BCB BANCORP INC - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-50275

BCB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

New Jersey		26-0065262
(State or other jurisdiction of incorporation or organization)		(IRS Employer I.D. No.)

104-110 Avenue C Bayonne, New Jersey		07002
(Address of principal executive offices)		(Zip Code)

(201) 823-0700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year if changed since last report)

Securities registered pursuant to section 12(b) of the Securities and Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	BCBP	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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


Large Accelerated Filer	☐	Accelerated Filer	☒

Non-Accelerated Filer	☐	Smaller Reporting Company	☒

		Emerging Growth Company	☐

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 1, 2019, BCB Bancorp, Inc., had 16,478,735 shares of common stock, no par value, outstanding.

BCB BANCORP INC. AND SUBSIDIARIES

INDEX



	Page
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition as of September 30, 2019 (unaudited) and December 31, 2018 (unaudited)		1
Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)		2
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)		3
Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited)		4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)		6
Notes to Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 3. Quantitative and Qualitative Disclosures about Market Risk		43
Item 4. Controls and Procedures		44

PART II. OTHER INFORMATION		44
Item 1. Legal Proceedings		44
Item 1A. Risk Factors		45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 3. Defaults Upon Senior Securities		45
Item 4. Mine Safety Disclosures		45
Item 5. Other Information		45
Item 6. Exhibits		45

PART I. CONSOLIDATED FINANCIAL INFORMATION

ITEM I. CONSOLIDATED FINANCIAL STATEMENTS

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In thousands, Except Share and Per Share Data, Unaudited)



	September 30,		December 31,
	2019		2018

ASSETS
Cash and amounts due from depository institutions	$	27,625	$	18,970
Interest-earning deposits		348,986		176,294
Total cash and cash equivalents		376,611		195,264

Interest-earning time deposits		735		735
Debt securities available for sale		98,218		119,335
Equity investments		5,857		7,672
Loans held for sale		3,195		1,153
Loans receivable, net of allowance for loan losses
of $24,691 and $22,359 respectively		2,253,699		2,278,492
Federal Home Loan Bank of New York stock, at cost		15,171		13,405
Premises and equipment, net		20,315		20,293
Accrued interest receivable		8,959		8,378
Other real estate owned		-		1,333
Deferred income taxes		13,445		13,601
Goodwill and other intangibles		5,570		5,604
Operating lease right-of-use assets		13,951		-
Other assets		9,773		9,466
Total Assets	$	2,825,499	$	2,674,731

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Non-interest bearing deposits	$	276,235	$	263,960
Interest bearing deposits		1,987,222		1,916,764
Total deposits		2,263,457		2,180,724
FHLB advances		275,800		245,800
Subordinated debt		36,752		36,577
Operating lease liability		14,054		-
Other liabilities and accrued interest payable		11,717		11,415
Total Liabilities		2,601,780		2,474,516

STOCKHOLDERS' EQUITY
Preferred stock: $0.01 par value, 10,000,000 shares authorized;
issued and outstanding 8,340 shares of series C 6%, series D 4.5%, series G 6%, (liquidation value $10,000 per share)
and series F 6% (liquidation value $1,000 per share) noncumulative perpetual preferred stock
at September 30, 2019 and 7,807 shares of series C 6%, series D 4.5%, (liquidation value $10,000 per share)
and series F 6% (liquidation value $1,000 per share) noncumulative perpetual preferred stock at December 31, 2018		-		-
Additional paid-in capital preferred stock		25,016		19,706
Common stock: no par value; 40,000,000 shares authorized; issued 18,444,453 and 18,352,748
at September 30, 2019 and December 31, 2018, respectively, outstanding 16,477,235 shares and
15,889,306 shares, at September 30, 2019 and December 31, 2018, respectively		-		-
Additional paid-in capital common stock		177,253		175,500
Retained earnings		45,947		38,405
Accumulated other comprehensive (loss)		(2,449)		(5,076)
Treasury stock, at cost, 1,967,218 and 2,463,442 shares at September 30, 2019 and December 31, 2018, respectively		(22,048)		(28,320)
Total Stockholders' Equity		223,719		200,215

Total Liabilities and Stockholders' Equity	$	2,825,499	$	2,674,731

See accompanying notes to unaudited consolidated financial statements

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, Except for Per Share Amounts, Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
		2019		2018		2019		2018

