ITEM 1. BUSINESS
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
ITEM 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, 2014, $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, 2014, our allowance for loan losses totaled $16.2 million, representing 1.32% of total loans or 82.39% of non-performing loans.
			
		
			
		
While we have only been operating for thirteen 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, 2014, 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, 2014 and 2013, 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 control, 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 also 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.
			
		
			
		
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 originate 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.
			
		
			
		
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 profitability.
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, 2014, 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.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
			
		
			
		
ITEM 2.
ITEM 2. PROPERTIES
The Bank conducts its business through an executive office, 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, 2014. The total net book value of the Bank’s premises and equipment at December 31, 2014 was $14.3 million.
(1) Leased Property
(2) Includes off-site ATM’s
			
		
			
		
ITEM 3.
ITEM 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 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.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
			
		
			
		
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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, 2014, there were 8,393,791 shares of the Company’s common stock outstanding. At December 31, 2014, the Company had approximately 2,000 stockholders of record.
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, 2014 regarding equity compensation plans that have been approved by shareholders. The Company has no equity based benefit plans that were not approved by shareholders.
_____________________________
(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.
			
		
			
		
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, 2010 through December 31, 2014, (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.
			
		
			
		
On May 9, 2012, the Company announced a sixth stock repurchase plan to repurchase 5% or 462,800 shares of the Company’s common stock. On June 28, 2012, the Company announced a seventh 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. The Company made no stock purchases for the three months ended December 31, 2014.
ITEM 6.
ITEM 6. SELECTED 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, 2014, 2013, 2012, 2011 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.
			
		
			
		
__________
(1) Ratios are for BCB Community Bank only.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 materially 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.
			
		
			
		
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 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 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 write-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 amounts reported at each year-end.
			
		
			
		
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 assets 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 increased 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 financial 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 1.32% 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 purpose 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.
			
		
			
		
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.
___________________________
(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.
			
		
			
		
Analysis of Net Interest Income (Continued)
___________________________
(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.
			
		
			
		
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.
			
		
			
		
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 levels 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 communication, and other fees and expenses.
			
		
			
		
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 the 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 levels 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 the year ended December 31, 2013.
			
		
			
		
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. Other non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communication, 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 the 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.
			
		
			
		
Contractual Obligations and Commitments
The following table sets forth our contractual obligations and commercial commitments at December 31, 2014.
ITEM 7A.
ITEM 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, 2014. 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, 2014. The following sets forth the Company’s NPV as of December 31, 2014.
_________
bp-basis points
			
		
			
		
The table above indicates that at December 31, 2014, 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.
ITEM 8.
ITEM 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.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
			
		
			
		
ITEM 9A.
ITEM 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, 2014 (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, 2014, 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, 2014 is effective and meets the criteria of the Internal Control - Integrated Framework (1992).
			
		
			
		
(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, 2014, 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, 2014, 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 12, 2015 expressed an unqualified opinion.
/s/ Baker Tilly Virchow Krause, LLP
Baker Tilly Virchow Krause, LLP
Clark, New Jersey
March 12, 2015
(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 2014 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.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
			
		
			
		
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 2015 Annual Meeting of Stockholders (the “2015 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 2015 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The “Executive Compensation” section of the Company’s 2015 Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The “Proposal I-Election of Directors” section of the Company’s 2015 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 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 2015 Proxy Statement is incorporated herein by reference.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 14 is incorporated by reference to the Company’s Proxy Statement for the 2015 Annual Meeting of Stockholders, “Proposal II-Ratification of the Appointment of Independent Auditors-Fees Paid to Baker Tilly Virchow Krause, LLP.”
PART IV
ITEM 15.
ITEM 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, 2014 and 2013
(C) Consolidated Statements of Operations for each of the Years in the Three-Year period ended December 31, 2014
(D) Consolidated Statements of Comprehensive Income (Loss) for each of the Years in the Three-Year period ended December 31, 2014
(E) Consolidated Statements of Changes in Stockholders’ Equity for each of the Years in the Three-Year period ended December 31, 2014
(F) Consolidated Statements of Cash Flows for each of the Years in the Three-Year period ended December 31, 2014
(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.
			
		
			
		
(b) Exhibits
________________
(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 Commission 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 Commission 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 Exchange Commission on July 8, 2010.
(11)
Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Securities and Exchange Commission on December 15, 2008.
(12)
Incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the Securities and Exchange Commission on December 15, 2008.
			
		
			
		
(13)
Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the Securities and Exchange Commission on July 8, 2010.
(14)
Incorporated by reference to Exhibit 10.7 to the Form 8-K filed with the Securities and Exchange Commission on July 8, 2010.
(15)
Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange Commission 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)
Incorporated 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.
			
