (4,412) — 116 7,590 (1,466) Ending balance at December 31, 2014 $ —$ 699 $ 106,012 $ 25,983 $ (29,105) $ (1,337) $ 102,252 See accompanying notes to consolidated financial statements. 4 Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows Cash flows from Operating Activities : Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of premises and equipment Amortization and accretion, net Provision for loan losses Deferred income tax (benefit) Loans originated for sale Proceeds from sale of loans originated for sale Gain on sales of loans (Gain) loss on sales of other real estate owned Fair value adjustment of other real estate owned Loss on donated other real estate owned property Write down of other real estate owned Gain on sales of securities held to maturity Gain on sales of securities available for sale Gain on sales of SBA loans acquired Loss on bulk sale of impaired loans held in portfolio Stock compensation expense (Increase) decrease in accrued interest receivable (Increase) decrease in other assets Increase (decrease) in accrued interest payable (Decrease) increase in other liabilities Net Cash Provided by Operating Activities Cash flows from Investing Activities: Proceeds from repayments, calls, and maturities on securities held to maturity Proceeds from calls on securities available for sale Purchases of securities held to maturity Purchase of interest-earning time deposits Proceeds from sales of securities held to maturity Proceeds from sales of securities available for sale Proceeds from sales of SBA loans acquired Proceeds from sales of other real estate owned Proceeds from bulk sale of impaired loans held in portfolio Proceeds from sales of participation interests in loans Participation loans held in portfolio Purchases of loans Net increase in loans receivable Improvements to other real estate owned Additions to premises and equipment Purchase of Federal Home Loan Bank of New York stock Net Cash Used In Investing Activities Cash flows from Financing Activities: Net increase (decrease) in deposits Proceeds from long-term debt Repayment of long-term debt Net change in short term debt Purchase of treasury stock Cash dividends paid on common stock Cash dividends paid on preferred stock Net proceeds from issuance of common stock Net proceeds from issuance of preferred stock Net Cash Provided By (Used In) Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents-Beginning Cash and Cash Equivalents-Ending 2014 Years Ended December 31, 2013 (In Thousands) 2012 $ 7,590 $ 9,416 $ 1,512 (819) 2,800 1,251 (25,450) 25,507 (2,125) (54) - - - (2,288) (1,223) - 4,012 55 (297) (5,296) 47 (726) 4,496 10,272 93 (3,034) - 99,198 1,320 - 907 10,355 - - (8,068) (197,421) - (1,748) (990) (89,116) 59,886 23,000 - 8,000 (12) (4,412) (800) 467 770 86,899 2,279 $ 29,844 32,123 $ 5 1,366 627 2,750 (832) (22,233) 20,116 (1,529) (106) (110) - - (378) - - 474 61 (94) 5,999 (21) 532 16,038 44,957 1,000 (5,059) - 9,493 - - 3,658 - 24,224 (24,224) (22,620) (76,634) (35) (1,651) (142) (47,033) 27,884 - - 1,000 (1,916) (4,030) (389) 157 3,986 26,692 (4,303) - 34,147 29,844 $ (2,062) 1,143 1,453 4,900 (149) (30,137) 32,724 (1,220) 681 - 128 965 (349) - (286) 10,804 24 934 (5,167) (24) (1,922) 12,440 67,489 - (57,331) - 30,584 - 10,836 4,223 15,093 - - (31,064) (91,105) (59) (1,135) (200) (52,669) (36,837) - (15,407) 17,000 (10,850) (4,310) - 109 8,570 (41,725) (81,954) 116,101 34,147 Table of Contents BCB Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows Supplementary Cash Flow Information Cash paid during the year for: Income taxes Interest Non-cash items: Transfer of loans to other real estate owned Loans to facilitate sales of other real estate owned Reclassification of loans originated for sale to held to maturity See accompanying notes to consolidated financial statements. 2014 Years Ended December 31, 2013 2012 $ $ $ $ $ 7,416 $ 10,261 $ 2,372 $ $ - 460 $ 857 $ 10,601 $ 3,010 $ 650 $ 3,585 $ 3,979 11,971 4,463 1,821 2,887 6 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Organization and Stock Offerings BCB Bancorp, Inc. (the “Company”) is incorporated in the State of New Jersey and is a bank holding company. The common stock of the Company is listed on the Nasdaq Global Market and trades under the symbol “BCBP.” On October 30, 2013, the Company amended its Restated Certificate of Incorporation to revise Article V to amend certain terms related to the Series A 6% Noncumulative Perpetual Preferred Stock and to create a new Series B 6% Noncumulative Perpetual Preferred Stock, which sets forth the number of shares to be included in such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. Such amendment to the Restated Certificate of Incorporation was approved by the directors of BCB Bancorp, Inc. on February 20, 2013. On October 31, 2013, the Company closed a private placement of Series B Noncumulative Perpetual Preferred Stock, resulting in the issuance of 4 78 shares of Series B 6% Non-Cumulative Perpetual Preferred Shares for gross proceeds of $4. 78 million through December 31, 2014 . The costs associated with the private placement were approximately $24,000 . The shares issued are callable by the Company after October 31, 2016, at $10,000 per share (liquidation preference value). There is no ability to convert the preferred shares to common shares. Dividends on the preferred shares, if and when declared, will be paid quarterly in arrears. On December 20, 2012, the Company amended its Restated Certificate of Incorporation to include a new Article V, Part (C) which establishes a Series A 6% Noncumulative Perpetual Preferred Stock and sets forth the number of shares to be included in such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. Such amendment to the Restated Certificate of Incorporation was approved by the directors of BCB Bancorp, Inc. on October 10, 2012. On December 31, 2012, the Company closed a private placement of Series A Noncumulative Perpetual Preferred Stock, resulting in the issuance of 865 shares of Series A 6% Non-Cumulative Perpetual Preferred Shares for gross proceeds of $8.65 million. The costs associated with the private placement were approximately $80,000 . The shares issued are callable by the Company after December 31, 2015, at $10,000 per share (liquidation preference value). There is no ability to convert the preferred shares to common shares. Dividends on the preferred shares, if and when declared, will be paid quarterly in arrears. On November 20, 2007, the Company announced a stock repurchase plan which provided for the repurchase of 5% or 234,002 shares of the Company’s common stock. This plan was completed during 2010. On July 14, 2010, the Company announced a stock repurchase plan to repurchase 5% or 479,965 shares of the Company’s common stock. This plan was completed during 2010. On December 20, 2010, the Company entered into an agreement with a broker to administer a Rule 10b5-1 trading plan on behalf of the Company. The Rule 10b5-1 trading plan will permit the broker to purchase up to 450,000 shares of Company common stock at designated prices during periods when the Company would otherwise be unable to purchase its common stock. The Board authorized the Rule 10b5-1 trading plan on December 16, 2010. On December 14, 2011, the Company announced a stock repurchase plan to repurchase 5% or 462,225 shares of the Company’s common stock. This plan was completed during 2012. On May 9, 2012, the Company announced a stock repurchase plan to repurchase 5% or 462,800 shares of the Company’s common stock. This plan was completed during 2012. On June 28, 2012, the Company announced a stock repurchase plan to repurchase 5% or 440,000 shares of the Company’s common stock. On July 17, 2013, the Company announced a stock repurchase plan to repurchase up to 400,000 shares of the Company’s common stock. During 201 4 , 201 3 and 201 2 , a total of 884, 184,808 , and 1,046,726 shares of the Company’s common stock was repurchased under these plans at a cost of approximately $12,000 , $ 1.9 million and $10.9 million or $ 13.57 , $10.37 and $10.37 per share, respectively. The Company’s primary business is the ownership and operation of BCB Community Bank (the “Bank”). The Bank is a New Jersey commercial bank which, as of December 31, 201 4 , operated at thirteen locations in Bayonne, Colonia, Fairfield, Hoboken, Jersey City, Monroe Township, South Orange, and Woodbridge New Jersey, and is subject to regulation, supervision, and examination by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowed funds, to invest in securities and to make loans collateralized by residential and commercial real estate and, to a lesser extent, consumer loans. BCB Holding Company Investment Corp. (the “New Jersey Investment Company”) was organized in January 2005 under New Jersey law as a New Jersey investment company primarily to hold investment and mortgage-backed securities. Pamrapo Service Corporation was organized in 1975 under New Jersey law to engage in the purchase and sale of real estate. In the 1990’s, the Service Corporation was engaged in the business of selling non-financial products, (annuities, mutual funds and stocks) to the public. The Pamrapo Service Corporation has been inactive since May 2010. BCB New York Management, Inc. (the “New York Management Company”) was organized in October 2012 under New York law as a New York investment company primarily to hold various loan products, investment and mortgage-backed securities. BCB New York Management, Inc. was inactive in 2012. 7 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 - Summary of Significant Accounting Policies Basis of Consolidated Financial Statement Presentation The consolidated financial statements which include the accounts of the Company and its wholly-owned subsidiaries, the Bank, the Investment Company and Pamrapo Service Corporation, have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions have bee n eliminated in consolidation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the periods then ended. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the identification of other-than-temporary impairment of securities, the determination as to whether deferred tax assets are realizable, and the determination of the fair value of financial instruments. Management believes that the allowance for loan losses is adequate; no securities in unrealized loss positions are other-than-temporarily impaired; net deferred tax assets have been reduced to an amount which is more-likely-than-not realizable, and the fair values of financial instruments are appropriate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area. Management’s assessment regarding impairment of securities is based on future projections of cash flow which are subject to change. The realizability of deferred tax assets is partially based on projections of future taxable income, which is subject to change. The determination of fair value requires the use of various inputs which are subject to frequent and ongoing changes. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. In preparing these consolidated financial statements, the Company evaluated the events that occurred between December 31, 201 4 and the date these consolidated financial statements were issued. Cash and Cash Equivalents Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits in other banks having original maturities of three months or less. Securities Available for Sale and Held to Maturity Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities or as held to maturity securities are classified as available for sale securities (“AFS”) and reported at fair value, with unrealized holding gains or losses, net of applicable deferred income taxes, reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities. Accordingly, temporary impairments are accounted for based upon the classification of the related securities as either available for sale or held to maturity. Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through Other Comprehensive Income (“OCI”) with offsetting entries adjusting the carrying value of the securities and the balance of deferred taxes. Conversely, the carrying values of held to maturity securities are not adjusted for temporary impairments. Information concerning the amount and duration of temporary impairments on both available for sale and held to maturity securities is disclosed in the notes to the consolidated financial statements. Other-than-temporary impairments are accounted for based upon several considerations. First, other-than-temporary impairments on debt securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of the sale of debt securities are applicable, then the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components. A credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related, other-than-temporary impairments are recognized in earnings and noncredit-related, other-than-temporary impairments are recognized in OCI. Equity securities on which there is an unrealized loss tha t is deemed other-than-temporary impaired are written down to fair value with the write-down recognized in earnings. Premiums and discounts on all securities are amortized/accreted to maturity using the interest method. Interest and dividend income on securities, which includes amortization of premiums and accretion of discounts, are recognized in the consolidated financial statements when earned. Loans Held For Sale Loans held for sale consist primarily of residential mortgage loans intended for sale and are carried at the lower of cost or estimated fair market value using the aggregate method. These loans are generally sold with servicing rights released. Gains and losses recognized on loan sales are based upon the cash proceeds received and the cost of the related loans sold. 8 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 - Summary of Significant Accounting Policies Loans Receivable Loans receivable are stated at unpaid principal balances, less net deferred loan origination fees and the allowance for loan losses. Loan origination fees and certain direct loan origination costs are deferred and amortized/accreted, as an adjustment of yield, over the contractual lives of the related loans. The accrual of interest on loans that are contractually delinquent more than ninety days is discontinued and the related loans placed on nonaccrual status. All payments received while in nonaccrual status, are applied to principal until the loan has performed as expected for a minimum of six (6) months or until the loan is determined to qualify for return to normal accruing status. Loans may be returned to accrual status when all the principal and interest contractually due are brought current and future payments are reasonably assured. Acquired Loans Loans that were acquired in acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance for credit losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment. Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. We have determined that we cannot reasonably estimate future cash flows on any such acquired loans that are past due 90 days or more and continue to treat them as non-accrual. Allowance for Loan Losses The allowance for loan losses is increased through provisions charged to operations and by recoveries, if any, on previously charged-off loans and reduced by charge-offs on loans which are determined to be a loss in accordance with Bank policy. The allowance for loan losses is maintained at a level considered adequate to absorb loan losses. Management, in determining the allowance for loan losses, considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Bank utilizes a two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potentially impaired loans. Such a system takes into consideration, but is not limited to, delinquency status, size of loans, types and value of collateral, and financial condition of the borrowers. Specific loan loss allowances are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management’s judgment. Although management believes that adequate specific and general allowances for loan losses are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. The Bank does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied to principal. Concentration of Risk Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Securities include securities backed by the U.S. Government and other highly rated instruments. The Bank’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New Jersey. As a result, credit risk related to loans is broadly dependent on the real estate market and general economic conditions in the State. 9 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (Continued ) Premises and Equipment Land is carried at cost. Buildings, building improvements, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Significant renovations and additions are charged to the property and equipment account. Maintenance and repairs are charged to expense in the period incurred. Depreciation charges are computed on the straight-line method over the following estimated useful lives of each type of asset. Buildings Building improvements Furniture, fixtures and equipment Leasehold improvements Years 40 7 - 40 3 - 5 Shorter of useful life or term of lease Federal Home Loan Bank (“FHLB”) of New York Stock Federal law requires a member institution of the FHLB system to hold stock of its district FHLB according to a predetermined formula. Such stock is carried at cost. Management evaluates the FHLB of New York stock for impairment in accordance with guidance on accounting by entities that lend to or finance the activities of others. Management’s determination of whether this investment is impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB of New York as compared to the capital stock amount for the FHLB of New York and the length of time this situation has persisted, (2) commitments by the FHLB of New York to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB of New York, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB of New York. No impairment charges were recorded related to the FHLB of New York stock during 201 4 , 201 3 , or 201 2 . Other Real Estate Owned Assets acquired through, or in lieu of, loan foreclosures are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs relating to development and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. At December 31, 201 4 , the Bank owned seven properties totaling $ 3,485 ,000 . At December 31, 201 3 , the Bank owned seven properties totaling $ 2 ,2 27 ,000 . Interest Rate Risk The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to make loans secured by real estate and to purchase securities. The potential for interest-rate risk exists as a result of the difference in duration of the Bank’s interest-sensitive liabilities compared to its interest-sensitive assets. For this reason, management regularly monitors the maturity structure of the Bank’s interest-earning assets and interest-bearing liabilities in order to measure its level of interest-rate risk and to plan for future volatility. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the Company and its subsidiaries based upon their respective income or loss included in the consolidated income tax return. Separate state income tax returns are filed by the Company and its subsidiaries. Federal and state income tax expense has been provided on the basis of reported income. The amounts reflected on the tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted for as deferred taxes applicable to future periods. Deferred income tax expense or (benefit) is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not more likely than not to be realized. 