Interest and dividend income:
Loans, including fees	$	28,860	$	26,019	$	85,727	$	69,588
Mortgage-backed securities		652		827		2,160		2,363
Other investment securities		107		116		432		416
FHLB stock and other interest earning assets		1,750		1,009		4,270		2,242
Total interest income		31,369		27,971		92,589		74,609

Interest expense:
Deposits:
Demand		1,898		1,130		5,224		2,902
Savings and club		102		116		325		318
Certificates of deposit		6,603		4,591		18,690		10,726
		8,603		5,837		24,239		13,946
Borrowings		2,006		2,054		5,823		4,153
Total interest expense		10,609		7,891		30,062		18,099

Net interest income		20,760		20,080		62,527		56,510
Provision for loan losses		900		907		2,544		4,309

Net interest income after provision for loan losses		19,860		19,173		59,983		52,201

Non-interest income:
Fees and service charges		855		1,092		2,540		2,773
Gain on sales of loans		89		738		844		1,897
Gain (loss) on bulk sale of impaired loans held in portfolio		-		-		107		(24)
Gain on sales of other real estate owned		124		14		177		4
Gain on sale of investment securities		283		-		304		-
Unrealized (loss) gain on equity investments		(45)		(82)		220		(242)
Other		77		90		179		2,393
Total non-interest income		1,383		1,852		4,371		6,801

Non-interest expense:
Salaries and employee benefits		7,294		7,156		21,127		20,548
Occupancy and equipment		2,647		2,490		7,926		7,028
Data processing and service fees		776		942		2,128		2,499
Professional fees		368		437		1,474		1,475
Director fees		356		192		990		594
Regulatory assessments		(91)		419		783		948
Advertising and promotional		64		129		260		314
Other real estate owned, net		(31)		22		77		213
Merger related costs		-		119		-		2,303
Other		2,269		2,485		6,558		6,460
Total non-interest expense		13,652		14,391		41,323		42,382

Income before income tax provision		7,591		6,634		23,031		16,620
Income tax provision		2,359		2,040		7,121		5,081

Net Income	$	5,232	$	4,594	$	15,910	$	11,539
Preferred stock dividends		342		263		1,002		691
Net Income available to common stockholders	$	4,890	$	4,331	$	14,908	$	10,848

Net Income per common share-basic and diluted
Basic	$	0.30	$	0.27	$	0.91	$	0.70
Diluted	$	0.30	$	0.27	$	0.91	$	0.69

Weighted average number of common shares outstanding
Basic		16,468		15,789		16,320		15,482
Diluted		16,523		15,896		16,369		15,609

See accompanying notes to unaudited consolidated financial statements.

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018


Net Income	$	5,232	$	4,594	$	15,910	$	11,539
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on available-for-sale debt securities:
Unrealized holding (losses) gains arising during the period		(713)		(845)		3,488		(4,189)
Tax Effect		193		155		(861)		967
Net of Tax Effect		(520)		(690)		2,627		(3,222)
Other comprehensive (loss) income		(520)		(690)		2,627		(3,222)
Comprehensive income	$	4,712	$	3,904	$	18,537	$	8,317

See accompanying notes to unaudited consolidated financial statements.

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(In thousands, Except Share and Per Share Data, Unaudited)


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

Balance at December 31, 2018	$	-	$	-	$	195,206	$	38,405	$	(28,320)	$	(5,076)	$	200,215

Issuance of common stock		-		-		6,239		-		-		-		6,239

Issuance of Series G Preferred Stock		-		-		5,310		-		-		-		5,310

Stock-based compensation expense		-		-		688		-		-		-		688

Treasury Stock allocated to Common Stock issuance		-		-		(5,707)		(565)		6,272		-		-

Dividends payable on Series C 6%, Series D 4.5%, Series F 6%, and Series G 6% noncumulative perpetual preferred stock		-		-		-		(1,002)		-		-		(1,002)

Cash dividends on common stock ($0.14 per share declared)		-		-		-		(6,516)		-		-		(6,516)

Dividend Reinvestment Plan		-		-		285		(285)		-		-		-

Stock Purchase Plan		-		-		248		-		-		-		248

Net income		-		-		-		15,910		-		-		15,910

Other comprehensive income		-		-		-		-		-		2,627		2,627

Balance at September 30, 2019	$	-	$	-	$	202,269	$	45,947	$	(22,048)	$	(2,449)	$	223,719



	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

Balance at June 30, 2019	$	-	$	-	$	201,783	$	43,347	$	(22,048)	$	(1,929)	$	221,153