		
			
		
Signatures
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.
						
						
						
						
						
						
						
						
BCB BANCORP, INC.
						
						
						
						
						
						
Date:
March 12, 2015
						
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
						
President, Chief Executive Officer and Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Thomas P. Keating
						
						
						
						
Thomas P. Keating
						
Chief Financial Officer
						
March 12, 2015
						
(Principal Financial and Accounting Officer)
						
						
						
						
						
						
						
						
						
						
/s/ Mark D. Hogan
						
						
						
						
Mark D. Hogan
						
Chairman of the Board
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Robert Ballance
						
						
						
						
Robert Ballance
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Judith Q. Bielan
						
						
						
						
Judith Q. Bielan
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Joseph J. Brogan
						
						
						
						
Joseph J. Brogan
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ James E. Collins
						
						
						
						
James E. Collins
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Joseph Lyga
						
						
						
						
Joseph Lyga
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
						
						
						
						
			
		
			
		
/s/ Alexander Pasiechnik
						
						
						
						
Alexander Pasiechnik
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ August Pellegrini, Jr.
						
						
						
						
August Pellegrini, Jr.
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ James Rizzo
						
						
						
						
James Rizzo
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Spencer B. Robbins
						
						
						
						
Spencer B. Robbins
						
Director
						
March 12, 2015
						
						
						
						
						
						
						
						
/s/ Gary S. Stetz
						
						
						
						
Gary S. Stetz
						
Director
						
March 12, 2015
			 		
			
		
			
		
EXHIBIT 13
CONSOLIDATED FINANCIAL STATEMENTS
			
		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Financial Report
December 31, 2014 and 2013
			
		
			
		
			
		
			
		
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
BCB Bancorp, Inc.
Bayonne, New Jersey
We have audited the accompanying consolidated statements of financial condition of BCB Bancorp, Inc. and Subsidiaries (collectively the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2014. 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, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, 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, 2014, 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 12, 2015, expressed an unqualified opinion thereon.
/s/ Baker Tilly Virchow Krause, LLP
Clark, New Jersey
March 12, 2015
			 		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
			
		
See accompanying notes to consolidated financial statements.
			 		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
			
		
						
						
						
						
						
						
						
						
See accompanying notes to consolidated financial statements.
			 		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of 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.
			 		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
			
		
See accompanying notes to consolidated financial statements.
			 		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
			
		
			
		
BCB Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
			
		
See accompanying notes to consolidated financial statements.
			 		
			
		
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 478 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 2014, 2013 and 2012, 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, 2014, 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.
			
		
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 been 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, 2014 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 that 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.
			
		
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.
			
		
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.
						
						
						
						
						
Years
Buildings
						
Building improvements
						
7 - 40
Furniture, fixtures and equipment
						
3 - 5
Leasehold improvements
						
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 2014, 2013, or 2012.
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, 2014, the Bank owned seven properties totaling $3,485,000. At December 31, 2013, the Bank owned seven properties totaling $2,227,000.
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.
			
		
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, 2014, 2013 and 2012. The tax years subject to examination by the Federal taxing authority are the years ended December 31, 2013, 2012, and 2011. The tax years subject to examination by the State taxing authority are the years ended December 31, 2013, 2012, 2011, and 2010.
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 13 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 merger 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, 2013 and 2012 have been reclassified to conform to the current year’s presentation. These changes had 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.
			
		
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.
·
For 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
·
The 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.
·
			
		
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. 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.
2. An entity should consider all contractual cash flows over the life of the related financial assets.
3. 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.
4. 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 the amount of loss would be zero.
5. 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 factors.
6. 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.
			
		
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 New Bay LLC (“New Bay”), a limited liability company 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 this 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 2014, 2013, and 2012, 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 2015.
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 2014, which is reflected in the 2014 Consolidated Statement of Operations within occupancy expense of premises. The Bank expects to pay $20,400 for the year 2015.
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 years 2014, 2013 and 2012, which is reflected in the 2014 Consolidated Statement of Operations within occupancy expense of premises. The Bank expects to pay $180,000 for the year 2015.
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.
			
		
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.
The following tables present the cost and gross unrealized gains and losses on securities available for sale as of December 31, 2013:
(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:
			
		
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, 2013. There were no securities held to maturity at December 31, 2014.
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 $23,000. 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:
There were no securities held to maturity at December 31, 2014.
			
		
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, 2014 and December 31, 2013 by segment and class:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
At December 31, 2014 and 2013, loans serviced by the Bank for the benefit of others, which consist of participation interests in loans originated by the Bank, totaled approximately $37.0 million and $16.7 million, respectively.
			