10 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (Continued) The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with ASC Topic 740, Income Taxes , which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. 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 has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Under the “more-likely-than-not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company recognizes interest and penalties on unrecognized tax benefits in income taxes expense in the Consolidated Statement of Operations. The Company did not recognize any interest and penalties for the years ended December 31, 201 4 , 201 3 and 2012 . The tax years subject to examination by the Federal taxing authority are the years ended December 31, 201 3 , 201 2 , and 201 1 . The tax years subject to examination by the State taxing authority are the years ended December 31, 201 3 , 201 2 , 201 1 , and 20 10 . Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) less dividends on preferred stock by the weighted average number of shares of common stock outstanding. The diluted net income (loss) per common share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effects of outstanding stock options, if dilutive, using the treasury stock method. Dilution is not applicable in periods of net loss. For the years ended December 31, 2014, 2013 and 2012, the difference in the weighted average number of basic and diluted common shares was due solely to the effects of outstanding stock options. No adjustments to net income (loss) were necessary in calculating basic and diluted net income (loss) per share. For the years ended December 31, 2014, 2013 and 2012, the weighted average number of outstanding options considered to be anti-dilutive was 126,219, 213,482 , and 0 , respectively . Stock-Based Compensation Plans The Company, under plans approved by its stockholders in 2011, 2003 and 2002, has granted stock options to employees and outside directors. See note 1 3 for additional information as to option grants. Compensation expense recognized for all option grants is net of estimated forfeitures and is recognized over the awards’ respective requisite service periods. The fair values relating to all options granted are estimated using a Black-Scholes option pricing model. Expected volatilities are based on historical volatility of our stock and other factors, such as implied market volatility using this options expected term. The Company used the mid-point of the original vesting period and original option life to estimate the options’ expected term, which represents the period of time that the options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes compensation expense for the fair values of these option awards, which have graded vesting, on a straight-line basis over the requisite service period of these awards. Benefit Plans The Company acquired through the merger with Pamrapo Bancorp, Inc. a non-contributory defined benefit pension plan covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (the “Pension Plan”), was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the “Pension Plan” to the freeze date have been retained. The benefits are based on years of service and employee’s compensation. The defined benefit plan is funded in conformity with funding requirements of applicable government regulations. Prior service costs for the defined benefit plan generally are amortized over the estimated remaining service periods of employees. Additionally, with the merg er with Pamrapo Bancorp, Inc., certain former employees of Pamrapo Bank are covered under a Supplemental Executive Retirement Plan (“SERP”), an unfunded non-qualified deferred retirement plan. Participants who retire at the age of 65 (the “Normal Retirement Age”), are entitled to an annual retirement benefit equal to 75% of compensation reduced by their retirement plan annual benefits. Participants retiring before the Normal Retirement Age receive the same benefits reduced by a percentage based on years of service to the Company and the number of years prior to the Normal Retirement Age that participants retire. Comprehensive Income (Loss) The Company records unrealized gains and losses, net of deferred income taxes, on securities available for sale in accumulated other comprehensive income (loss). Realized gains and losses, if any, are reclassified to non-interest income upon sale of the related securities or upon the recognition of an impairment loss. Accumulated other comprehensive income (loss) also includes benefit plan amounts recognized in accordance with ASC 715, Compensation-Retirement Benefits , which reflect, net of tax, the unrecognized gains (losses) on the benefit plans. Reclassification Certain amounts as of and for the years ended December 31, 201 3 and 201 2 have been reclassified to conform to the current year’s presentation. These changes ha d no effect on the Company’s results of operations or financial position. Recent Accounting Pronouncements Accounting Standards Update 2014-14: Receivables – Troubled Debt Restructurings by Creditors (Topic 310-40) – Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure This ASU was issued as a result of the diversity in practice related to how creditors classify government-guaranteed mortgage loans upon foreclosure. The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure when the following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure, 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. 11 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (Continued) The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. For entities other than public business entities, the amendments are effective for annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015. The amendments in this ASU should be adopted on either a prospective transition method or a modified retrospective transition method . However, a reporting entity must apply the same method of transition as elected under ASU 2014-04. Early adoption, including adoption in an interim period, is permitted if the reporting entity has adopted ASU 2014-04. The Company is currently evaluating the impact of this update. Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606) ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition— Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. The core principle of the guidance is that an entity should recognize revenue to depict 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. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. For a public business entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. For all other entities (nonpublic business entities), the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. A nonpublic entity may elect to apply this guidance earlier, however, only as of the following: • • • An annual reporting period beginning after December 15, 2016, including interim periods within that reporting period (public business entity effective date); An annual reporting period beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017; or An annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. An entity should apply the amendments in this ASU using one of the following two methods: Retrospectively to each prior reporting period presented and the entity may elect any of the following practical expedients: • • • For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period. For completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. F or all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue. Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects this transition method it also should provide the additional disclosures in reporting periods that include the date of initial application of: The amount by which each financial statement line item is affected in the current reporting period by the application of this ASU as compared to the guidance that was in effect before the change. An explanation of the reasons for significant changes. Accounting Standards Update 2014-04: Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure Th e objective of this ASU is to reduce the diversity in practice of when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan and when the related loan receivable should be derecognized and the real estate owned recognized. This amendment clarifies that an in substance repossession or foreclosure occurs when either a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Upon completion of either of these two events the creditor is considered to have received physical possession of residential real estate property and therefore should derecognize the loan receivable and recognize the real estate owned. • • • • • • 12 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (Continued ) • • Additionally, this amendment requires interim and annual disclosure of both a) the amount of foreclosed residential real estate property held by the creditor and b) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The provisions of this ASU are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2014. For entities other than public business entities, this ASU is effective for annual periods beginning after December 5, 2014, and interim periods within annual periods beginning after December 15, 2015. This ASU can be adopted using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The Company is currently evaluating the impact of this update. Proposed Accounting Standards Update (Exposure Draft): Financial Instruments (Topic 825-15) - Credit Losses The Board is currently in the process of redeliberating significant issues raised through feedback received from comment letters and outreach activities. FASB expects to issue this proposed accounting standards update in late 2015. An effective date has yet to be discussed. Impairment model - The Board will continue to refine the Current Expected Credit Loss (CECL) model in the December 2012 proposed Update. Measurement of expected credit losses - The guidance in the proposed Update regarding an entity’s estimate of expected credit losses will be clarified as follows: 1. 2. 3. An entity should revert to a historical average loss experience for the future periods beyond which the entity is able to make or obtain reasonable and supportable forecasts. An entity should consider all contractual cash flows over the life of the related financial assets. When determining the contractual cash flows and the life of the related financial assets: a. An entity should consider expected prepayments b. An entity should not consider expected extensions, renewals, and modifications unless the entity reasonably expects that it will execute a troubled debt restructuring with a borrower. An entity’s estimate of expected credit losses should always reflect the risk of loss, even when that risk is remote. However, an entity would not be required to recognize a loss on a financial asset in which the risk of nonpayment is greater than zero yet 4. the amount of loss would be zero. 5. factors. 6. In addition to using a discounted cash flow model to estimate expected credit losses, an entity would not be prohibited from developing an estimate of credit losses using loss-rate methods, probability-of-default methods, or a provision matrix using loss The final guidance on expected credit losses will include implementation guidance describing the factors that an entity should consider to adjust historical loss experience for current conditions and reasonable and supportable forecasts. Accounting for purchased credit impaired (PCI) financial assets - An entity would be required to allocate to each individual financial asset the non-credit-related discount or premium resulting from acquiring a pool of PCI financial assets. Accounting for troubled debt restructurings (TDRs) - The guidance in the proposed Update regarding the cost basis adjustment for troubled debt restructurings will be clarified to require an entity to increase the cost basis of the restructured financial asset through a corresponding increase in the entity’s allowance for expected credit losses in certain TDRs. An entity may consider prepayment expectations and prospectively reflect an adjusted yield if prepayment speeds are different than expected. (This decision is contingent on the Board’s review of staff prepared examples illustrating this approach.) Nonaccrual of interest income - The Board decided that the final Accounting Standards Update issued for this project will not provide guidance on when an entity ceases to accrue interest income. However, the Board decided to consider adding as pre-agenda research whether U.S. GAAP should provide nonaccrual guidance. The Company is currently evaluating the impact of this update. Proposed Accounting Standards Update (Exposure Draft): Leases (Topic 842) - A Revision of the 2010 Proposed FASB Accounting Standards Update, Leases (Topic 840) The FASB decided on a dual approach for lessee accounting in which a lessee will determine lease classification in accordance with the principle in existing lease requirements. Lessees would account for most existing capital or financing type leases as Type A leases and most existing operating leases as Type B leases. Both Type A and Type B leases result in the lessee recognizing a right-of-use asset and a lease liability. Type A leases will recognize amortization of the right-of-use asset separately from interest expense on the lease liability while Type B leases will recognize a single total lease expense in the income statement. The IASB decided on a single approach for lessee accounting under which the lessee would account for all leases as Type A leases. The FASB and IASB are currently deliberating the disclosure requirements under this amendment. An effective date has yet to be discussed . Office of Comptroller of the Currency - Interim Final Rule on Basel III Conforming Amendments On March 7, 2014, the Office of the Comptroller of the Currency (OCC) issued an Interim Final Rule on Basel III Conforming Amendments. In summary, the OCC has issued an interim final rule with request for comments (final rule) that makes technical and conforming amendments to its regulations governing national banks and federal savings associations. The final rule, which is effective March 31, 2014, amends various regulations in order to make those regulations consistent with the recently adopted Basel III Capital Framework. The Basel III final rule revised the OCC's regulatory capital rules, adding a new common equity tier 1 requirement, revising the definitions of tier 1 and tier 2 capital, and integrating federal savings associations into 12 CFR part 3 and 12 CFR part 6 (Prompt Corrective Action). The final rule makes technical, clarifying, and conforming amendments to the OCC's rules, by providing cross-references to new capital rules, where necessary, and deleting obsolete references. The final rule also makes changes to subordinated debt rules to clarify the requirements subordinated debt must meet and the procedures required to issue and redeem subordinated debt. The Licensing Activities Division of the Office of the Chief Counsel is currently updating related sections of the Licensing Manuals, appendixes, and forms to reflect the Basel III final rule requirements. 13 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 – Summary of Significant Accounting Policies (Continued ) A summary of technical and conforming amendments and subordinated debt rules include: Technical and conforming amendments: Historically, regulatory capital requirements have served as a measure for numerous statutory and regulatory limits used as supervisory tools for safety and soundness purposes, including lending limits and investment securities. The final rule amends the OCC's rules to replace cross-references to the current regulatory capital rules with cross-references to the Basel III final rule, where appropriate. The Basel III Capital Framework provides different mandatory compliance dates for advanced approaches national banks and federal savings associations and non-advanced approaches national banks and federal savings associations.1 Advanced approaches institutions must comply with the Basel III Capital Framework beginning on January 1, 2014, while non-advanced approaches institutions must comply with the framework beginning on January 1, 2015. In order to accommodate these different compliance dates, the OCC has retained the existing regulatory capital rules for calendar year 2014 for non-advanced approaches national banks and federal savings associations. The amendments in the final rule reflect this difference, and cross-references to the pre-Basel III regulatory capital rules will be retained until January 1, 2015. The Basel III Capital Framework integrated federal savings associations into 12 CFR part 6, "Prompt Corrective Action." This final rule replaces cross-references in various rules to 12 CFR part 165, the Prompt Corrective Action rule formerly applicable to federal savings associations, with cross-references to 12 CFR part 6, which applies to both national banks and federal savings associations effective January 1, 2014. Subordinated debt rules: The final rule clarifies and revises the OCC's rules governing subordinated debt issued by national banks to make those rules consistent with the Basel III Capital Framework. Unlike the current regulatory capital rules, the Basel III Capital Framework does not identify specific types of instruments that are included in regulatory capital. Instead, the Basel III Capital Framework lists criteria that an instrument must satisfy to be included in regulatory capital. In order to accommodate the different compliance dates for advanced approaches institutions and non-advanced approaches institutions, the final rule retains the current provisions of 12 CFR 5.47 but adds new paragraphs (j) through (p) and provides that those new paragraphs will be applicable to an advanced approaches bank beginning March 31, 2014. The final rule clarifies for national banks what requirements apply to subordinated debt that is not included in tier 2 capital. Because the OCC believes it is important to apply certain basic requirements to all subordinated debt, regardless of whether it is included in regulatory capital, the final rule clarifies the list of requirements applicable to all subordinated debt issued by national banks. The final rule largely maintains the current procedural requirements in 12 CFR 5.47 that an institution must follow in order to issue or prepay subordinated debt. The Basel III Capital Framework requires prior OCC approval for the exercise of a call option, redemption prior to the maturity, and repurchase of subordinated debt. Under the current subordinated debt rules applicable to national banks, a bank that is not an eligible bank is required to obtain prior OCC approval for the issuance and prepayment of all subordinated debt, and an eligible bank generally is not required to obtain such approval. The final rule attempts to reconcile these varying approval requirements while continuing some exceptions for eligible banks. The final rule does not integrate the subordinated debt rules for national banks and federal savings associations but