Stock-based compensation expense		-		-		291		-		-		-		291

Dividends payable on Series C 6%, Series D 4.5%, Series F 6%, and Series G 6% noncumulative perpetual preferred stock		-		-		-		(343)		-		-		(343)

Cash dividends on common stock ($0.14 per share declared)		-		-		-		(2,190)		-		-		(2,190)

Dividend Reinvestment Plan		-		-		99		(99)		-		-		-

Stock Purchase Plan		-		-		96		-		-				96

Net income		-		-		-		5,232		-		-		5,232

Other comprehensive income		-		-		-		-		-		(520)		(520)

Balance at September 30, 2019	$	-	$	-	$	202,269	$	45,947	$	(22,048)	$	(2,449)	$	223,719

See accompanying notes to unaudited consolidated financial statements.

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity (Continued)

(In thousands, Except Share and Per Share Data, Unaudited)


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

Balance at December 31, 2017	$	-	$	-	$	177,471	$	31,241	$	(29,116)	$	(3,142)	$	176,454

Acquisition of IA Bancorp		-		-		17,405		-		-		-		17,405

Exercise of Stock Options		-		-		2		-		-		-		2

Stock-based Compensation Expense		-		-		230		-		-		-		230

Dividends payable on Series C 6%, Series D 4.5%, Series E 6%, and Series F 6% noncumulative perpetual preferred stock		-		-		-		(691)		-		-		(691)

Cash dividends on common stock ($0.14 per share declared)		-		-		-		(6,275)		-		-		(6,275)

Dividend Reinvestment Plan		-		-		247		(247)		-		-		-

Stock Purchase Plan		-		-		321		-		-		-		321

Net income		-		-		-		11,539		-		-		11,539

Reclassification of unrealized gains on AFS equity securities		-		-		-		126		-		(126)		-

Other comprehensive income		-		-		-		-		-		(3,222)		(3,222)

Balance at September 30, 2018	$	-	$	-	$	195,676	$	35,693	$	(29,116)	$	(6,490)	$	195,763



	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

Balance at June 30, 2018	$	-	$	-	$	195,422	$	33,571	$	(29,116)	$	(5,800)	$	194,077

Acquisition of IA Bancorp		-		-		-		-		-		-		-

Stock-based compensation expense		-		-		66		-		-		-		66

Dividends payable on Series C 6%, Series D 4.5%, Series E 6%, and Series F 6% noncumulative perpetual preferred stock		-		-		-		(263)		-		-		(263)

Cash dividends on common stock ($0.14 per share declared)		-		-		-		(2,125)		-		-		(2,125)

Dividend Reinvestment Plan		-		-		84		(84)		-		-		-

Stock Purchase Plan		-		-		104		-		-				104

Net income		-		-		-		4,594		-		-		4,594

Other comprehensive loss		-		-		-		-		-		(690)		(690)

Balance at September 30, 2018	$	-	$	-	$	195,676	$	35,693	$	(29,116)	$	(6,490)	$	195,763

See accompanying notes to unaudited consolidated financial statements.

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands, Unaudited)


	Nine Months Ended September 30,
	2019		2018
Cash Flows from Operating Activities :
Net Income	$	15,910	$	11,539
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		2,146		2,039
Amortization and accretion, net		(2,206)		(2,191)
Provision for loan losses		2,544		4,309
Deferred income tax (benefit)		(859)		(284)
Loans originated for sale		(15,065)		(17,320)
Proceeds from sales of loans		13,867		18,740
Gain on sales of loans originated for sale		(844)		(1,897)
Gain on sales of other real estate owned		(177)		(4)
Gains on sales of securities available for sale		(304)		-
Fair value adjustment of OREO		-		101
Unrealized (gain) loss on equity investments		(220)		242
(Gain) loss on bulk sale of impaired loans held in portfolio		(107)		24
Stock-based compensation expense		688		230
(Increase) in interest receivable		(581)		(1,870)
(Increase) in other assets		(307)		(2,637)
(Decrease) increase in accrued interest payable		(331)		1,132
Increase in other liabilities		831		1,376
Net Cash Provided by Operating Activities		14,985		13,529
Cash flows from investing activities:
Proceeds from repayments, calls, and maturities on securities available for sale		13,691		20,286
Purchases of securities available for sale		(1,153)		(16,353)
Proceeds from sales of other real estate owned		2,417		502
Proceeds from bulk sale of impaired loans held		402		250
Proceeds from sales of securities available for sale		14,234		-
Net decrease (increase) in loans receivable		23,693		(401,888)
Additions to premises and equipment		(2,168)		(829)
(Purchase) of Federal Home Loan Bank of New York stock		(1,766)		(3,381)
Cash acquired in acquisition		-		7,597
Cash paid in acquisition		-		(2,550)
Net Cash Provided by (Used In) Investing Activities		49,350		(396,366)
Cash flows from financing activities:
Net increase in deposits		82,733		368,818
Proceeds from Federal Home Loan Bank of New York advances		40,000		175,800
Repayments of Federal Home Loan Bank of New York advances		(10,000)		(105,000)
Cash dividends paid on common stock		(6,516)		(6,275)
Cash dividends paid on preferred stock		(1,002)		(691)
Net proceeds from issuance of common stock		6,487		321
Net proceeds from issuance of preferred stock		5,310		-
Net proceeds from issuance of subordinated debt		-		32,337
Exercise of stock options		-		2
Net Cash Provided by Financing Activities		117,012		465,312