		
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):
The following table presents changes in the accretable discount on loans acquired for the years ended December 31, 2014 and 2013. (In Thousands):
The following table presents changes in the non-accretable yield on loans acquired for the years ended December 31, 2014 and 2013. (In Thousands):
			
		
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:
Allowance for Loan Losses
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 adjustment 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.
			
		
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 consumer 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, 2014, 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.
			
		
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, 2014 and recorded investment in loans receivable at December 31, 2014. 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):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2013 and recorded investment in loans receivable at December 31, 2013. 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):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2012 and recorded investment in loans receivable at December 31, 2012. 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):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014 and 2013, 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, 2014 and 2013, 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 its ability to satisfy the terms of the restructured loan.
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
Had non-accrual loans been performing in accordance with their original terms, the interest income recognized for the years ended December 31, 2014, 2013 and 2012 would have been approximately $1.06 million, $1.36 million and $1.06 million, respectively. Interest income recognized on such loans was approximately $784,000, $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 nonaccrual status. At December 31, 2014 and 2013, there were no loans which were more than ninety days past due and still accruing interest.
During 2014, the Bank sold approximately $14.4 million of non-performing loans for the purposes of eliminating future carrying costs associated 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.
			
		
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, 2014 and December 31, 2013. (In Thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014 and December 31, 2013. (In Thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014 and 2013. (In Thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014 and 2013. (In Thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014, excluding the purchase impairment mark on the acquired loans with deteriorated credit:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
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.
			
		
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, 2013, excluding the purchase impairment mark on the acquired loans with deteriorated credit:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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 to troubled debt restructurings during the year ended December 31, 2014. (In thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2013. (In thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2013:
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2014. (In Thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
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, 2013. (In Thousands):
__________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 7 - Premises and Equipment
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, $1,252,000 and $1,229,000 for the years ended December 31, 2014, 2013, and 2012, 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
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 9 - Deposits
At December 31, 2014 and 2013, certificates of deposit of $100,000 or more totaled approximately $274.1 million and $229.2 million, respectively.
The scheduled maturities of certificates of deposit at December 31, 2014, were as follows (In thousands):
			
		
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:
At December 31, 2014 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):
At December 31, 2014, the Bank’s total credit exposure cannot exceed 50% of its total assets, or $650,950,147, 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.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 11 - Subordinated Debentures (In Thousands):
The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust I at December 31, 2014.
The Trust Preferred floating rate junior subordinated debenture interest rate adjusts quarterly. The rate paid as of December 31, 2014 and 2013, respectively, was 2.893% and 2.894%.
The trust preferred debenture became callable, at the Company’s option, on June 17, 2009, and quarterly thereafter.
Note 12 - 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 and 2013, 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.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 13- 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:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 13 - Benefits Plans (Continued)
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.
			
		
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:
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%.
			
		
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, 2014, by asset category (see Note 17 for the definitions of levels), are as follows:
The fair values of the Company’s pension plan assets at December 31, 2013, by asset category (see Note 17 for the definitions of levels), are as follows:
						
						
						
						
						
						
						
						
						
						
						
			
		
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)
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.
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 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 2015.
Benefit payments are expected to be paid for the years ended December 31 as follows (In thousands):
			
		
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:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 13 - Benefits Plan (Continued)
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):
			
		
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 on 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 summary of stock option activity, follows:
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.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 13 - Benefits Plan (Continued)
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 14 - 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 2014, 2013 and 2012, the Bank paid the Company total dividends of $6,402,000, $6,476,500 and $15,745,000, respectively. The Company’s ability to declare dividends is dependent upon the amount of dividends paid to the Company by the Bank.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 15 - Income Taxes
The components of income tax (benefit) expense are summarized as follows:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 15 - 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:
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, 2014, 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, 2013, 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, 2014 and 2013, 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, 2014 and 2013.
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, 2014 and 2013, the Company had approximately $287,000 remaining 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 operating loss carry forward by 2016.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 15 - 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 loss 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 federal income tax rate of between 34 and 35% in 2014, 2013, and 2012 to income before income tax expense:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 16- 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:
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.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 17 - 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:
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:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 17 - 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):
(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.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 17 - 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 instruments at December 31, 2014 and 2013:
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, 2014 and 2013 consists of the loan balances of $23,027,000 and $24,670,000 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.
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 17 - 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, 2014 and 2013:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 18- Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive income (loss) included in stockholders' equity are as follows:
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 19- Parent Only Condensed Financial Information
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 19- Parent Only Condensed Financial Information (Continued)
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 19 - Parent Only Condensed Financial Information (Continued)
			
		
BCB Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
			
		
Note 20 - Quarterly Financial Data (Unaudited)