rather maintains separate rules for both national banks and federal savings associations. The final rule makes structural changes to the subordinated debt rule applicable to federal savings associations, 12 CFR 163.81, that mirror the structural changes to the national bank rules for subordinated debt in 12 CFR 5.47. For a non-advanced approaches federal savings association prior to January 1, 2015, the final rule retains the current rule with no substantive changes. The final rule provides that an advanced approaches federal savings association would be required to comply with new requirements beginning March 31, 2014. The Company is currently evaluating the impact of this update. Note 3 - Related Party Transactions The Bank leases a property from N ew B ay LLC (“ New Bay ”), a limited liability co mpany 100% owned by a majority of the Directors of the Bank. In conjunction with the lease, New Bay substantially removed the pre-existing structure on the site and constructed a new building suitable to the Bank for its banking operations. Under the terms of the lease, the cost of th is project was reimbursed to New Bay by the Bank. The amount reimbursed, which occurred during the year 2000, was $ 943,000 , and is included in property and equipment under the caption “Building and improvements” (see Note 7). On May 1, 2006, the Bank renegotiated the lease to a twenty-five year term. The Bank paid New Bay $ 165,000 a year ($ 13,750 per month) which is included in the consolidated statements of operations for 201 4 , 201 3 , and 201 2 , within occupancy expense of premises. The rent is to be adjusted every five years thereafter at the fair market rental value at the end of each preceding five year period. The Bank expects to pay New Bay $ 165,000 for the year 201 5 . On February 8, 2012, the Bank entered into a two year lease , which has been extended, for a warehouse with a Director of the Bank. The purpose of the lease is to store documents, consumable supplies, equipment, and furniture not currently in use by the Bank. The Bank paid $20,400 in the year 201 4 , which is reflected in the 201 4 Consolidated Statement of Operations within occupancy expense of premises. The Bank expects to pay $ 20,400 for the year 201 5 . The Bank leases a property in Woodbridge, New Jersey from ACB Development LLC, a portion of which is owned by two Directors . Payments under the lease currently total $ 14,629 per month. The Bank paid $ 178,190 , $165,106, and $0 in rent in the year s 201 4 , 2013 and 2012, which is reflected in the 201 4 Consolidated Statement of Operations within occupancy expense of premises. The Bank expects to pay $1 80 ,000 for the year 201 5 . On March 6, 2014, the Bank entered into a ten year lease of property in Rutherford, New Jersey from 190 Park Avenue LLC, which is owned by two Directors. The rent is $2,779 per month and lease payments of $25,012 were made in 2014, which is reflected in the 2014 Consolidated Statement of Operations within occupancy expense of premises. The Bank expects to pay $33,250 for the year 2015. 14 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 4- Securities Available for Sale The following table presents by maturity the amortized cost and gross unrealized gains and losses on securities available for sale as December 31, 2014. There were no mortgage backed securities available for sale at December 31, 2013. Residential mortgage-backed securities: Due after five years through ten years Due after ten years Amortized Cost December 31, 2014 Gross Unrealized Gains Gross Unrealized Losses $ $ 3,485 6,213 9,698 $ $ (In Thousands) 32 140 172 $ $ Fair Value 60 42 102 $ $ 3,457 6,311 9,768 The following table s present the cost and gross unrealized gains and losses on securities available for sale as of December 31, 201 3 : Cost Gross Unrealized Gains December 31, 2013 (In Thousands) Gross Unrealized Losses Fair Value Equity Securities-Financial Institutions $ 97 $ 1,007 $ - $ 1,104 (1 ) All residential mortgage-backed securities are issued by government-sponsored enterprises. The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities available for sale were as follows: December 31, 2014 Residential mortgage-backed securities December 31, 2013 Residential mortgage-backed securities Equity Securities Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses $ $ $ $ 1,435 $ $ 1,435 - - - $ $ 5 $ $ 5 - - - $ $ 15 (In Thousands) 2,750 $ $ 2,750 - - - $ $ 97 $ $ 97 - - - $ $ 4,185 $ 4,185 $ - $ - - $ 102 102 - - - Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 5 – Securities Held to Maturity The following table presents by maturity the amortized cost and gross unrealized gains and losses on securities held to maturity as of December 31, 201 3 . There were no securities held to maturity at December 31, 2014. Residential mortgage-backed securities: Due after one year through five years Due after five years through ten years Due after ten years Municipal obligations: Due after five to ten years Amortized Cost $ $ 998 3,163 108,698 112,859 1,357 1,357 December 31, 2013 Gross Unrealized Gains Gross Unrealized Losses (In Thousands) — — $ 2,239 2,239 32 32 Fair Value $ (2) (135) (1,192) (1,329) — — 996 3,028 109,745 113,769 1,389 1,389 $ 114,216 $ 2,271 $ (1,329) $ 115,158 The amortized cost and carrying values shown above are categorized by contractual final maturity. Actual maturities will differ from contractual final maturities due to scheduled monthly payments related to mortgage–backed securities and due to the borrowers having the right to prepay obligations with or without prepayment penalties. As of December 31, 2013, all residential mortgage backed securities held in the portfolio were Government Sponsored Enterprise securities. In 2013, management decided to sell certain mortgage-backed securities that were issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). While these securities were classified as held to maturity, with the intent to hold to maturity, ASC 320 (formerly FAS 115) allows sales of securities so designated, provided that a substantial portion (at least 85%) of the principal balance purchased has been amortized prior to the sale. Sales of securities that had been classified as held to maturity, and do not meet any of the safe harbor exemptions under ASC 320, would then require that all remaining securities be transferred to the available for sale category and the Company would be prohibited from using the held to maturity classification for at least a two- year period. In July 2014, the Company transferred all of its remaining held-to-maturity investments to the available-for-sale category. Management determined that it no longer had the positive intent to hold its investment in securities classified as held-to-maturity, and in July 2014 sold $96.9 million of these securities. In 2014, proceeds from sales of securities previously classified as held to maturity totaled approximately $99.2 million, and resulted in gross gains of approximately $2.8 million, and gross losses of approximately $500,000 . Sales of held to maturity securities that met the 85% threshold totaled approximately $537,000 , and resulted in gross gains of approximately $40,000 , and gross losses of approximately $1,000 in 2014. During 2013, proceeds from sales of securities held to maturity meeting the 85% threshold totaled approximately $9.5 million, and resulted in gross gains of approximately $401,000 , and gross losses of approximately $2 3 ,000 . There were no sales of held to maturity securities that did not meet the 85% threshold. The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities held to maturity were as follows: December 31, 2013 Residential mortgage-backed securities There were no securities held to maturity at December 31, 2014. Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (In Thousands) $ 42,894 $ (1,329) $ - $ - $ 42,894 $ (1,329) 16 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses The following table presents the recorded investment in loans receivable at December 31, 201 4 and December 31, 201 3 by segment and class: Originated loans: $ Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total Total Loans Less: Deferred loan fees, net Allowance for loan losses Total Loans, net __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. December 31, 2014 December 31, 2013 (In Thousands) $ 124,642 732,791 73,497 54,244 30,175 2,178 1,017,527 81,051 95,191 - 6,381 22,698 652 205,973 1,595 1,130 - 369 82 - 3,176 1,226,676 (2,675) (16,151) (18,826) 97,581 549,918 37,307 52,659 28,660 533 766,658 100,612 126,123 200 10,478 27,313 919 265,645 2,141 2,081 - 371 90 - 4,683 1,036,986 (2,300) (14,342) (16,642) 1,020,344 $ 1,207,850 $ At December 31, 201 4 and 201 3 , loans serviced by the Bank for the benefit of others, which consist of participation interests in loans originated by the Bank, totaled approximately $ 3 7 .0 million and $ 16.7 million , respectively . 17 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table presents the unpaid principal balance and the related recorded investment of acquired loans included in our Consolidated Statements of Financial Condition. (In Thousands): Unpaid principal balance Recorded investment $ December 31, 2014 216,741 209,150 $ December 31, 2013 274,205 270,328 The following table presents changes in the accretable discount on loans acquired for the years ended December 31, 201 4 and 201 3 . (In Thousands): Balance, Beginning of Period Accretion Net Reclassification from Non-Accretable Difference Balance, End of Period The following table presents changes in the non-accretable yield on loans acquired for the years ended December 31, 201 4 and 201 3 . (In Thousands): Balance, Beginning of Period Loans Sold Amounts not recognized due to chargeoffs on transfers to other real estate Net Reclassification to Accretable Difference Balance, End of Period 18 Years Ended December 31, 2014 2013 102,454 (32,449) 517 70,522 $ $ Years Ended December 31, 2014 2013 4,413 (123) - (517) 3,773 $ $ 136,209 (33,976) 221 102,454 4,835 - (201) (221) 4,413 $ $ $ $ Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The Bank grants loans to its officers and directors and to their associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The activity with respect to loans to directors, officers and associates of such persons, is as follows: Balance – beginning Loans originated Changes in related party status Collections of principal Balance - ending Allowance for Loan Losses Years Ended December 31, 2014 2013 (In Thousands) 10,517 2,054 - (1,141) 11,430 $ $ 8,055 5,893 223 (3,654) 10,517 $ $ Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements. These elements include a general allocated reserve for impaired loans, a specific reserve for impaired loans and an unallocated portion. The Company consistently applies the following comprehensive methodology. During the quarterly review of the allowance for loan losses, the Company considers a variety of qualitative factors that include: • • • • • • • General economic conditions. Trends in charge-offs. Trends and levels of delinquent loans. Trends and levels of non-performing loans, including loans over 90 days delinquent. Trends in volume and terms of loans. Levels of allowance for specific classified loans. Credit concentrations. The methodology includes the segregation of the loan portfolio into two divisions. Loans that are performing and loans that are impaired. Loans which are performing are evaluated homogeneously by loan class or loan type. The allowance of performing loans is evaluated based on historical loan experience, including consideration of peer loss analysis, with an adju stment for qualitative factors referred to above . Impaired loans are loans which are more than 90 days delinquent or troubled debt restructured. These loans are individually evaluated for loan loss either by current appraisal, or net present value. Management reviews the overall estimate for feasibility and bases the loan loss provision accordingly. The loan portfolio is segmented into the following loan classes , where the risk level for each class is analyzed when determining the allowance for loan losses : Residential single family real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential family real estate loans decreases the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal bankruptcy of the borrower. 19 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) Construction lending is generally considered to involve a high risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence. Commercial and multi-family real estate lending entails significant additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally. Commercial business lending , including lines of credit, is generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans are primarily secured by inventories and other business assets. In most cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance. Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the collateral securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower. Home equity line of credit lending entails securing an equity interest in the borrower’s home. In many cases, the Bank’s position in these loans is as a junior lien holder to another institution’s superior lien. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decreases the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default . Other c onsumer loans generally have more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely effected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan. The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates lack some element of precision. Management must make estimates using assumptions and information that is often subjective and changing rapidly. Classified Assets . Our policies provide for a classification system for problem assets. Under this classification system, problem assets are classified as “substandard,” “doubtful, ” “loss” or “special mention.” When we classify problem assets, we may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. As of December 31, 201 4 , we had $ 28.7 million in assets classified as substandard, of which $ 28.7 million were classified as impaired and $ 20.5 million in assets classified as special mention, of which $ 13. 0 million were classified as impaired. The loans classified as substandard represent primarily commercial loans secured either by residential real estate, commercial real estate or heavy equipment. The loans that have been classified substandard were classified as such primarily due to payment status, because updated financial information has not been timely provided, or the collateral underlying the loan is in the process of being revalued. The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies. The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list (risk ratings 1-4) are treated as “pass” for grading purposes: 5 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency. 6 – Substandard - Loans that are inadequately protected by current sound worth, paying capacity, and collateral support. Loans on “nonaccrual” status. The loan needs special and corrective attention. 7 – Doubtful - Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status. 8 – Loss - Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery. 20 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table sets forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 201 4 and recorded investment in loans receivable at December 31, 201 4 . The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class (In Thousands): Allowance for credit losses: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Beginning Balance, December 31, 2013 Charge-offs: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Sub-total Recoveries: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Sub-total Provisions: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Sub-total Totals: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Ending Balance, December 31, 2014 Loans Receivables: Ending Balance Originated Loans Ending Balance Acquired Loans Ending Balance Acquired loans with deteriorated credit Total Gross Loans Ending Balance: Loans individually evaluated for impairment: Ending Balance Originated Loans Ending Balance Acquired Loans Ending Balance Acquired loans with deteriorated credit Ending Balance Loans individually evaluated for impairment Ending Balance: Loans collectively evaluated for impairment: Ending Balance Originated Loans Ending Balance Acquired Loans Ending Balance Acquired loans with deteriorated credit Ending Balance Loans collectively evaluated for impairment __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Commercial & Residential Multi-family Construction Commercial (1) Business Home (2) equity Consumer Unallocated Total $ $ $ 1,729 $ 832 - 2,561 - 28 - 28 - - - - 635 (387) 64 312 2,364 417 64 2,845 $ 124,642 81,051 1,595 207,288 $ 12,044 9,783 1,595 7,419 $ 1,744 - 9,163 388 755 - 1,143 125 73 - 198 2,872 (960) 23 1,935 10,028 102 23 10,153 $ 732,791 95,191 1,130 829,112 $ 9,522 6,377 877 700 $ 1 - 701 - - - - - 65 - 65 380 (66) - 314 1,080 - - 1,080 $ 73,497 - - 73,497 $ 1,295 $ 44 - 1,339 208 - - 208 174 - - 174 (385) (44) 233 (196) 876 - 233 1,109 $ 363 $ 129 - 492 27 29 - 56 - 6 - 6 (3) (48) 3 (48) 333 58 3 394 $ 54,244 6,381 369 60,994 $ 30,175 22,698 82 52,955 $ - - - 4,935 - 369 1,086 1,164 82 3 $ - - 3 - 2 - 2 - 3 - 3 446 (1) - 445 449 - - 449 $ 2,178 652 - 2,830 1,851 - - $ 23,422 $ 16,776 $ -$ 5,304 $ 2,332 $ 1,851 $ 112,598 71,268 - 723,269 88,814 253 73,497 - - 49,309 6,381 - 29,089 21,534 - 327 652 - $ 183,866 $ 812,336 $ 73,497 $ 55,690 $ 50,623 $ 979 $ 83 $ - - 83 - - - - - - - - - - - 38 - - 38 121 - - 121 $ - - - -$ - - - -$ - - - -$ 11,592 2,750 - 14,342 623 814 - 1,437 299 147 - 446 3,983 (1,506) 323 2,800 15,251 577 323 16,151 1,017,527 205,973 3,176 1,226,676 29,438 17,324 2,923 49,685 988,089 188,649 253 1,176,991 21 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table sets forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 201 3 and recorded investment in loans receivable at December 31, 201 3 . The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class (In Thousands): Commercial & Multi-family Residential Construction Commercial (1) Business Home (2) equity Consumer Unallocated Total Allowance for credit losses: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Beginning Balance, December 31, 2012 Charge-offs: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Sub-total Recoveries: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Sub-total Provisions: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Sub-total Totals: Originated Loans Acquired loans recorded at fair value Acquired loans with deteriorated credit Ending Balance, December 31, 2013 Loans Receivables: Ending Balance Originated Loans Ending Balance Acquired Loans Ending Balance Acquired loans with deteriorated credit Total Gross Loans Ending Balance: Loans individually evaluated for impairment: Ending Balance Originated Loans Ending Balance Acquired Loans Ending Balance Acquired loans with deteriorated credit Ending Balance Loans individually evaluated for impairment Ending Balance: Loans collectively evaluated for impairment: Ending Balance Originated Loans Ending Balance Acquired Loans Ending Balance Acquired loans with deteriorated credit Ending Balance Loans collectively evaluated for impairment __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ 1,143 $ 719 105 1,967 6 - 23 - 11 - 40 42 - 4 46 550 136 (98) 588 1,729 832 - 2,561 $ 97,581 100,612 2,141 200,334 $ 7,088 $ 963 - 8,051 27 89 7 123 - 95 1 96 358 775 6 1,139 7,419 1,744 - 9,163 $ 866 $ 93 - 959 - 132 - 132 3 - - 3 (169) 40 - (129) 700 1 - 701 $ 549,918 126,123 2,081 678,122 $ 37,307 200 - 37,507 $ 576 $ 244 - 820 233 - 141 - - - 374 - 31 16 47 952 (90) (16) 846 1,295 44 - 1,339 $ 52,659 10,478 371 63,508 $ 284 $ 191 - 475 1 - 301 - - - 302 6 - 2 8 74 239 (2) 311 363 129 - 492 $ 41 $ 18 - 59 - - - - - - - - - - - (38) (18) - (56) 3 - - 3 $ 28,660 27,313 90 56,063 $ 533 919 - 1,452 $ 1,840 9,930 2,141 8,638 13,434 1,815 - - - 3,870 - 371 833 1,460 90 - 5 - $ 13,911 $ 23,887 $ -$ 4,241 $ 2,383 $ 5 $ 95,741 90,682 - 541,280 112,689 266 37,307 200 - 48,789 10,478 - 27,827 25,853 - 533 914 - $ 186,423 $ 654,235 $ 37,507 $ 59,267 $ 53,680 $ 1,447 $ 32 $ - - 32 - - - - - - - - - - - 51 - - 51 83 - - 83 $ - - - -$ - - - -$ - - - -$ 10,030 2,228 105 12,363 267 686 18 971 51 126 23 200 1,778 1,082 (110) 2,750 11,592 2,750 - 14,342 766,658 265,645 4,683 1,036,986 15,181 24,829 4,417 44,427 751,477 240,816 266 992,559 22 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table sets forth the activity in the Bank’s allowance for loan losses for the year ended December 31, 201 2 and recorded investment in loans receivable at December 31, 201 2 . The table also details the amount of total loans receivable, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class (In Thousands): Commercial & Multi-family Residential Construction Commercial (1) Business Home (2) Equity Consumer Unallocated Total Allowance for credit losses: Originated Loans: Acquired loans recorded at fair value: Acquired loans with deteriorated credit: Beginning Balance, December 31, 2011 Charge-offs: Originated Loans: Acquired loans recorded at fair value: Acquired loans with deteriorated credit: Sub-total: Recoveries: Originated Loans: Acquired loans recorded at fair value: Acquired loans with deteriorated credit: Sub-total: Provisions: Originated Loans: Acquired loans recorded at fair value: Acquired loans with deteriorated credit: Sub-total: Totals: Originated Loans: Acquired loans recorded at fair value: Acquired loans with deteriorated credit: Ending Balance, December 31, 2012 Loans Receivable: Ending Balance Originated Loans: Ending Balance Acquired loans recorded at fair value: Ending Balance Acquired loans with deteriorated credit: Total Gross Loans: Ending Balance: Loans individually evaluated for impairment: Ending Balance Originated Loans: Ending Balance Acquired loans recorded at fair value: Ending Balance Acquired loans with deteriorated credit: Ending Balance Loans individually evaluated for impairment: Ending Balance: Loans collectively evaluated for impairment: Ending Balance Originated Loans: Ending Balance Acquired loans recorded at fair value: Ending Balance Acquired loans with deteriorated credit: Ending Balance Loans collectively evaluated for impairment: __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. 183 $ 6 115 304 4 - 288 - - - 292 - - - - 687 375 (115) 947 866 93 - 959 $ 22,267 1,043 - 23,310 $ - 130 - 130 $ 22,267 913 - 23,180 $ 795 $ 92 154 1,041 541 - 96 - - - 637 - - - - 322 248 (154) 416 576 244 - 820 $ 329 $ 315 33 677 5 - 19 - - - 24 - - - - (40) (105) (33) (178) 284 191 - 475 $ 10 $ - - 10 - - - - - - - - - - - 31 18 - 49 41 18 - 59 $ 47,250 12,177 241 59,668 $ 25,964 34,289 140 60,393 $ 565 1,069 - 1,634 $ 2,874 432 241 395 2,163 93 3,547 $ 2,651 $ - - - -$ -$ - - - - - - - - - - - - - - 32 - - 32 32 - - 32 $ - - - -$ - - - 7,172 1,984 1,353 10,509 1,271 1,810 - 3,081 35 - - 35 4,094 2,054 (1,248) 4,900 10,030 2,228 105 12,363 609,424 320,015 6,760 936,199 13,727 26,704 5,319 -$ 45,750 44,376 11,745 - 25,569 32,126 47 565 1,069 - - - - 595,697 293,311 1,441 56,121 $ 57,742 $ 1,634 $ -$ 890,449 $ $ $ 1,086 $ 1,012 581 2,679 253 - 540 - - - 793 - - - - 310 247 (476) 81 1,143 719 105 1,967 $ 4,769 $ 559 470 5,798 468 - 867 - - - 1,335 35 - - 35 2,752 1,271 (470) 3,553 7,088 963 - 8,051 $ 78,007 121,983 2,936 202,926 $ 435,371 149,454 3,443 588,268 $ 1,148 9,702 2,183 9,310 14,277 2,802 $ 13,033 $ 26,389 $ 76,859 112,281 753 426,061 135,177 641 $ 189,893 $ 561,879 $ 23 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The table below sets forth the amounts and types of non-accrual loans in the Bank’s loan portfolio, at December 31, 201 4 and 201 3 , respectively. Loans are placed on non-accrual status when they become more than 90 days delinquent, or when the collection of principal and/or interest become doubtful. As of December 31, 201 4 and 201 3 , non -accrual loans dif fered from the amount of total loans past d ue greater than 90 days due to troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated its ability to satisfy the terms of the restructured loan. As of December 31, 2014 (In Thousands) As of December 31, 2013 (In Thousands) Non-Accruing Loans: Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ 2,893 8,386 - 258 334 - 11,871 4,786 1,969 - - 527 - 7,282 - - - 369 82 - 451 19,604 $ $ $ $ $ $ $ 144 5,158 521 2,279 309 - 8,411 4,685 6,575 - - 757 - 12,017 - - - - 137 - 137 20,565 Had non-accrual loans been performing in accordance with their original terms, the interest income recognized for the years ended December 31, 201 4 , 201 3 and 201 2 would have been approximately $ 1. 06 million , $ 1. 36 million and $ 1.06 million , respectively. Interest income recognized on such loans was approximately $ 7 84 ,000 , $ 769 , 000 and $ 649 ,000 respectively. The Bank is not committed to lend additional funds to the borrowers whose loans have been placed on a nonaccr ual status. At December 31, 201 4 and 201 3 , there were no loans which were more than ninety days past due and still accruing interest . During 201 4 , the Bank sold approximately $ 14.4 million of non-performing loans for the purposes of eliminating future carrying costs associate d with these non-interest earning assets and improving the overall quality of the loan portfolio. The sale of this sub-set of the non- performing loan portfolio for approximately $ 10.4 million in cash proceeds resulted in a pre-tax loss of approximately $ 4.0 million. The loans sold consisted of $ 12.1 million of commercial and multi-family real estate loans and $ 2.3 million of commercial business loans . 24 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes the recorded investment and unpaid principal balances where there is no related allowance on impaired loans by portfolio class for the years ended December 31, 201 4 and December 31, 201 3 . (In Thousands): Originated loans with no related allowance recorded: Recorded Investment As of December 31, 2014 Unpaid Principal Balance Related Allowance Recorded Investment As of December 31, 2013 Unpaid Principal Balance Related Allowance Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value with no related allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans with deteriorated credit with no related allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Total Impaired Loans with no related allowance recorded: __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ 2,809 $ 7,202 3,336 537 - 2,825 $ 7,639 3,336 550 - - - $ - - - - - - 417 $ 3,388 2,766 402 - 444 $ 3,394 2,776 402 - - - 13,884 $ 14,350 $ - $ 6,973 $ 7,016 $ 4,696 $ 5,002 - - 612 - 4,849 $ 5,060 - - 626 - $ - - - - - - 10,310 $ 10,535 $ - $ 4,463 $ 3,064 - - 835 5 8,367 $ 4,489 $ 3,098 - - 922 5 8,514 $ 1,505 $ 877 - - 82 - 2,133 $ 1,034 274 137 - - $ - - - - - - 2,141 $ 1,815 371 90 - 2,879 $ 2,312 652 138 - - - 2,464 $ 3,578 $ - $ 4,417 $ 5,981 $ 26,658 $ 28,463 $ - $ 19,757 $ 21,511 $ 25 - - - - - - - - - - - - - - - - - - - - - - Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes the recorded investment, unpaid principal balance, and the related allowance on impaired loans by portfolio class for the years ended December 31, 201 4 and December 31, 201 3 . (In Thousands): Originated loans with an allowance recorded: Recorded Investment As of December 31, 2014 Unpaid Principal Balance Related Allowance Recorded Investment As of December 31, 2013 Unpaid Principal Balance Related Allowance Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value with an allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total Acquired loans with deteriorated credit with an allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total Impaired Loans with an allowance recorded: Total Impaired Loans with no related allowance recorded: Total Impaired Loans: __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ $ $ 9,235 $ 2,320 1,599 549 - 1,851 9,247 $ - 2,364 1,722 550 1,851 720 $ - 933 79 5 446 1,423 $ 5,250 1,104 431 - 1,423 $ 5,328 1,104 431 - - - 15,554 $ 15,734 $ 2,183 $ 8,208 $ 8,286 $ 5,087 $ 1,375 - - 552 - 7,014 $ 90 $ - - 369 - - 459 $ 5,130 $ 1,408 - - 561 - 7,099 $ 105 $ 118 369 $ - - - 254 $ 154 - - 49 - 457 $ 14 $ - - 217 - - 592 $ 231 $ 5,467 $ 10,370 - - 625 - 5,477 $ 10,418 - - 625 - 16,462 $ 16,520 $ $ $ - - - - - - - - - - - - - $ $ 159 298 - 498 6 - 961 331 1,276 - - 64 - 1,671 - - - - - - - 23,027 $ 23,425 $ 2,871 $ 24,670 $ 24,806 $ 2,632 26,658 $ 49,685 $ 28,463 $ - $ 19,757 $ 51,888 $ 2,871 $ 44,427 $ 21,511 $ 46,317 $ - 2,632 26 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes the average recorded investment and actual interest income recognized on impaired loans with no related allowance recorded by portfolio class for the years ended December 31, 201 4 and 201 3 . (In Thousands): Originated loans with no related allowance recorded: Residential one-to-four family Commercial and multi-family Construction (1) Commercial business Home equity Consumer (2) Sub-total: Acquired loans recorded at fair value with no related allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans with deteriorated credit with no related allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total Impaired Loans with no related allowance recorded: __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. 2014 Average Recorded Investment Years Ended December 31, 2014 Interest Income Recognized 2013 Average Recorded Investment 2013 Interest Income Recognized $ 1,613 5,295 - 3,051 470 - $ 132 140 - 84 21 - $ 458 4,676 - 2,599 306 6 10,429 $ 377 $ 8,045 $ $ 4,580 4,033 - - 724 3 $ 176 186 - - 10 - $ 4,094 5,000 40 69 1,296 3 9,340 $ 372 $ 10,502 $ $ 1,823 1,346 - 186 86 - $ 84 53 - 3 9 - $ 1,871 2,153 - 345 92 - 3,441 $ 149 $ 4,461 $ 25 206 - 159 13 1 404 177 211 2 4 45 1 440 120 116 - 18 9 - 263 23,210 $ 898 $ 23,008 $ 1,107 $ $ $ $ $ $ $ 27 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes the average recorded investment and actual interest income recognized on impaired loans with allowance recorded by portfolio class for the years ended December 31, 201 4 and 201 3 . (In Thousands): Originated loans with an allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value with an allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total Acquired loans with deteriorated credit with an allowance recorded: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Total Impaired Loans with an allowance recorded: __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. 2014 Average Recorded Investment Years Ended December 31, 2014 Interest Income Recognized 2013 Average Recorded Investment 2013 Interest Income Recognized $ 5,329 3,785 - 1,352 490 926 $ 328 60 - 27 - - $ 1,177 5,088 - 1,185 294 - 11,882 $ 415 $ 7,744 $ 5,277 5,873 - - 589 - $ 103 $ 43 - - 21 - $ 6,177 8,954 78 255 532 1 11,739 $ 167 $ 15,997 $ $ 45 - - 185 - - 4 4 - 12 - - $ 287 $ - - - - - 230 $ 20 $ 287 $ 60 308 - 79 19 - 466 223 310 - - 30 - 563 2 - - - - - 2 23,851 $ 602 $ 24,028 $ 1,031 $ $ $ $ $ $ $ 28 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table presents the total troubled debt restructured loans at December 31, 201 4 , excluding the purchase impairment mark on the acquired loans with deteriorated credit: December 31, 2014 Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Accrual Non-accrual Total # of Loans (Actual) Amount (In Thousands) # of Loans (Actual) Amount (In Thousands) # of Loans (Actual) Amount (In Thousands) 7 $ 3 1 2 - - 13 $ 22 $ 13 - - 5 - 40 $ 6 $ 3 3 - - - 12 $ 65 $ 2,201 1,065 - 798 508 - 4,572 4,782 5,011 - - 637 - 10,430 2,238 1,152 - 274 - - 3,664 2 $ 9 - - 2 - 13 $ 11 $ 1 - - 1 - 13 $ - $ - - 1 1 - 2 $ 1,323 6,446 - - 117 - 7,886 2,818 614 - - 217 - 3,649 - - - 369 129 - 498 18,666 28 $ 12,033 9 $ - 12 1 4 - 26 $ 33 $ 14 - - 6 - 53 $ 6 $ - 3 4 1 - 14 $ 93 $ 3,524 7,511 - 798 625 - 12,458 7,600 5,625 - - 854 - 14,079 2,238 1,152 - 643 129 - 4,162 30,699 All TDRs were considered impaired and therefore were individually evaluated for impairment in the calculation of the allowance for loan losses. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the allowance for loan losses. 29 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table presents the total troubled debt restructured loans at December 31, 201 3 , excluding the purchase impairment mark on the acquired loans with deteriorated credit: December 31, 2013 Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Accrual Non-accrual Total # of Loans (Actual) Amount (In Thousands) # of Loans (Actual) Amount (In Thousands) # of Loans (Actual) Amount (In Thousands) 7 $ 4 3 3 - - 17 $ 25 $ 15 - - 6 - 46 $ 7 $ 4 4 - - - 15 $ 78 $ 1,988 3,052 - 1,591 571 - 7,202 5,673 6,545 - - 704 - 1 $ 8 - - - - 9 $ 8 $ 9 - - - - 12,922 17 $ 1,795 1,816 - 371 - - 3,982 - $ - - - 1 - 1 $ 27 4,139 - - - - 4,166 2,564 3,606 - - - - 6,170 - - - - 91 - 91 24,106 27 $ 10,427 30 8 $ - 12 3 3 - 26 $ 33 $ 24 - - 6 - 63 $ 7 $ - 4 4 1 - 16 $ 105 $ 2,015 7,191 - 1,591 571 - 11,368 8,237 10,151 - - 704 - 19,092 1,795 1,816 - 371 91 - 4,073 34,533 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) A troubled debt restructuring (“TDR”) is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted are generally included, but not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. The following table summarizes information in regards t o troubled debt restructurings during the year ended December 31, 201 4 . (In thousands): Year Ended December 31, 2014 Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Number of Contracts Pre-Modification Outstanding Recorded Investments Post-Modification Outstanding Recorded Investments 1,777 805 - - 32 - 2,614 412 187 - - 256 - 855 993 - - - - - 993 4,462 $ $ $ $ $ $ $ 1,777 805 - - 64 - 2,646 453 205 - - 262 - 920 993 - - - - - 993 4,559 3 1 - - 1 - 5 4 1 - - 1 - 6 - - - - - - - 11 $ $ $ $ $ $ $ 31 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes information in regards to troubled debt restructurings during the year ended December 31, 201 3 . (In thousands): Year Ended December 31, 2013 Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business (1) (2) Home equity Consumer Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Number of Contracts Pre-Modification Outstanding Recorded Investments Post-Modification Outstanding Recorded Investments 509 3,009 - 1,053 345 - 4,916 2,123 3,309 - - 459 - 5,891 249 1,677 - 241 140 - 2,307 13,114 $ $ $ $ $ $ $ 652 3,044 - 1,075 350 - 5,121 2,158 3,475 - - 460 - 6,093 249 928 - 253 140 - 1,570 12,784 2 4 - 2 1 - 9 5 7 - - 5 - 17 1 2 - 3 1 - 7 33 $ $ $ $ $ $ $ 32 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes information in regards to troubled debt restructurings for which there was a payment default, within twelve months of restructuring, (In thousands): Year Ended December 31, 2014 Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business (1) Home equity (2) Consumer Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Number of Contracts Recorded Investment $ $ $ $ $ $ $ - - - - - - - - - - - - - - 982 - - - - - 982 982 - - - - - - - - - - - - - - 1 - - - - - 1 1 33 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table summarizes information in regards to troubled debt restructurings for which there was a payment default, within twelve months of restructuring, (In thousands): Year Ended December 31, 2013 Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity (2) (1) Consumer Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and Multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. Number of Contracts Recorded Investment $ $ $ $ $ $ $ - 93 - - - - 93 1,712 1,592 - - 99 - 3,403 - - - - 138 - 138 3,634 - 1 - - - - 1 4 2 - - 1 - 7 - - - - 1 - 1 9 34 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table sets forth the delinquency status of total loans receivable at December 31, 201 4 : 30-59 Days Past Due 60-90 Days Past Due Greater Than 90 Days Total Past Due (In Thousands) Current Total Loans Receivable Loans Receivable >90 Days and Accruing Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ 1,636 $ - 5,919 595 478 22 1,638 $ 650 748 - - - 231 $ 3,712 22 71 - - 3,505 $ - 10,281 1,365 549 22 121,137 $ 722,510 73,497 52,879 29,626 2,156 8,650 $ 3,036 $ 4,036 $ 15,722 $ 1,001,805 $ 1,710 $ - 2,589 161 836 14 2,458 $ 1,165 - - 470 9 2,072 $ - - - 145 - 6,240 $ - 3,754 161 1,451 23 74,811 91,437 6,220 21,247 629 - 5,310 $ 4,102 $ 2,217 $ 11,629 $ 194,344 $ $ - - - - - - - $ 13,960 $ $ - - - 369 - - 369 $ 6,622 $ $ - - - - 82 - 82 $ 7,220 $ 35 - - - 369 82 - 451 $ 27,802 $ $ 1,595 $ 1,130 - - - - 2,725 $ 1,198,874 $ 124,642 $ 732,791 73,497 54,244 30,175 2,178 1,017,527 $ 81,051 $ 95,191 - 6,381 22,698 652 205,973 $ 1,595 $ 1,130 - 369 82 - 3,176 $ 1,226,676 $ - - - - - - - - - - - - - - - - - - - - - - Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table sets forth the delinquency status of total loans receivable at December 31, 201 3 : 30-59 Days Past Due 60-90 Days Past Due Greater Than 90 Days Total Past Due (In Thousands) Current Total Loans Receivable Loans Receivable >90 Days and Accruing Originated loans: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ 1,221 $ 7,170 1,174 627 126 8 1,446 $ - - - - - $ - - 873 290 49 - 2,667 $ 8,043 1,174 917 175 8 94,914 $ 541,875 36,133 51,742 28,485 525 10,326 $ 1,446 $ 1,212 $ 12,984 $ 753,674 $ 2,223 $ - 5,638 175 1,220 28 1,341 $ 2,882 - - 153 2 2,148 $ 3,479 - - 149 - 5,712 $ - 11,999 175 1,522 30 94,900 114,124 200 10,303 25,791 889 9,284 $ 4,378 $ 5,776 $ 19,438 $ 246,207 $ $ - - - - - - - $ 19,610 $ $ - - - - - - - $ 5,824 $ $ - - - - - - $ - - - - - - - $ 6,988 $ - $ 32,422 $ 36 2,141 $ 2,081 371 90 - - 4,683 $ 1,004,564 $ 97,581 $ 549,918 37,307 52,659 28,660 533 766,658 $ 100,612 $ 126,123 200 10,478 27,313 919 265,645 $ 2,141 $ 2,081 - 371 90 - 4,683 $ 1,036,986 $ - - - - - - - - - - - - - - - - - - - - - - Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of Dece mber 31, 201 4 . (In Thousands): Originated loans: Pass Special Mention Substandard Doubtful Loss Total Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total Gross Loans __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ 113,847 $ 721,075 73,332 47,866 29,178 267 985,565 $ 72,502 $ 90,090 - 6,381 21,506 652 191,131 $ 238 $ 589 - - - - 827 $ 1,177,523 $ 6,921 $ 2,322 165 2,020 863 1,911 3,874 $ 9,394 - 4,358 134 - 14,202 $ 17,760 $ 3,069 $ 2,253 - - 133 - 5,455 $ 286 $ 541 - - - - 827 $ 20,484 $ 5,480 $ 2,848 - - 1,059 - 9,387 $ 1,071 $ - - 369 82 - 1,522 $ 28,669 $ -$ - - - - - -$ -$ - - - - - -$ -$ - - - - - -$ -$ -$ - - - - - -$ - - - - - - 124,642 732,791 73,497 54,244 30,175 2,178 1,017,527 81,051 95,191 - 6,381 22,698 652 -$ 205,973 - - - - - - -$ -$ 1,595 1,130 - 369 82 - 3,176 1,226,676 37 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 6 - Loans Receivable and Allowance for Loan Losses (Continued) The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of December 31, 201 3 . (In Thousands): Originated loans: Pass Special Mention Substandard Doubtful Loss Total Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans recorded at fair value: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (2) (1) Sub-total: Acquired loans with deteriorated credit: Residential one-to-four family Commercial and multi-family Construction Commercial business Home equity Consumer (1) (2) Sub-total: Total Gross Loans __________ (1) Includes business lines of credit. (2) Includes home equity lines of credit. $ $ $ $ $ $ $ 95,585 $ 539,796 37,307 45,010 27,643 495 745,836 $ 92,351 $ 114,034 200 10,478 26,254 914 244,231 $ 278 $ 1,332 - - - - 1,610 $ 991,677 $ 553 $ - 5,022 6,581 642 38 12,836 $ 3,049 $ 4,594 - - 264 - 1,245 $ 2,899 - 524 375 - 5,043 $ 5,212 $ 5,214 - - 795 5 7,907 $ 11,226 $ 1,040 $ 749 - - - - 1,789 $ 22,532 $ 823 $ - - 371 90 - 1,284 $ 17,553 $ 38 198 $ 2,201 - 544 - - 2,943 $ -$ 2,281 - - - - 2,281 $ -$ - - - - - -$ 5,224 $ -$ - - - - - -$ - - - - - - -$ - - - - - - -$ -$ 97,581 549,918 37,307 52,659 28,660 533 766,658 100,612 126,123 200 10,478 27,313 919 265,645 2,141 2,081 - 371 90 - 4,683 1,036,986 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 7 - Premises and Equipment Land Buildings and improvements Leasehold improvements Furniture, fixtures and equipment Accumulated depreciation and amortization 2014 December 31, (In Thousands) 2013 $ $ 1,887 11,768 1,811 6,706 22,172 (7,876) 14,296 $ $ 1,837 11,511 1,342 5,527 20,217 (6,364) 13,853 Buildings and improvements include a building constructed on property leased from a related party (see Note 3). Rental expenses related to the occupancy of premises and related shared costs for common areas totaled $ 1, 568 ,000 , $ 1,2 52 ,000 and $ 1,229 ,000 for the years ended December 31, 201 4 , 201 3 , and 20 1 2 , respectively. The minimum obligation under non-cancelable lease agreements expiring through April 30, 2031, for each of the years ended December 31 is as follows ( In Thousands ): Note 8 - Interest Receivable $ $ 2014 2015 2016 2017 2018 2019 Thereafter Loans Securities $ $ December 31, (In Thousands) 4,427 27 4,454 $ $ 39 1,959 1,809 1,691 1,184 1,028 5,318 12,989 2013 3,782 375 4,157 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 9 – Deposits Demand: Non-interest bearing NOW Money market Savings and club Certificates of deposit 2014 December 31, (In Thousands) 2013 $ $ 127,308 155,044 49,709 332,061 283,872 412,623 1,028,556 $ $ 107,613 148,804 67,153 323,570 264,319 380,781 968,670 At December 31, 201 4 and 201 3 , certificates of deposit of $100,000 or more totaled approximately $ 2 74.1 million and $ 2 29 . 