Net Increase In Cash and Cash Equivalents		181,347		82,475
Cash and Cash Equivalents-Beginning		195,264		124,235

Cash and Cash Equivalents-Ending	$	376,611	$	206,710

Supplementary Cash Flow Information:
Cash paid during the year for:
Income taxes	$	8,492	$	6,706
Interest		30,393		16,968
Non-cash items:
Transfer of loans to other real estate owned	$	907	$	972

See accompanying notes to unaudited consolidated financial statements

BCB Bancorp Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of BCB Bancorp, Inc. (the “Company”) and the Company’s wholly owned subsidiaries, BCB Community Bank (the “Bank”), BCB Holding Company Investment Company, BCB New York Asset Management, Inc., Pamrapo Service Corporation, REO Special Asset I, LLC., and REO Special Asset II, LLC. The Company’s business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and, therefore, do not necessarily include all information that would be included in audited consolidated financial statements. The information furnished reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of consolidated financial condition and results of operations. All such adjustments are of a normal recurring nature. These results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2019 or any other future period. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management 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. Actual results could differ significantly from those estimates.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred between September 30, 2019, and the date these consolidated financial statements were issued.

Note 2 - Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which superseded the lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Previously, leases were classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows is generally consistent with the prior guidance. The new guidance became effective for the Company in 2019. The standard has been applied using a modified retrospective transition method. The right-of-use asset and lease liability are reported on the Company’s consolidated statement of financial condition. The adoption of the provisions of this update did not have a significant impact to our consolidated statements of income. At September 30, 2019, the Company had $14.0 million in capitalized lease right-of-use assets and $14.1 million in related lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the consolidated financial statements. The amendments are effective for the Company in 2020. On October 16, 2019, the FASB approved changes to the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The proposal will delay the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a smaller reporting company, the delay is applicable to the Company. The Company is evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations. The effect of this change cannot be ascertained at this point, and will depend upon factors including asset components, asset quality and market conditions at the adoption date.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance amends existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company recorded a cumulative effect adjustment to the balance sheet as of January 1, 2018 in the amount of $126,000, representing the unrealized gain of $175,000 at December 31, 2017 net of taxes of $49,000. The Company recorded a loss and gain to the income statement in the amounts of $45,000 and $220,000, respectively, for the three and nine months ended September 30, 2019 and losses of $82,000 and $242,000 for the three and nine months ended September 30, 2018.

In January 2017, FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is to simplify the accounting for goodwill impairment by requiring impairment charges be based upon the first step in the current two-step impairment test under Accounting Standards Codification (ASC) 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). This ASU’s objective is to simplify how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact of the pending adoption on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement as a result of a broader disclosure project. The Update amends the disclosure requirements for fair value measurements to improve the effectiveness of the disclosure. The Update removes and modifies certain disclosure requirements, as well as adds requirements for public business entities. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the Update and delay adoption of the additional disclosures until their effective date. This ASU will affect the Company’s disclosures only and will not have a financial statement impact.

Note 3 – Reclassification

Certain amounts as of December 31, 2018 and for the three and nine month periods ended September 30, 2018 have been reclassified to conform to the current period’s presentation. These changes had no effect on the Company’s results of operations or financial position.

Note 4 – Pension and Equity Incentive Plans

Pension Plan

The Company assumed, 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. Accordingly, no employees are permitted to commence participation in the Pension Plan and future salary increases and future years of service are not considered when computing an employee’s benefits under the Pension Plan. The Pension Plan is funded in conformity with the funding requirements of applicable government regulations. The Company also acquired through the merger with Pamrapo Bancorp, Inc. a supplemental executive retirement plan (“SERP”) in which certain former employees of Pamrapo Savings 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.

Net periodic pension cost for the three and nine months ended September 30, 2019 and September 30, 2018 was $63,000, $146,000, $10,000, and $30,000, respectively. Net periodic postretirement cost for the SERP plan for each of the three and nine months ended September 30, 2019 and September 30, 2018 was $3,000, $9,000, $3,000, and $9,000, respectively.

Equity Incentive Plans

The Company, under the plan approved by its shareholders on April 26, 2018 (“2018 Equity Incentive Plan”), authorized the issuance of up to 1,000,000 shares of common stock of the Company pursuant to grants of stock options and restricted stock units. Employees and directors of the Company and the Bank are eligible to participate in the 2018 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 June 14, 2019, a grant of 68,750 options was declared for members of the Board of Directors of the Bank and the Company which vest at a rate of 50% per year, over two years, commencing on the first anniversary of the grant date. The exercise price was recorded as of close of business on June 14, 2019. On June 14, 2019, a grant of 30,125 options was declared for certain executive officers of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date. The exercise price was recorded as of the close of business on June 14, 2019. On June 14, 2019, an award of 33,110 shares of restricted stock was declared for members of the Board of Directors of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date. On June 14, 2019, an award of 14,508 shares of restricted stock was declared for certain executive officers of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date.

On December 14, 2018, a grant of 300,000 options was declared for members of the Board of Directors of the Bank and the Company which vest at a rate of 50% per year, over two years, commencing on the first anniversary of the grant date. The exercise price was recorded as of close of business on December 14, 2018. On December 14, 2018, an award of 54,000 shares of restricted stock was declared for members of the Board of Directors of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date. On December 14, 2018, an award of 13,321 shares of restricted stock was declared for certain executive officers of the Bank and the Company, which vest over a 2-year period, commencing on the anniversary of the award date.

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 September 13, 2017, a grant of 275,000 options was declared for certain members of the Board of Directors of the Bank and the Company 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 September 13, 2017. There were 75,000 stock options granted to employees in the fourth quarter of 2017 which vests at a rate of 20% per year.

Note 4 – Pension and Equity Incentive Plans (continued)

The following table presents a summary of the status of the Company’s restricted shares as of September 30, 2019.


	Number of Shares Awarded		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018	67,321	$	11.26
Granted	47,618		12.46
Vested	-
Forfeited	-
Non-vested at September 30, 2019	114,939	$	11.86

Expected future expenses relating to the non-vested restricted shares outstanding as of September 30, 2019 was approximately $930,000 over a weighted average period of 1.21 years.

The following tables present a summary of the status of the Company’s outstanding stock option awards as of September 30, 2019 and September 30, 2018.


	Number of Option Shares		Range of Exercise Prices		Weighted Average Exercise Price

Outstanding at December 31, 2018	1,104,600	$	8.93 - 13.32	$	11.36

Options granted	98,875		12.46		12.46
Options exercised	-
Options forfeited	(1,000)		10.55		10.55
Options expired	-

Outstanding at September 30, 2019	1,202,475	$	8.93 - 13.32	$	11.45

As of September 30, 2019, stock options which were granted and were exercisable totaled 268,633 stock options.

It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to the 866,775 shares of unvested options outstanding as of September 30, 2019 was $1.6 million over a weighted average period of 4.71 years.



	Number of Option Shares		Range of Exercise Prices		Weighted Average Exercise Price

Outstanding at December 31, 2017	889,300	$	8.93-13.32	$	11.42

Options granted	-		-		-
Options exercised	(12,200)		9.03-13.32		10.91
Options forfeited	(53,000)		9.03-13.32		11.69
Options expired	-		-		-

Outstanding at September 30, 2018	824,100	$	8.93-13.32	$	11.41

As of September 30, 2018, stock options which were granted and were exercisable totaled 242,033 stock options.

It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to 582,067 shares of unvested options outstanding as of September 30, 2018 was $1.1 million over a weighted average period of 6.75 years.