2 million, respectively. The scheduled maturities of certificates of deposit at December 31, 201 4 , were as follows (In thousands): 2015 2016 2017 2018 2019 Thereafter Amount 268,506 76,475 30,591 21,942 15,109 - 412,623 40 $ Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 10 - Short-Term Borrowings and Long-Term Debt Information regarding short-term borrowings is as follows: Balance at end of period Average balance outstanding during the year Highest month-end balance during the year Average interest rate during the year Weighted average interest rate at year-end 2014 Amount $ $ $ 26,000 13,591 45,500 0.38 % 0.32 % December 31, 2013 Amount ( In Thousands) $ $ $ 18,000 133 25,800 0.37 % 0.40 % 2012 Amount 17,000 145 17,000 0.31 % 0.31 % $ $ $ At December 31, 201 4 and 2013 loans with carrying values of approximately $ 228.4 million and $ 146.8 million, respectively, were pledged to secure the above noted Federal Home Loan Bank of New York borrowings. In addition, there were securities held to maturity with a carrying value of approximately $27.5 million at December 31, 2013. No securities were pledged at December 31, 2014 . Long-term debt consists of the following (In Thousands): Federal Home Loan Bank Advances: Maturing by December 31, 2014 2013 December 31, Weighted Average Rate Amount Weighted Average Rate Amount 2016 2017 2019 4.28 4.39 1.85 3.90 % $ $ 55,000 55,000 23,000 133,000 $ 4.28 4.39 - 4.33 % $ 55,000 55,000 - 110,000 At December 31, 201 4 , the Bank’s total credit exposure cannot exceed 50% of its total assets, or $6 50 , 950 , 147 , based on the borrowing limitations outlined in the Federal Home Loan Bank of New York’s member products guide. The total credit exposure limit of 50% of total assets is recalculated each quarter. 41 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 1 – Subordinated Debenture s (In Thousands): The following table summarizes the mandatory redeemable trust preferred securities of the Co mpany ’s Statutory Trust I at December 31, 201 4 . Issuance Date Securities Issued Liquidation Value Coupon Rate 6/17/2004 $4,124,000 $1,000 per Capital Security Floating 3-month LIBOR + 265 Basis Points Maturity 6/17/2034 Redeemable by Issuer Beginning 6/17/2009 The Trust Preferred floating rate junior subordinated debenture interest rate adjusts quarterly . The rate paid as of December 31, 20 14 and 201 3 , respectively, was 2.89 3 % and 2. 894 % . The trust preferred debenture became callable, at the Company’s option, on June 17, 2009, and quarterly thereafter. Note 1 2 - Regulatory Matters The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance- sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Company’s capital adequacy guidelines are not materially different than the capital adequacy guidelines for the Bank. Quantitative measures, established by regulation to ensure capital adequacy, require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations), to risk-weighted assets, (as defined), and of Tier 1 capital to average assets (as defined). The following table presents information as to the Bank’s capital levels. As of December 31, 2014 Total capital (to risk-weighted assets) Tier 1 capital (to risk-weighted assets) Tier 1 capital (to average assets) As of December 31, 2013 Total capital (to risk-weighted assets) Tier 1 capital (to risk-weighted assets) Tier 1 capital (to average assets) Actual For Capital Adequacy Purposes To be Well Capitalized under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in Thousands) $ $ 117,829 105,227 105,227 114,081 103,595 103,595 11.73 % 10.48 8.33 13.66 % 12.41 8.70 $ ? ? ? ? 80,363 ? ? ? ? 40,182 ? ? ? ? 50,508 $ ? 66,800 ? 33,400 ? 47,643 ? ? ? ? 8.00 % ? ? ? ? 4.00 ? ? ? ? 4.00 ? 8.00 % ? 4.00 ? 4.00 $ ? ? ? ? 100,454 ? ? ? ? 60,272 ? ? ? ? 63,135 $ ? 83,500 ? 50,100 ? 59,553 ? ? ? ? 10.00 % ? ? ? ? 6.00 ? ? ? ? 5.00 ? 10.00 % ? 6.00 ? 5.00 As of December 31, 201 4 and 201 3 , the most recent notification from the Bank’s regulators categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events occurring since that notification that management believes have changed the Bank’s category. 42 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 3 - Benefits Plans Pension Plan The Company acquired through the merger with Pamrapo Bancorp, Inc. a non-contributory defined benefit pension plan covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (“Pension Plan”), was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the Pension Plan to the freeze date have been retained. The benefits are based on years of service and employee’s compensation. The Pension Plan is funded in conformity with funding requirements of applicable government regulations. Prior service costs for the Pension Plan generally are amortized over the estimated remaining service periods of employees. The following tables set forth the Plan's funded status at December 31, 2014 and 2013 and components of net periodic pension cost for the years ended December 31, 2014 and 2013: Change in Benefit Obligation: Benefit obligation, beginning of year Interest Cost Actuarial loss (gain) Benefits paid Settlements Benefit obligation, ending Change in Plan Assets: Fair value of assets, beginning of year Actual return on plan assets Employer contributions Benefits paid Settlements Fair value of assets, ending Reconciliation of Funded Status: Accumulated benefit obligation Projected benefit obligation Fair value of assets Unfunded status, included in other liabilities Valuation assumptions used to determine benefit obligation at period end: Discount rate Salary Increase Rate 2014 December 31, (In Thousands) 2013 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 8,311 400 1,109 (479) (147) 9,194 7,812 193 300 (479) (147) 7,679 9,194 9,194 7,679 1,515 3.95% N/A 9,970 393 (848) (537) (667) 8,311 7,004 1,012 1,000 (537) (667) 7,812 8,311 8,311 7,812 499 4.95% N/A 43 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 3 - Benefits Plans (Continued) Net Periodic Pension Expense: Interest cost Expected return on assets Amortization of net loss Settlement loss Net Periodic Pension Credit Valuation assumptions used to determine net periodic benefit cost for the year: Discount rate Long term rate of return on plan assets Salary Increase Rate $ $ 2014 December 31, (In Thousands) 2013 $ $ 400 (616) - - (216) 4.95% 8.00% N/A 393 (563) 73 60 (37) 4.05% 8.00% N/A At December 31, 2014 and December 31, 2013, unrecognized net loss of $(2,289,000) and $(756,000) , respectively, was included, net of deferred income tax, in accumulated other comprehensive loss in accordance with ASC 715-20 and ASC 715-30. None of the unrecognized net loss is expected to be recognized in net periodic pension expense for the year ended December 31, 2015. 44 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) Plan Assets Investment Policies and Strategies The primary long-term objective for the Plan is to maintain assets at a level that will sufficiently cover future beneficiary obligations. The Plan will be structured to include a volatility reducing component (the fixed income commitment) and a growth component (the equity commitment). To achieve the Bank’ s long-term investment objectives, the Trustee will invest the assets of the Plan in a diversified combination of asset classes, investment strategies, and pooled vehicles. The asset allocation guidelines in the table below reflect the Bank’s risk tolerance and long-term objectives for the Plan. These parameters will be reviewed on a regular basis and subject to change following discussions between the Bank and the Trustee. Initially, the following asset allocation targets and ranges will guide the Trustee in structuring the overall allocation in the Plan’s investment portfolio. The Bank or the Trustee may amend these allocations to reflect the most appropriate standards consistent with changing circumstances. Any such fundamental amendments in strategy will be discussed between the Bank and the Trustee prior to implementation. Based on the above considerations, the following asset allocation ranges will be implemented: Equity Large-Cap U.S. Mid/Small-Cap U.S. Asset Blend- U.S. Non-U.S. Total-Equity Fixed Income Long Duration Money Market/Certificates of Deposit Total-Fixed Income Asset Allocation Parameters by Asset Class Minimum 40% 40% Target 1% 9% 1% 1% 12% 1% 87% 88% Maximum 60% 60% The parameters for each asset class provide the Trustee with the latitude for managing the Plan within a minimum and maximum range. The Trustee will have full discretion to buy, sell, invest and reinvest in these asset segments based on these guidelines which includes allowing the underlying investments to fluctuate within the stated policy ranges. The Plan will maintain a cash equivalents component (not to exceed 3% under normal circumstances) within the fixed income allocation for liquidity purposes. The Trustee will monitor the actual asset segment exposures of the Plan on a regular basis and, periodically, may adjust the asset allocation within the ranges set forth above as it deems appropriate. Periodic reallocations of assets will be based on the Trustee’s perception of the changing risk/return opportunities of the respective asset classes. Determination of Long-Term Rate–of Return The long-term rate-of-return-on assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5-9% and 2-6% , respectively. The long-term inflation rate was estimated to be 3% . When these overall return expectations are applied to the Plan’s target allocation, the result is an expected rate of return of 7% to 11% . 45 Total (Level 1) (Level 2) (Level 3) $ 108,756 $ 108,756 $ Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) The fair values of the Company’s pension plan assets at December 31, 201 4 , by asset category (see Note 1 7 for the definitions of levels), are as follows: Asset Category Mutual funds-Equity Large-Cap Value (a) Mid-Cap Value (b) Small-Cap Value (c) Foreign Large Growth (d) Mutual Funds-Fixed Income World Bond (e) Muti Sector Bond (f) Inflation Protected (g) Mutual Funds-Asset Allocation/Balanced Conservative Allocation (h) World Allocation (i) Stock BCB Common Stock Cash Equivalents Money Market Total 70,182 46,774 47,851 37,476 47,412 7,904 3,126 62,423 607,902 $ $ 6,639,194 7,679,000 $ $ The fair values of the Company’s pension plan assets at December 31, 201 3 , by asset category (see Note 1 7 for the definitio ns of levels), are as follows: Asset Category Mutual funds-Equity Large-Cap Value (a) Mid-Cap Value (b) Small-Cap Value (c) Foreign Large Growth (d) Mutual Funds-Fixed Income World Bond (e) Muti Sector Bond (f) Inflation Protected (g) Mutual Funds-Asset Allocation/Balanced Conservative Allocation (h) World Allocation (i) Stock BCB Common Stock Cash Equivalents Money Market Total Total (Level 1) $ $ $ $ $ $ 891,898 447,713 455,553 256,040 827,405 305,923 620,120 2,849,864 383,271 697,046 77,167 7,812,000 46 70,182 46,774 47,851 37,476 47,412 7,904 3,126 62,423 607,902 6,639,194 7,679,000 891,898 447,713 455,553 256,040 827,405 305,923 620,120 2,849,864 383,271 697,046 77,167 7,812,000 $ $ $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - $ $ $ $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - (Level 3) (Level 2) Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) a) Large-value portfolios invest primarily in big U.S. companies that are less expensive or growing more slowly than other large-cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow. b) Some mid-cap value portfolios focus on medium-size companies while others land here because they own a mix of small-, mid-, and large-cap stocks. All look for U.S. stocks that are less expensive or growing more slowly than the market. The U.S. mid-cap range for market capitalization typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). c) Small-value portfolios invest in small U.S. companies with valuations and growth rates below other small-cap peers. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow). d) Foreign large-growth portfolios focus on high-priced growth stocks, mainly outside of the United States. Most of these portfolios divide their assets among a dozen or more developed markets, including Japan, Britain, France, and Germany. These portfolios primarily invest in stocks that have market caps in the top 70% of each economically integrated market (such as Europe or Asia ex-Japan). Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). These portfolios typically will have less than 20% of assets invested in U.S. stocks. e) World-bond portfolios invest 40% or more of their assets in foreign bonds. Some world-bond portfolios follow a conservative approach, favoring high-quality bonds from developed markets. Others are more adventurous and own some lower-quality bonds from developed or emerging markets. Some portfolios invest exclusively outside the U.S., while others regularly invest in both U.S. and non- U.S. bonds. f) Multi Sector portfolios seek income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, foreign bonds, and high-yield domestic debt securities. g) h) Conservative-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend to hold smaller positions in stocks than moderate-allocation portfolios. These portfolios Inflation-protected bond portfolios invest primarily in debt securities that adjust their principal values in line with the rate of inflation. These bonds can be issued by any organization, but the U.S. Treasury is currently the largest issuer for these types of securities. typically have 20% to 50% of assets in equities and 50% to 80% of assets in fixed income and cash. i) World-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do explore the whole world, most of them focus on the U.S., Canada, Japan, and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks, and at least 40% of assets in non-U.S. stocks or bonds. The Company expects to contribute, based upon actuarial estimates, approximately $500,000 to the pension plan in 201 5 . Benefit payments are expected to be paid for the years ended December 31 as follows (In thousands): 2015 2016 2017 2018 2019 2020-2024 $ 572 581 576 588 583 2,772 47 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) Supplemental Executive Retirement Plan The Company acquired through the merger with Pamrapo Bancorp, Inc. a supplemental executive retirement plan (“SERP”) in which certain former employees of Pamrapo Bank are covered. A SERP is an unfunded non-qualified deferred retirement plan. Participants who retire at the age of 65 (the “Normal Retirement Age”), are entitled to an annual retirement benefit equal to 75% of compensation reduced by their retirement plan annual benefits. Participants retiring before the Normal Retirement Age receive the same benefits reduced by a percentage based on years of service to the Company and the number of years prior to the Normal Retirement Age that participants retire. The following tables set forth the SERP's funded status and components of net periodic SERP cost: 2014 December 31, (In Thousands) 2013 Benefit obligation, beginning of year Interest Cost Actuarial loss (gain) Benefits paid Benefit obligation, ending Change in Plan Assets: Fair value of assets, beginning of year Employer contributions Benefits paid Fair value of assets, ending Reconciliation of Funded Status: Accumulated benefit obligation Projected benefit obligation Fair value of assets Funded status, included in other liabilities Valuation assumptions used to determine benefit obligation at period end: Discount rate Salary Increase Rate $ $ $ $ $ $ $ $ $ $ $ $ $ $ 417 19 10 (62) 384 - 62 (62) - 384 384 - 384 3.95% N/A 474 18 (14) (61) 417 - 61 (61) - 417 417 - 417 4.95% N/A 48 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) Net Periodic SERP Expense: Interest Cost Net Periodic SERP Cost Valuation assumptions used to determine net periodic benefit cost for the year: Discount rate Rate of increase in compensation 2014 December 31, (In Thousands) 2013 $ $ $ $ 19 19 4.95 % N/A 18 18 4.05 % N/A At December 31, 2014 and December 31, 2013, unrecognized net loss of $ 42,000 and $ 32,000 , respectively, was included, net of deferred income tax, in accumulated other comprehensive income in accordance with ASC 715-20 and ASC 715-30. None of the unrecognized net loss is expected to be recognized in net periodic SERP cost for the year ended December 31, 2015. The Company expects to contribute, based upon actuarial estimates, approximately $ 62,000 to the SERP plan in 2015. Benefit payments are expected to be paid for the years ended December 31 as follows (In thousands): 2015 2016 2017 2018 2019 2020-2024 $ 62 62 62 62 62 127 49 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) Stock Options The Company, under the plan approved by its shareholders on April 28, 2011 (“2011 Stock Plan”), authorized the issuance of up to 900,000 shares of common stock of the Company pursuant to grants of stock options. Employees and directors of the Company and the Bank are eligible to participate in the 2011 Stock Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code. Only employees are permitted to receive incentive stock options. On March 7, 2014, a grant of 110,000 options and o n January 17, 2013, a grant of 130,000 options was declared for certain members of the Board of Directors which vest at a rate of 10% per year, over ten years commencing on the first anniversary of the grant date. The exercise price was recorded as of the close of business on March 7, 2014 and January 17, 2013 , respectively and a Form 4 was filed for each Director who received a grant with the Securities and Exchange Commission consistent with their filing requirements. There were 6 ,000 stock options granted to employees in the fourth quarter of 2014 , which vest at a rate of 20% per year . During the third quarter of 2013, there were 29,928 stock options granted which vest immediately. The exercise price was recorded as of the close of business on August 7, 2013. A su mmary of stock option activity , follows: Outstanding at December 31, 2012 Options forfeited Options exercised Options granted Options expired Outstanding at December 31, 2013 Options forfeited Options exercised Options granted Options expired Outstanding at December 31, 2014 Exercisable at December 31, 2014 Number of Options Range of Exercise Price Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (000's) 274,296 $8.93 - $29.25 (33,053) (51,612) 159,928 (5,431) 9.34-11.84 8.93-10.50 9.03-10.50 18.41 344,128 8.93-18.41 (33,869) (127,539) 116,000 (9,000) 8.93-18.41 8.93-11.84 12.19-13.32 29.25 289,720 8.93-15.65 53,220 8.93-15.65 11.97 10.83 9.64 9.31 18.41 11.09 11.25 11.54 13.26 29.25 11.18 12.36 2.96 years $ 8.71 years 7.60 years 4.07 years 34 53 458 223 427 72 It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to the 236,500 shares underlying unexercised options outstanding as of December 31, 2014, is $ 604,560 over a weighted average period of 8.49 years. 