Note 5 – Net Income per Common Share

Basic net income per common share is computed by dividing net income less dividends on preferred stock by the weighted average number of shares of common stock outstanding. The diluted net income 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 three and nine months ended September 30, 2019 and 2018, 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 were necessary in calculating basic and diluted net income per share. For the three months ended September 30, 2019 and 2018 the weighted average number of outstanding options considered to be anti-dilutive were 42,958 and 3,665 respectively. For the nine months ended September 30, 2019 and 2018, the weighted average number of outstanding options considered to be anti-dilutive were 32,054 and 1,896, respectively. At September 30, 2019, the Company has 6,465 shares of its Series F 6% noncumulative perpetual preferred stock (“Series F shares”) issued and outstanding, which are convertible into the Company’s common stock. The conversion of Series F shares to common shares was not included in the computation of diluted earnings per share as they would be anti-dilutive.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:



	For the Three Months Ended September 30,
	2019					2018
		Income	Shares		Per Share		Income	Shares		Per Share
		(Numerator)	(Denominator)		Amount		(Numerator)	(Denominator)		Amount
	(In Thousands, except per share data)

Net income available to common stockholders	$	4,890				$	4,331

Basic earnings per share-
Income available to
Common stockholders	$	4,890	16,468	$	0.30	$	4,331	15,789	$	0.27


Effect of dilutive securities:
Stock options		-	55				-	107

Diluted earnings per share-
Income available to
Common stockholders	$	4,890	16,523	$	0.30	$	4,331	15,896	$	0.27


	For the Nine Months Ended September 30,
	2019					2018
		Income	Shares		Per Share		Income	Shares		Per Share
		(Numerator)	(Denominator)		Amount		(Numerator)	(Denominator)		Amount
	(In Thousands, except per share data)

Net income available to common stockholders	$	14,908				$	10,848

Basic earnings per share-
Income available to
Common stockholders	$	14,908	16,320	$	0.91	$	10,848	15,482	$	0.70


Effect of dilutive securities:
Stock options		-	49				-	127

Diluted earnings per share-
Income available to
Common stockholders	$	14,908	16,369	$	0.91	$	10,848	15,609	$	0.69

Note 6 –Debt Securities Available for Sale

The following tables present by maturity the amortized cost, gross unrealized gains and losses on, and fair value of, securities available for sale as of September 30, 2019 and December 31, 2018:




	September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In Thousands)
Mortgage-backed securities:
Due after one year through five years	$	3,482	$	19	$	66	$	3,435
Due after five years through ten years		1,669		34		-		1,703
Due after ten years		93,486		605		1,011		93,080
	$	98,637	$	658	$	1,077	$	98,218



	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Mortgage-backed securities:
Due after one year through five years	$	5,613	$	10	$	124	$	5,499
Due after five years through ten years		3,246		2		1		3,247
Due after ten years		110,710		52		3,868		106,894

Municipal obligations:
Due within one year		495		-		-		495
Due after one year through five years		917		10		-		927
Due after five years through ten years		1,225		13		1		1,237
Due after ten years		1,036		-		-		1,036
	$	123,242	$	87	$	3,994	$	119,335

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:



	12 Months or Less				More than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
September 30, 2019
Residential mortgage-backed securities	$	12,361	$	525	$	27,797	$	552	$	40,158	$	1,077

December 31, 2018
Residential mortgage-backed securities	$	39,289	$	879	$	62,860	$	3,114	$	102,149	$	3,993
Municipal obligations		1,879		1		-		-		1,879		1
	$	41,168	$	880	$	62,860	$	3,114	$	104,028	$	3,994

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Company intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. At September 30, 2019 and December 31, 2018, management performed an assessment for possible OTTI of the Company’s residential mortgage-backed securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Company’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of these securities, at September 30, 2019 and December 31, 2018, to be temporary.

Note 7 - Loans Receivable and Allowance for Loan Losses

The following tables present the recorded investment in loans receivable as of September 30, 2019 and December 31, 2018 by segment and class:



	September 30, 2019		December 31, 2018
		(In Thousands)
Residential one-to-four family	$	252,971	$	258,085
Commercial and multi-family		1,668,982		1,697,837
Construction		131,697		107,783
Commercial business(1)		161,649		165,193
Home equity(2)		63,645		72,895
Consumer		728		809
		2,279,672		2,302,602

Less:
Deferred loan fees, net		(1,282)		(1,751)
Allowance for loan losses		(24,691)		(22,359)
Sub-total		(25,973)		(24,110)

Total Loans, net	$	2,253,699	$	2,278,492



	September 30, 2019		December 31, 2018
		(In Thousands)
Originated loans:
Residential one-to-four family	$	213,266	$	213,200
Commercial and multi-family		1,536,792		1,540,766
Construction		131,697		106,187
Commercial business(1)		140,162		136,966
Home equity(2)		48,498		54,271
Consumer		693		726

Sub-total		2,071,108		2,052,116

Acquired loans initially recorded at fair value:
Residential one-to-four family		38,345		43,495
Commercial and multi-family		127,030		150,239
Construction		-		1,596
Commercial business(1)		20,531		27,373
Home equity(2)		14,908		18,376
Consumer		35		83

Sub-total		200,849		241,162

Acquired loans with deteriorated credit:
Residential one-to-four family		1,360		1,390
Commercial and multi-family		5,160		6,832
Construction		-		-
Commercial business(1)		956		854
Home equity(2)		239		248
Consumer		-		-

Sub-total		7,715		9,324

Total Loans		2,279,672		2,302,602

Less:
Deferred loan fees, net		(1,282)		(1,751)
Allowance for loan losses		(24,691)		(22,359)

Sub-total		(25,973)		(24,110)

Total Loans, net	$	2,253,699	$	2,278,492

_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

Purchased Credit Impaired Loans

The carrying value of loans acquired in the IAB acquisition and accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $5.7 million at September 30, 2019, which was $1.6 million less than the balance at December 31, 2018. Under ASC Subtopic 310-30, these loans, referred to as purchased credit impaired (“PCI”) loans, may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non- accretable difference,” are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance.

Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the loans over the remaining life, while decreases in expected cash flows are recognized as impairments through a loss provision and an increase in the allowance for loan and lease losses. Valuation allowances (recognized in the allowance for loan and lease losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).

The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality for which the Company applies the provisions of ASC 310-30 (in thousands):


		Three months ended September 30, 2019		Three months ended September 30, 2018		Nine months ended September 30, 2019		Nine months ended September 30, 2018
(Dollars in thousands)
Balance, beginning of Period	$	2,229	$	1,191	$	2,704	$	-
Additions from acquisition of IAB		-		-		-		1,399
Accretion recorded to interest income		(229)		(180)		(704)		(388)
Balance, end of Period	$	2,000	$	1,011	$	2,000	$	1,011

The following table presents the unpaid principal balance and the related recorded investment of acquired loans included in the Company’s Consolidated Statements of Financial Condition. (In thousands):



	September 30,		December 31,
	2019		2018

Unpaid principal balance	$	247,207	$	301,357
Recorded investment		208,564		250,486

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

Allowance for Loan Losses

The allowance for loan loss is evaluated regularly by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio. 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 performing 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:

Lending Policies and Procedures

Personnel responsible for the particular portfolio - relative to experience and ability of staff

Trend for past due, criticized and classified loans

Relevant economic factors

Quality of the loan review system

Value of collateral for collateral dependent loans

The effect of any concentrations of credit and the changes in the level of such concentrations

Other external factors

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 by loan class or loan type. The allowance for performing loans is evaluated based on historical loan experience with an adjustment for qualitative factors referred to above. Impaired loans are loans which are more than 90 days delinquent, troubled debt restructured, or adversely classified. 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 decrease 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 properties 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.

Commercial and multi-family real estate lending entails 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.

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 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 decrease 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.

An unallocated component is maintained to cover uncertainties that could affect management’s estimates of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended September 30, 2019, and the related portion of the allowances for loan losses that is allocated to each loan class, as of September 30, 2019 (in thousands):


	Residential			Commercial & Multi-family	Construction		Commercial Business (1)		Home Equity (2)		Consumer		Unallocated		Total
Allowance for loan losses:

Originated Loans:	$	2,580	$	14,251	$	1,454	$	3,995	$	274	$	1	$	150	$	22,705
Acquired loans initially recorded at fair value:		731		-		-		-		-		-		-		731
Acquired loans with deteriorated credit:		146		137		-		67		3		-		-		353
Beginning Balance, June 30, 2019		3,457		14,388		1,454		4,062		277		1		150		23,789

Charge-offs:
Originated Loans:		1		-		-		-		-		-		-		1
Sub-total:		1		-		-		-		-		-		-		1

Recoveries:
Acquired loans initially recorded at fair value:		-		-		-		-		3		-		-		3
Sub-total:		-		-		-		-		3		-		-		3

Provisions:
Originated Loans:		(145)		421		83		(29)		15		(1)		208		552
Acquired loans initially recorded at fair value:		(316)		112		-		627		9		-		-		432
Acquired loans with deteriorated credit:		(106)		23		-		(1)		-		-		-		(84)
Sub-total:		(567)		556		83		597		24		(1)		208		900