50 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 13 - Benefits Plan (Continued) The key valuation assumptions and fair value of stock options granted during the three months ended December 31, 2014 were: Expected life Risk-free interest rate Volatility Dividend yield Fair value The key valuation assumptions and fair value of stock options granted during the three months ended March 31, 2014 were: Expected life Risk-free interest rate Volatility Dividend yield Fair value The key valuation assumptions and fair value of stock options granted during the three months ended September 30, 2013 were: Expected life Risk-free interest rate Volatility Dividend yield Fair value The key valuation assumptions and fair value of stock options granted during the three months ended March 31, 2013 were: Expected life Risk-free interest rate Volatility Dividend yield Fair value 51 7.75 years 2.39 % 38.38 % 4.48 % 3.83 10.0 years 2.18 % 36.60 % 4.59 % 2.85 4.999 years 1.37 % 28.44 % 4.25 % 1.68 7.75 years 1.44 % 30.56 % 4.57 % 1.59 $ $ $ $ Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 4 - Dividend Restrictions Payment of cash dividends on common stock is conditional on earnings, financial condition, cash needs, capital considerations, the discretion of the Board of Directors, and compliance with regulatory requirements. State and federal law and regulations impose substantial limitations on the Bank’s ability to pay dividends to the Company. Under New Jersey law, the Company is permitted to declare dividends on its common stock only if, after payment of the dividend, the capital stock of the Bank will be unimpaired and either the Bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank ’s surplus. During 201 4 , 201 3 and 20 1 2 , the Bank paid the Company total dividends of $ 6 , 402,000 , $ 6,476,500 and $ 15,745,00 0 , respectively. The Company’s ability to declare dividends is dependent upon the amount of dividends paid to the Company by the Bank. 52 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 5 - Income Taxes The components of income tax (benefit) expense are summarized as follows: Current income tax expense (benefit): Federal State Deferred income tax expense (benefit): Federal State Total Income Tax (Benefit) Expense 2014 Years Ended December 31, 2013 (In Thousands) 2012 $ 2,994 802 3,796 1,070 181 1,251 $ 6,887 496 7,383 (1,653) 821 (832) 5,047 $ 6,551 $ (2,366) 263 (2,103) 802 (951) (149) (2,252) $ $ 53 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 5 - Income Taxes (Continued) The tax effects of existing temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are as follows: Deferred income tax assets: Allowance for loan losses Other real estate owned expenses Depreciation Other than temporary impairment on security Non-accrual interest Benefit Plans Benefit Plan-accumulated other comprehensive loss Valuation adjustment on loans receivable acquired Valuation adjustment on securities Valuation adjustment on time deposits acquired Net operating loss carry forwards (net of valuation allowances) Other Deferred income tax liabilities: Unrealized gain on securities available for sale Valuation adjustment on premises and equipment acquired Depreciation SBA Servicing Asset December 31, 2014 2013 $ $ 7,004 295 - - 274 776 952 1,037 - 25 188 924 11,475 28 1,302 91 351 1,772 Net Deferred Tax Asset $ 9,703 $ 6,436 295 137 1,191 380 52 322 1,121 681 51 353 738 11,757 411 1,404 - - 1,815 9,942 In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making this assessment, management has considered the profitability of current core operations, future market growth, forecasted earnings, future taxable income, and ongoing, feasible and permissible tax planning strategies. If the Company was to determine that it would not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if the Company was to make a determination that it is more likely than not that the deferred tax assets for which there is a valuation allowance would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and carry forwards are available. At December 31, 201 4 , gross deferred tax assets related to net operating loss carry forwards totaled $ 297 ,000 , consisting of $ 188 ,000 federal assets acquired in the 2011 acquisition of Allegiance , and $109,000 in state assets related to the stand-alone Company. Comparable amounts at December 31, 201 3 , were gross deferred tax assets of $ 438 ,000 consisting of $ 353 ,000 of federal assets acquired in the Allegiance acquisition, and $ 85 ,000 in state assets related to the stand-alone Company. At December 31, 201 4 and 201 3 , the stand-alone Company had $ 1, 862 ,000 and $ 1, 457 ,000 , respectively, of state net operating loss carry forwards, with related gross deferred tax assets of $ 109 ,000 and $ 85 ,000 , respectively. Due to the uncertainty regarding the ability to realize these carry forwards within the statutory time limits, the related deferred tax asset has been fully offset by valuation allowances of $ 109,000 and $ 85 ,000 , respectively, at December 31, 201 4 and 201 3 . In conjunction with the Company’s acquisition of Allegiance in 2011, the Company acquired a federal net operating loss carry forward of $1.2 million. This carry forward is available for use through 2030; however, in accordance with Internal Revenue Code Section 382, usage of the carry forward is limited to $235,000 annually on a cumulative basis (portions of the $235,000 not used in a particular year may be added to subsequent usage). At December 31, 201 4 and 201 3 , the Company had approximately $ 287 ,000 remaini ng of this federal net operating loss carry forward available to offset future taxable income for federal tax reporting purposes; Based on the current profitability or core operations and expectations that such profitability will continue, the Company’s expects to fully utilize this federal net opera ting loss carry forward by 2016. 54 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 5 - Income Taxes (Continued) At December 31, 2012, the Bank had $ 10.9 million of state net operating loss carry forwards . The additional $ 10.9 million at December 31, 2012, was generated in 2012 and will expire, to the extent not utilized, in 2032 . The Bank’s 2012 state net operating loss was the largely the result of two planned transactions designed to enhance the future operations of the Company and the Bank; as discussed in Note 6, the Bank engaged in two bulk sales of impaired loans at a realized l oss of $10.8 million. The Bank has generated consistently strong core earnings and projects similarly strong results going forward. The Bank currently employs a state tax planning strategy designed to reduce state taxes by taking advantage of the lower corporate tax rates applicable to investment companies. The following table presents a reconciliation between the reported income tax expense (benefit) and the income tax expense (benefit) which would be computed by applying the normal federa l income tax rate of between 34 and 35% in 201 4 , 201 3 , and 201 2 to income before income tax expense: Federal income tax expense (benefit) at statutory rate Increases (reductions) in income taxes resulting from: State income tax (benefit), net of federal income tax effect Other items, net Effective Income Tax Expense (Benefit) Effective Income Tax Rate 2014 Years Ended December 31, 2013 (In Thousands) 2012 $ $ 4,389 641 17 5,047 $ $ 5,588 856 107 6,551 $ $ (1,510) (451) (291) (2,252) 39.9 % 41.0 % (52.2) % 55 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 6 - Commitments and Contingencies The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments primarily include commitments to extend credit. The Bank’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on- balance-sheet instruments. Outstanding loan related commitments were as follows: Loan origination Standby letters of credit Construction loans in process Unused lines of credit 2014 December 31, (In Thousands) 2013 $ $ 106,614 1,767 47,678 61,183 217,242 $ $ 30,911 1,957 46,262 64,264 143,394 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but primarily includes residential real estate properties. The Company and its subsidiaries also have, in the normal course of business, commitments for services and supplies. Management does not anticipate losses on any of these transactions. We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. Other than as set forth below, as of December 31, 2014, we were not involved in any material legal proceedings the outcome of which, if determined in a manner adverse to the Company, would have a material adverse affect on our financial condition or results of operations. The Company, as the successor to Pamrapo Bancorp, Inc., and in its own corporate capacity, is a named defendant in a shareholder class action lawsuit, Kube v. Pamrapo Bancorp, Inc., et al., filed in the Superior Court of New Jersey, Hudson County, Chancery Division, General Equity (the "Action'). On May 9, 2012, the Company obtained partial summary judgment, dismissing three of the five Counts of the plaintiff's Complaint. On May 9, 2012, plaintiff’s counsel was awarded interim legal fees of approximately $350,000. The Company’s obligation to pay that amount has been stayed. The Company filed a motion for summary judgment, seeking the dismissal of the remaining two Counts of the plaintiff's Complaint . That motion was denied, without prejudice, on February 19, 2014. Since that date, the parties have conferred in an effort to resolve the Action. The terms of a proposed Stipulation of Settlement ("Stipulation") have been agreed to by the plaintiff class and the Company. In consideration for the full settlement and release of all Released Claims (as that term is defined in the Stipulation), and the dismissal of the Action with prejudice, the Company has agreed to pay $1,950,000 to the Class. This amount, less any insurance reimbursements, has been accrued for as of December 31, 2014. On January 9, 2015, the court entered an Order Granting Preliminary Approval of the Proposed Class Settlement and Authorizing the Dissemination of Notice to the Class . Pursuant to the court rules, a "Fairness Hearing" to determine if the proposed settlement is fair, reasonable and adequate has been scheduled by the court for May 22, 2015. The Company has brought a lawsuit against Progressive Insurance Company ("Progressive"), the Directors' and Officers' Liability insurance carrier for Pamrapo Bancorp, Inc., at the time of its merger with the Company on July 6, 2010, and Colonial American Insurance Company ("Colonial"), the Directors' and Officers' Liability insurance carrier for the Company at the time of the merger. The lawsuit seeks, among other claims, indemnification, payment of and/or contribution toward the above award of interim attorney's fees to the plaintiff class's counsel, and reimbursement of the attorney's fees and defense costs incurred by the Company in defending the Kube v. Pamrapo Bancorp, Inc., et al., case. Progressive made a motion to dismiss the Company's lawsuit against it. The Company opposed that motion. That motion was administratively terminated by Order of the court, dated December 3, 2014. By Order of the court, dated December 3, 2014, the Company's motion to file an Amended Complaint was granted. Discovery has been exchanged among the parties. The Company vigorously is pursuing full recovery in this case. 56 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 7 - Fair Value Measurements and Fair Values of Financial Instruments Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end. ASC Topic 820, Fair Value Measurements and Disclosures , establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 : Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 3 : Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. For assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy are as follows: Description As of December 31, 2014: Securities available for sale — Residential mortgage backed securities As of December 31, 2013: Securities available for sale — Equity Securities (Level 1) Quoted Prices in Active Markets for Identical Assets $ $ — 1,104 $ $ (Level 2) Significant Other Observable Inputs 9,768 — (Level 3) Significant Unobservable Inputs $ $ — — $ $ Total 9,768 1,104 For assets and liabilities measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy are as follows: Description As of December 31, 2014: Impaired loans Other real estate owned As of December 31, 2013: Impaired loans Other real estate owned (Level 1) Quoted Prices in Active Markets for Identical Assets $ $ $ $ — — — — $ $ $ $ (Level 2) Significant Other Observable Inputs — — — — (Level 3) Significant Unobservable Inputs 20,156 3,485 22,038 2,227 $ $ $ $ $ $ $ $ Total 20,156 3,485 22,038 2,227 57 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 7 - Fair Value Measurements and Fair Values of Financial Instruments (Continued) The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value, (Dollars in thousands): December 31, 2014: Impaired Loans Other Real Estate Owned December 31, 2013: Impaired Loans Other Real Estate Owned Quantitative Information about Level 3 Fair Value Measurements Fair Value Estimate Valuation Techniques 20,156 Appraisal of collateral (1) 3,485 Appraisal of collateral (1) Quantitative Information about Level 3 Fair Value Measurements Fair Value Estimate Valuation Techniques 22,038 Appraisal of collateral (1) 2,227 Appraisal of collateral (1) $ $ $ $ Unobservable Input Appraisal adjustments (2) Liquidation expenses (3) Appraisal adjustments (2) Liquidation expenses (3) Unobservable Input Appraisal adjustments (2) Liquidation expenses (3) Appraisal adjustments (2) Liquidation expenses (3) Range 0%-10% 0%-10% 0%-10% 0%-10% Range 0%-10% 0%-10% 0%-10% 0%-10% (1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. (3) Includes qualitative adjustments by management and estimated liquidation expenses. 58 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 7 - Fair Value Measurements and Fair Values of Financial Instruments (Continued) The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial in struments at December 31, 201 4 and 201 3 : Cash and Cash Equivalents (Carried at Cost) The carrying amounts reported in the consolidated statements of financial condition for cash and short-term instruments approximate those assets’ fair values. Securities The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Loans Held for Sale (Carried at Lower of Cost or Fair Value) The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for specific attributes of that loan. Loans held for sale are carried at their cost. Loans Receivable (Carried at Cost) The fair values of loans, except for certain impaired loans, are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Impaired Loans (Generally Carried at Fair Value) Impaired loans are those for which the Company has measured and recorded an impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value at December 31, 201 4 and 201 3 consists of the loan balances of $ 2 3 , 027 ,000 and $ 2 4 , 670 ,000 net of a valuation allowance of $ 2, 871 ,000 and $ 2, 632 ,000 , respectively. FHLB of New York Stock (Carried at Cost) The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities. Interest Receivable and Payable (Carried at Cost) The carrying amount of interest receivable and interest payable approximates its fair value. Deposits (Carried at Cost) The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. Debt (Carried at Cost) Fair values of debt are estimated using discounted cash flow analysis, based on quoted prices for new long-term debt with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. Off-Balance Sheet Financial Instruments (Disclosed at Cost) Fair values for the Bank’s off-balance sheet financial instruments (lending commitments and unused lines of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these commitments was deemed immaterial and is not presented in the accompanying table. 59 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 7 - Fair Value Measurements and Fair Values of Financial Instruments (Continued) The carrying values and estimated fair values of financial instruments were as follows at December 31, 201 4 and 201 3 : Financial assets: Cash and cash equivalents Interest-earning time deposits Securities available for sale Loans held for sale Loans receivable, net FHLB of New York stock, at cost Accrued interest receivable Financial liabilities: Deposits Debt Subordinated debentures Accrued interest payable Financial assets: Cash and cash equivalents Interest-earning time deposits Securities available for sale Securities held to maturity Loans held for sale Loans receivable, net FHLB of New York stock, at cost Accrued interest receivable Financial liabilities: Deposits Debt Subordinated debentures Accrued interest payable $ $ Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2014 $ 32,123 993 9,768 3,325 1,207,850 8,830 4,454 1,028,556 159,000 4,124 815 32,123 $ 993 9,768 3,424 1,244,434 8,830 4,454 1,032,275 163,312 4,236 815 (In Thousands) 32,123 $ 993 - - - - - 616,019 - - - As of December 31, 2013 $ - - 9,768 3,424 - 8,830 4,454 416,256 163,312 4,236 815 - - - - 1,244,434 - - - - - - Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ 29,844 990 1,104 114,216 1,663 1,020,344 7,840 4,157 968,670 128,000 4,124 768 29,844 $ 990 1,104 115,158 1,685 1,042,552 7,840 4,157 972,911 135,574 4,368 768 60 (In Thousands) 29,844 $ 990 1,104 - - - - - 587,889 - - $ - - - 115,158 1,685 - 7,840 4,157 385,022 135,574 4,368 768 - - - - - 1,042,552 - - - - - Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 8 - Accumulated Other Comprehensive Loss The components of accumula ted other comprehensive income ( loss ) included in stockholders' equity are as follows: Net unrealized gain on securities available for sale Tax effect Net of tax amount Benefit plan adjustments Tax effect Net of tax amount Accumulated other comprehensive (loss) income 61 At December 31, 2014 2013 (In Thousands) $ $ $ 70 (28) 42 (2,331) 952 (1,379) (1,337) $ 1,007 (412) 595 (788) 322 (466) 129 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 9 - Parent Only Co ndensed Financial Information STATEMENTS OF FINANCIAL CONDITION Assets Cash and due from banks Investment in subsidiaries Restricted common stock Other assets Total assets Liabilities and Stockholders' Equity Liabilities Subordinated debentures Other Liabilities Total Liabilities Stockholder's Equity Total Liabilities and Stockholders' Equity Years Ended December 31, 2014 2013 (In Thousands) $ $ $ 1,904 $ 104,538 124 57 106,623 4,124 247 4,371 102,252 $ 106,623 $ 402 103,725 124 155 104,406 4,124 222 4,346 100,060 104,406 62 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 9 - Parent Only Condensed Financial Information (Continued) STATEMENTS OF OPERATIONS Dividends from Bank subsidiary Total Income Interest expense, borrowed money Other Total Expense Income before Income Tax Expense (Benefit) and Equity in Undistributed Earnings (Losses) of Subsidiaries Income tax (benefit) expense Income before Equity in Undistributed (Losses) Earnings of Subsidiaries Equity in undistributed (losses) earnings of Subsidiaries Net Income (loss) $ $ 2014 Years Ended December 31, 2013 (In Thousands) 2012 6,402 6,402 $ 6,477 6,477 $ 117 288 405 5,997 (139) 6,136 1,454 119 312 431 6,046 (93) 6,139 3,277 7,590 $ 9,416 $ 63 15,745 15,745 128 37 165 15,580 (55) 15,635 (17,697) (2,062) Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 9 - Parent Only Condensed Fi nancial Information (Continued) STATEMENTS OF CASH FLOWS Cash Flows from Operating Activities Net Income (Loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in undistributed (earnings) losses of subsidiaries (Increase) decrease in other assets (Decrease) increase in other liabilities Net Cash Provided By Operating Activities Cash Flows from Investing Activities Additional investment in subsidiary Net Cash Used In Investing Activities Cash Flows from Financing Activities Proceeds from issuance of preferred stock Proceeds from issuance of common stock Cash dividends paid Purchase of treasury stock Net Cash Used in Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending 2014 Years Ended December 31, 2013 (In Thousands) 2012 $ 7,590 $ 9,416 $ (1,454) 98 25 6,259 (770) (770) $ 770 571 (5,316) (12) (3,987) 1,502 402 $ 1,904 $ (3,277) (97) (514) 5,528 (3,986) (3,986) $ 3,986 157 (4,419) (1,916) (2,192) (650) 1,052 $ 402 $ $ $ $ 64 (2,062) 17,697 (22) 490 16,103 (8,570) (8,570) 8,570 109 (4,310) (10,850) (6,481) 1,052 - 1,052 Table of Contents BCB Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 2 0 - Quarterly Financial Data (Unaudited) Interest income Interest expense Net Interest Income Provision for loan losses Net Interest Income, after Provision for loan losses Non-interest income Non-interest expense Income before Income Taxes Income taxes Net Income Preferred stock dividends Net income available to common stockholders: Net income per common share: Basic Diluted Dividends per common share Interest income Interest expense Net Interest Income Provision for loan losses Net Interest Income, after Provision for loan losses Non-interest income Non-interest expense Income before Income Taxes Income taxes Net Income Preferred stock dividends Net income available to common stockholders: Net income per common share: Basic Diluted Dividends per common share $ $ $ $ $ $ $ $ $ $ $ $ First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 2014 14,621 2,557 12,064 1,000 11,064 1,300 8,556 3,808 1,573 2,235 193 2,042 0.24 0.24 0.12 $ $ $ $ $ $ 14,783 2,539 12,244 450 11,794 2,038 9,466 4,366 1,736 2,630 204 2,426 0.29 0.29 0.14 $ $ $ $ $ $ 15,610 2,556 13,054 650 12,404 (750) 9,926 1,728 640 1,088 202 886 0.11 0.11 0.14 $ $ $ $ $ First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 2013 14,199 2,631 11,568 600 10,968 881 7,589 4,260 1,707 2,553 130 2,423 0.29 0.29 0.12 $ $ $ $ $ $ 14,239 2,649 11,590 450 11,140 763 8,333 3,570 1,428 2,142 130 2,012 0.24 0.24 0.12 $ $ $ $ $ $ $ $ $ $ $ 14,077 2,660 11,417 1,200 10,217 784 6,904 4,097 1,687 2,410 130 2,280 0.27 0.27 0.12 65 15,181 2,655 12,526 700 11,826 1,370 10,461 2,735 1,098 1,637 201 1,436 0.17 0.17 0.14 14,844 2,640 12,204 500 11,704 947 8,611 4,040 1,729 2,311 169 2,142 0.26 0.26 0.12 EMPLOYMENT AGREEMENT BETWEEN BCB COMMUNITY BANK AND JOSEPH JAVITZ This Employment Agreement (the “Agreement”) is made effective as of the 3rd day of June, 2014, or on an earlier date agreed to by the parties (the “Effective Date”), by and between BCB COMMUNITY BANK, a New Jersey chartered bank (the “Bank”), with its principal offices at Bayonne , New Jersey , and JOSEPH JAVITZ (“Executive”). Any reference to the “Company,” shall mean BCB Bancorp, Inc., or any successor thereto. WHEREAS , the Bank wishes to assure itself of the services of Executive for the period provided in this Agreement; and WHEREAS , in order to induce Executive to remain in the employ of the Bank and to provide further incentive for Executive to achieve the financial and performance objectives of the Bank, the parties desire to enter into this Agreement; and WHEREAS , the Bank desires to set forth the rights and responsibilities of Executive and the compensation payable to Executive, as modified from time to time. NOW, THEREFORE , in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: POSITION AND RESPONSIBILITIES 1. During the term of this Agreement, Executive agrees to serve as Chief Lending Officer of the Bank (the “Executive Position”), and will perform all duties and will have all powers associated with such position as set forth in the Job Description provided to Executive by the Bank and as may be set forth in the Bylaws of the Bank. The Job Description is attached hereto as Exhibit A. In addition, Executive shall be responsible for establishing the business objectives, policies and strategic plans of the Bank, in conjunction with the Board of Directors of the Bank (“Board”). During the term of the Agreement, Executive also agrees to serve, if elected, as an officer and/or director of any subsidiary or affiliate of the Bank and in such capacity carry out such duties and responsibilities reason ably appropriate to that office. 2. TERM AND ANNUAL REVIEW a. Term . The term of this Agreement will begin as of the Effective Date and will continue for twelve (12) full calendar months thereafter. b. Annu al Review . On an annual basis, at least thirty (30) and not more than sixty (60) days prior to the end of the term of this Agreement, the compensation committee (the “Committee”) designated by the Board will conduct a comprehensive performance evaluation and review of Executive’s performance, and the results thereof will be included in the Minutes of the Board’s meeting. c. Continued Employment Following Expiration of Term . Nothing in this Agreement shall mandate or prohibit a continuation of Executive’s employment following the expiration of the term of this Agreement, upon such terms and conditions as the Bank and Executive may mutually agree. 3. PERFORMANCE OF DUTIES During the period of his employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive will devote all of his business time, attention, skill and efforts to the faithful performance of his duties under this Agreement, including activities and duties directed by the Board. Notwithstanding the preceding sentence, subject to the approval of the Board, Executive may serve as a member of the board of directors of business, community and charitable organizations, provided that in each case such service shall not materially interfere with the performance of his duties under this Agreement, adversely affect the reputation of the Bank or any other affiliates of the Bank, or present any conflict of interest. Executive will present annually to the Board for its review and approval, a list of organizations in which Executive is participating or proposes to participate. Such service to and participation in outside organizations will be presumed for these purposes to be for the benefit of the Bank, and the Bank will reimburse Executive his reasonable expenses associated therewith, to the extent Executive’s expenses are not reimbursed by such organizations. 4. COMPENSATION AND REIMBURSEMENT a. Base Salary . In consideration of Executive’s performance of the responsibilities and duties set forth in Section 1, the Bank will provide Executive the compensation specified in this Agreement. The Bank will pay Executive a salary of $200,000 for the term of this Agreement (“Base Salary”) . Such Base Salary will be payable in accordance with the customary payroll practices of the Bank. b. Bonus and Incentive Compensation . Executive shall be eligible to receive up to fifty (50%) percent of his Base Salary in a performance bonus for the term of this Agreement. Payment of a performance bonus, if applicable, shall be made no later March 15 of the calendar year immediately following the year in which the performance bonus was earned. In addition, Executive may be entitled to participate in any other incentive compensation and bonus plans or arrangements of the Bank or the Company. Any incentive compensation will be paid in cash in accordance with the terms of such plans or arrangements, or on a discretionary basis by the Committee. Nothing paid to Executive under any such plans or arrangements will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement. c. Benefit Plans . Executive will be entitled to participate in all employee benefit plans, arrangements and perquisites offered to employees and executives of the Company or the Bank. Without limiting the generality of the foregoing provisions of this Section 4(c), Executive also will be entitled to participate in any employee benefit plans including, but not limited to, stock benefit plans, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. d. Health, Dental, Life and Disability Coverage . The Bank shall provide Executive with life, medical, dental and disability coverage made available by the Bank to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such coverage. e. Vacation and Leave . Executive will be entitled to paid vacation time each year during the term of this Agreement measured on a fiscal or calendar year basis, in accordance with the Bank’s customary practices, as well as sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior executives. Any unused paid time off during an annual period will be treated in accordance with the Bank’s personnel policies as in effect from time to time. f. Expense Reimbursements . The Bank will reimburse Executive for all reasonable travel, entertainment and other reasonable expenses incurred by Executive during the course of performing his obligations under this Agreement, including, without limitation, fees for memberships in such organizations as Executive and the Board mutually agree are necessary and appropriate in connection with the performance of his duties under this Agreement, upon substantiation of such expenses in accordance with applicable policies and procedures of the Bank. All reimbursements pursuant to this Section 4(f) shall be paid promptly by the Bank. 5. WORKING FACILITIES Executive’s principal place of employment will be at such place as directed by the Board. The Bank will provide Executive at his principal place of employment with a private office, secretarial and other support services and facilities suitable to his position with the Bank and necessary or appropriate in connection with the performance of his duties under this Agreement. 6. TERMINATION AND TERMINATION PAY Subject to Section 7 of this Agreement which governs the occurrence of a Change in Control, Executive’s employment under this Agreement may be terminated in the following circumstances: a. Death . Executive’s employment under this Agreement will terminate upon his death during the term of this Agreement, in which event Executive’s estate or beneficiary will receive the compensation due to Executive through the last day of the calendar month in which his death occurred, and the Bank will continue to provide to Executive’s family, for one (1) year after Executive’s death, non-taxable medical and dental coverage substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by the Bank for Executive and his family immediately prior to Executive’s death. b. Retirement . This Agreement will terminate upon Executive’s “Retirement” under the retirement benefit plan or plans of the Bank in which he participates. Executive will not be entitled to the termination benefits specified in Section 6 or 7 hereof in the event of termination due to Retirement. For purposes of this Agreement, termination of Executive’s employment based on Retirement shall include termination of Executive’s employment by the Board for any reason after Executive attains the age of sixty-five (65) or in accordance with any retirement arrangement established by the Board with Executive’s consent. c. Disability . (i) (ii) Termination of Executive’s employment based on “Disability” shall mean termination because of any permanent and totally physical or mental impairment that restricts Executive from performing all the essential functions of normal employment. A determination as to whether Executive has suffered a Disability shall be made by the Board with objective medical input. In the event of termination due to Disability, Executive will be entitled to disability benefits, if any, provided under a long term disability plan sponsored by the Bank, if any. In the event the Board determines that Executive is Disabled, Executive will no longer be obligated to perform services under this Agreement. Upon Executive’s termination due to Disability, the Bank will cause to continue to provide to Executive life insurance and non- taxable medical and dental coverage substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by the Company or the Bank for Executive immediately prior to his termination for Disability. This coverage shall cease upon the earlier of (i) three (3) years from the date of termination, or (ii) the date Executive becomes eligible for Medicare coverage; provided further that if Executive is covered by family coverage or coverage for self and spouse, then Executive’s family or spouse shall continue to be covered for the remainder of the three (3) year period, or in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains health care coverage elsewhere, whichever period is less. d. Termination for Cause. (i) employment at any termination for Cause, except for determination of the Board, Executive’s: The Board may by written notice to Executive in the form and manner time for “Cause.” Executive shall have no right to receive compensation already vested benefits. Termination for Cause shall mean termination specified in this paragraph, immediately terminate his or other benefits for any period after because of, in the good faith (1) material act of dishonesty in performing Executive’s duties on behalf of the Bank; (2) willful misconduct that in the judgment of the Board will likely cause material economic damage to the Bank or injury to the business (3) (4) reputation of the Bank; incompetence (in determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the commercial banking ind ustry); breach of fiduciary duty involving personal profit; intentional failure to perform stated duties under this Agreement after written notice thereof from the Board; (5) (6) willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflect adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; (7) material breach by Executive of any provision of this Agreement; or, (8) intentional failure to satisfy the requirements set forth in the Executive’s Job Description . (ii) will not hereof. Following a been delivered to than a majority of the the particulars of such conduct. Notwithstanding the foregoing, prior to a Change in Control, as become effective unless the Board has delivered to Executive a copy of a Change in Control, Executive shall not be deemed to have been him a notice of termination which shall include a copy of a resolution duly disinterested members of the Board that Executive was guilty of the that term is defined hereafter, Executive’s termination for Cause notice of termination in accordance with Section 8(a) terminated for Cause unless and until there shall have adopted by the affirmative vote of not less specifying conduct described above and Voluntary Termination by Executive . In addition to his other rights to terminate his employment under this Agreement, Executive may voluntarily e. terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Board. Upon Executive’s voluntary termination, he will receive only his compensation and vested rights and benefits to the date of his termination. Following his voluntary termination of employment under this Section 6(e), Executive will be subject to the restrictions set forth in Section 9 of this Agreement. f. Termination Without Cause or With Good Reason . The Board may, by written notice to Executive, immediately (i) other than terminate this Agreement at any time Reason,” as defined below (a termination “With Good Reason”); to Executive’s employment, other vested rights of Executive under the Bank’s qualified or non- cure the “Good Reason” condition, but the Bank may waive its Cause (a termination “Without Cause”), and Executive may, by within ninety (90) days following an event constituting “Good provided, however, that the Bank shall have thirty (30) days than Termination for Cause, shall have no effect on or prejudice right to cure. Any termination of the terminate his employment at any time for a reason written notice to the Board, qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical or other employee benefit plans or programs, or a participant. and major medical), dental, accident and long term disability insurance plans compensation plans or programs in which Executive was (ii) In the event of termination under this Section 6(f), the Bank shall pay beneficiary or estate, as the case may be, as severance pay, a cash lump Executive, or in the event of Executive’s sum payment within thirty (30) days following Executive’s date of termination, and subsequent death, Executive’s equal to his Base Salary. Such payment shall be payable will be subject to applicable withholding taxes. (iii) (iv) In addition, the Bank will continue to provide to Executive, life insurance coverage and non-taxable medical and dental insurance coverage substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by the Bank for Executive immediately prior to his termination. Such life insurance coverage and non-taxable medical and dental insurance coverage shall cease upon the earlier of (i) the end of the term of this Agreement, or (ii) with respect to each such coverage (e.g., life insurance, medical and/or dental coverage), the date on which such coverage is made available to the Executive through subsequent employment. “Good Reason” exists if, without Executive’s express written consent, any of the following occurs: (1) a failure to elect or reelect or to appoint or reappoint Executive to the Executive Position, or a substantially similar position with substantially similar duties and responsibilities, held on the Effective Date of this Agreement; a material change in Executive’s position to become one of substantially lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1 above; a liquidation or dissolution of the Bank other than liquidations or dissolutions that are caused by reorganizations that do not negatively affect the status of Executive; a material reduction or elimination of Executive’s benefits under one or more benefit plans maintained by the Bank as part of a good faith, overall reduction or elimination of such plans or benefits applicable to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with applicable law); or, (2) (3) (4) (5) a material breach of this Agreement by the Bank. g. Termination and Board Membership . To the extent Executive is a member of the board of directors of the Company, the Bank or any of their affiliates on the date of termination of employment with the Bank (other than a termination due to Retirement), Executive will resign from all of the boards of directors immediately following such termination of employment with the Bank. Executive will be obligated to tender this resignation regardless of the method or manner of termination (other than termination due to Retirement), and such resignation will not be conditioned upon any event or payment. 7. a. CHANGE IN CONTROL Change in Control Defined . For purposes of this Agreement, a “Change in Control” shall mean a change in the effective control of the Company or Bank, as described below. (i) A change in the effective control of the Company or Bank occurs on the in Treasury Regulation 1.409A-3(i)(5)(vi)(D)) acquires (or has acquired during date that (i) any one person, or more than one the 12-month person or persons) ownership of stock of the Company or Bank possessing and (ii) a majority of the members of than 50 percent of the total voting power of the stock of the Company or Bank, person acting as a group (as defined period ending on the date of the most recent acquisition by such more the Company’s or Bank’s board of directors election is not endorsed by a majority of the members of the Company’s or election . is replaced during any 12-month period by directors whose appointment or Bank’s board of directors prior to the date of the appointment or b. Change In Control Benefits . Upon the occurrence of a Change in Control, the Bank shall pay Executive a lump-sum cash payment equal to two (2) times the sum of the average annualized Base Salary of the Executive at the time of Change in Control. Such payment shall be payable within thirty (30) days following the date of the Change in Control, and will be subject to all applicable withholding taxes. Notwithstanding the foregoing, the cash payment made pursuant to this Section 7(b) shall be made in lieu of any cash payments that are subsequently triggered pursuant to Section 6(f)(ii) hereof. c. 280G Cutback . Notwithstanding anything in this Agreement to the contrary, in no event shall the aggregate payments or benefits to be made or afforded to Executive under this Agreement, either as a stand-alone benefit or when aggregated with other payments to, or for the benefit of, Executive that are contingent on a Change in Control, constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code (“Code”) or any successor thereto, and in order to avoid such a result, Executive’s benefits hereunder shall be reduced, if necessary, to an amount, the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive’s “base amount,” as determined in accordance with Code Section 280G. In the event a reduction is necessary, the cash severance payable pursuant to this Section 7 hereof shall be reduced by the minimum amount necessary to result in no portion of the payments and benefits payable by the Bank under this Section 7 being non-deductible pursuant to Code Section 280G and subject to excise tax imposed under Code Section 4999. 8. NOTICE a. relied upon as a basis for termination of Executive’s employment. Notice of Termination . A “notice of termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement b. Date of Termination . “Date of termination” shall mean (i) if Executive’s employment is terminated for Disability, thirty (30) days after a notice of termination is given (provided that he shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (ii) if Executive terminates employment With Good Reason, thirty (30) days after a notice of termination is given, or (iii) if Executive’s employment is terminated for any other reason, the date specified in the notice of termination. Good Faith Resolution . If the party receiving a notice of termination desires to dispute or contest the basis or reasons for termination, the party c. receiving the notice of termination must notify the other party within twenty (20) days after receiving the notice of termination that such a dispute exists, and shall pursue the resolution of such dispute in good faith and with reasonable diligence pursuant to Section 17 of this Agreement. During the twenty (20) days after receiving notice of termination and during the pendency of any such dispute, the Bank shall not be obligated to pay Executive compensation or other payments beyond the date of termination. Any amounts paid to Executive upon resolution of such dispute under this Section shall be offset against or reduce any other amounts due under this Agreement. 9. POST -TERMINATION OBLIGATIONS/NON-COMPETE Non-Solicitation/Non-Compete . Executive hereby covenants and agrees that, if his employment with the Bank is terminated under Sections 6(b), (c) a. and/or (f) of this Agreement, for a period of one (1) year following his termination of employment with the Bank (other than a termination of employment following a Change in Control), he shall not, without the written consent of the Bank, either directly or indirectly: (i) solicit, offer employment to, or take any other action intended (or that a would expect) to have the subsidiaries or affiliates, to terminate his employment and services with the business of the Bank, or any of or filed an application for regulatory approval offices for compensation in any capacity whatsoever to, any business its direct or indirect subsidiaries or affiliates, within twenty-five (25) miles of any location(s) in which the Bank to establish business operations; effect of causing any officer or employee of the Bank, or any of its reasonable person acting in like circumstances respective accept employment or become affiliated with, or provide whatsoever which competes which has headquarters has business operations or has (ii) become an officer, employee, consultant, director, independent contractor, agent, joint venturer, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or Bank has business operations or has filed an application for regulatory loan broker or any other entity that competes with the business of the Bank or any of headquarters within twenty-five (25) miles of any location(s) in which approval to establish business agency, any mortgage or its direct or indirect subsidiaries or affiliates, which: (i) has the operations (the “Restricted Territory”); or Territory, but only if Executive would be employed, conduct business or Territory; or, (ii) has one or more offices, but is not headquartered, within the Restricted have other responsibilities or duties within the Restricted (iii) solicit, provide any information, advice or recommendation, or take any person acting in like terminate an existing business or commercial relationship with the Bank. circumstances would expect) to have the effect of causing any customer of other action intended (or that a reasonable the Bank to b. Executive hereby covenants and agrees that, if his employment with the Bank is terminated under Section 6(e) of this Agreement, for a period of one (1) year following his termination of employment with the Bank (other than a termination of employment following a Change in Control), he shall not, without the written consent of the Bank, either directly or indirectly: (i) solicit, offer employment to, or take any other action intended (or that a effect of causing any officer or employee of the Bank, or any of its would expect) to have the subsidiaries or affiliates, to terminate his employment and services with the business of the Bank, or any of the State of New Jersey or in any county of another state in which the for compensation in any capacity whatsoever to, any business its direct or indirect subsidiaries or affiliates, which is physically located in Bank operates a branch; reasonable person acting in like circumstances respective accept employment or become affiliated with, or provide whatsoever which competes (ii) become an officer, employee, consultant, director, independent contractor, any savings bank, savings and holding company, insurance company or agency, any mortgage or Bank or in any county of another state in or any of its direct or indirect subsidiaries or affiliates, which is physically which the Bank operates a branch; or, agent, joint venturer, partner or trustee of bank loan broker or any other entity that competes with the business of the located in the State of New Jersey loan association, savings and loan holding company, credit union, bank or (iii) person acting in like solicit, provide any information, advice or recommendation, or take any other action intended (or that a reasonable commercial relationship with circumstances would expect) to have the effect of causing any customer of the Bank. the Bank to terminate an existing business or c. Confidentiality . Executive recognizes and acknowledges that the knowledge of the business activities, plans for business activities, and all other proprietary information of the Bank, as it may exist from time to time, are valuable, special and unique assets of the business of the Bank. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities or any other similar proprietary information of the Bank to any person, firm, corporation, or other entity for any reason or purpose whatsoever unless expressly authorized by the Board or required by law. Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank. Further, Executive may disclose information regarding the business activities of the Bank to any bank regulator having regulatory jurisdiction over the activities of the Bank pursuant to a formal regulatory request. In the event of a breach or threatened breach by Executive of the provisions of this Section, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or any other similar proprietary information, or from rendering any services to any person, firm, corporation, or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive. Information/Cooperation . Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may be reasonably required d. by the Bank, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between Executive and the Bank or any other subsidiaries or affiliates. Reliance . All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with this Section 9, to the extent e. applicable. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of Executive’s breach of this Section 9, agree that, in the event of any such breach by Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive and all persons acting for or with Executive. Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines of business than the Bank, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from Executive. 10. SOURCE OF PAYMENTS /RELEASE a. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. b. Notwithstanding anything to the contrary in this Agreement, Executive shall not be entitled to any payments or benefits under Section 6 of this Agreement unless and until Executive executes an unconditional release of any claims against the Company, the Bank, and their affiliates, including their officers, directors, successors and assigns, releasing said persons from any and all claims, rights, demands, causes of action, suits, arbitrations or grievances relating to the employment relationship other than claims for benefits under tax-qualified plans or other benefit plans in which Executive is vested, claims for benefits required by applicable law or claims with respect to obligations set forth in this Agreement that survive the termination of this Agreement. 11. REQUIRED REGULATORY PROVISIONS a. Notwithstanding anything herein contained to the contrary, any payments to Executive by the Bank, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359. b. Notwithstanding anything else in this Agreement to the contrary, Executive’s employment shall not be deemed to have been terminated unless and until Executive has a Separation from Service within the meaning of Code Section 409A. For purposes of this Agreement, a “Separation from Service” shall have occurred if the Bank and Executive reasonably anticipate that either no further services will be performed by Executive after the date of the termination (whether as an employee or as an independent contractor) or the level of further services performed is less than 50% of the average level of bona fide services in the thirty-six (36) months immediately preceding the termination. For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii). c. Notwithstanding the foregoing, in the event the Executive is a Specified Employee (as defined herein), then, solely, to the extent required to avoid penalties under Code Section 409A, the Executive’s payments shall be delayed until the first day of the seventh month following the Executive’s Separation from Service. A “Specified Employee” shall be interpreted to comply with Code Section 409A and shall mean a key employee within the meaning of Code Section 416(i) (without regard to paragraph 5 thereof), but an individual shall be a “Specified Employee” only if the Bank or Company is or becomes a publicly traded company. 12. NO ATTACHMENT Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void, and of no effect. 13. ENTIRE AGREEMENT; MODIFICATION AND WAIVER This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior a. agreements, understandings or representations relating to the subject matter hereof, except that the parties acknowledge that this Agreement shall not affect any of the rights and obligations of the parties under any agreement or plan entered into with or by the Bank pursuant to which Executive may receive compensation or benefits except as set forth in Section 6(d) hereof. b. This Agreement may not be modified or amended except by an instrument in writing signed by each of the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of c. this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived. 14. SEVERABILITY If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 15. HEADINGS FOR REFERENCE ONLY The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. GOVERNING LAW This Agreement shall be governed by the laws of the State of New Jersey , but only to the extent not superseded by federal law. 17. ARBITRATION Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator mutually acceptable to the Bank and Executive, sitting in a location selected by the Bank within twenty-five (25) miles from the main office of the Bank, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. 18. INDEMNIFICATION Insurance . During the term of this Agreement, the Bank will provide Executive with coverage under a directors’ and officers’ liability policy at the Bank’s expense, that is at least equivalent to the coverage provided to directors and senior executives of the Bank. 19. SUCCESSORS AND ASSIGNS The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank’s obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. IN WITNESS WHEREOF , the parties hereto have duly executed this Agreement on the dates set forth below. BCB COMMUNITY BANK May 17, 2014 By: _______/s/ Thomas Coughlin Name: Thomas Coughlin Title: President and Chief Operating Officer EXECUTIVE May 17, 2014 By: __________/s/ Joseph Javitz_____ Name: Joseph Javitz CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-199424, 333-197366, and 333-177502) and on Forms S-8 (Nos. 333- 112201, 333-165127, 333-169337, 333-174639, and 333-175545) of BCB Bancorp, Inc. (the "Company") of our reports dated March 12, 2015, relating to the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting, which appear in this Form 10-K for the year ended December 31, 2014. /s/ Baker Tilly Virchow Krause, LLP Baker Tilly Virchow Krause, LLP Clark, New Jersey March 12, 2015 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.1 1. 2. 3. 4. I, Thomas Coughlin, certify that: I have reviewed this Annual Report on Form 10-K of BCB Bancorp, Inc.; 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 annual report; 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; 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) b) c) d) 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; 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; 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 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 registrant’s board of directors (or persons performing the equivalent functions): a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 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 12 , 201 5 /s/ Thomas Coughlin Thomas Coughlin President and Chief Executive Officer (Principal Executive Officer) Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2 1. 2. 3. 4. I, Thomas P. Keating , certify that: I have reviewed this Annual Report on Form 10-K of BCB Bancorp, Inc.; 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 annual report; 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; 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) b) c) d) 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; 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; 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 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 registrant’s board of directors (or persons performing the equivalent functions): a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 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 12 , 201 5 /s/ Thomas P. Keating Thomas P. Keating Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) Thomas Coughlin , President and Chief Executive Officer and Thomas P. Keating, Chief Financial Officer of BCB Bancorp, Inc. (the “Company”) each certify in his capacity as an officer of the Company that he has reviewed the annual report of the Company on Form 10- K for the fiscal year ended December 31, 2014 and that to the best of his knowledge: (1) the report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32 (2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. Date: March 12 , 201 5 Date: March 12, 2015 /s/ Thomas Coughlin President and Chief Executive Officer (Principal Executive Officer) /s/ Thomas P. Keating Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) 

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