Totals:
Originated Loans:		2,434		14,672		1,537		3,966		289		-		358		23,256
Acquired loans initially recorded at fair value:		415		112		-		627		12		-		-		1,166
Acquired loans with deteriorated credit:		40		160		-		66		3		-		-		269
Ending Balance, September 30, 2019	$	2,889	$	14,944	$	1,537	$	4,659	$	304	$	-	$	358	$	24,691

Loans Receivable:

Ending Balance Originated Loans:	$	213,266	$	1,536,792	$	131,697	$	140,162	$	48,498	$	693	$	-	$	2,071,108
Ending Balance Acquired loans initially recorded at fair value:		38,345		127,030		-		20,531		14,908		35		-		200,849
Ending Balance Acquired loans with deteriorated credit:		1,360		5,160		-		956		239		-		-		7,715
Total Gross Loans:	$	252,971	$	1,668,982	$	131,697	$	161,649	$	63,645	$	728	$	-	$	2,279,672

Ending Balance: Loans individually
evaluated for impairment:
Ending Balance Originated Loans:	$	3,868	$	6,044	$	-	$	1,951	$	973	$	-	$	-	$	12,836
Ending Balance Acquired loans initially recorded at fair value:		5,179		4,733		-		564		292		-		-		10,768
Ending Balance Acquired loans with deteriorated credit:		1,360		4,964		-		889		39		-		-		7,252
Ending Balance Loans individually
evaluated for impairment:	$	10,407	$	15,741	$	-	$	3,404	$	1,304	$	-	$	-	$	30,856

Ending Balance: Loans collectively
evaluated for impairment:
Ending Balance Originated Loans:	$	209,398	$	1,530,748	$	131,697	$	138,211	$	47,525	$	693	$	-	$	2,058,272
Ending Balance Acquired loans initially recorded at fair value:		33,166		122,297		-		19,967		14,616		35		-		190,081
Ending Balance Acquired loans with deteriorated credit:		-		196		-		67		200		-		-		463
Ending Balance Loans collectively
evaluated for impairment:	$	242,564	$	1,653,241	$	131,697	$	158,245	$	62,341	$	728	$	-	$	2,248,816
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2019 (in thousands).


	Residential			Commercial & Multi-family	Construction		Commercial Business (1)			Home Equity (2)	Consumer		Unallocated		Total
Allowance for loan losses:

Originated Loans:	$	2,374	$	14,000	$	1,003	$	3,869	$	313	$	2	$	189	$	21,750
Acquired loans initially recorded at fair value:		335		-		-		-		-		-		-		335
Acquired loans with deteriorated credit:		39		168		-		64		3		-		-		274
Beginning Balance, December 31, 2018		2,748		14,168		1,003		3,933		316		2		189		22,359

Charge-offs:
Originated Loans:		1		111		-		145		-		-		-		257
Sub-total:		1		111		-		145		-		-		-		257

Recoveries:
Originated Loans:		-		-		-		15		-		-		-		15
Acquired loans initially recorded at fair value:		3		10		-		3		14		-		-		30
Sub-total:		3		10		-		18		14		-		-		45

Provisions:
Originated Loans:		61		783		534		227		(24)		(2)		169		1,748
Acquired loans initially recorded at fair value:		77		102		-		624		(2)		-		-		801
Acquired loans with deteriorated credit:		1		(8)		-		2		-		-		-		(5)
Sub-total:		139		877		534		853		(26)		(2)		169		2,544

Totals:
Originated Loans:		2,434		14,672		1,537		3,966		289		-		358		23,256
Acquired loans initially recorded at fair value:		415		112		-		627		12		-		-		1,166
Acquired loans with deteriorated credit:		40		160		-		66		3		-		-		269
Ending Balance, September 30, 2019	$	2,889	$	14,944	$	1,537	$	4,659	$	304	$	-	$	358	$	24,691

_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended September 30, 2018 (in thousands).



	Residential			Commercial & Multi-family	Construction		Commercial Business (1)		Home Equity (2)		Consumer		Unallocated		Total
Allowance for loan losses:

Originated Loans:	$	2,249	$	13,084	$	516	$	3,400	$	447	$	41	$	288	$	20,025
Acquired loans initially recorded at fair value:		418		92		-		40		-		-		-		550
Acquired loans with deteriorated credit:		53		12		-		-		-		-		-		65
Beginning Balance, June 30, 2018		2,720		13,188		516		3,440		447		41		288		20,640

Charge-offs:
Originated Loans:		-		-		-		10		9		42		-		61
Sub-total:		-		-		-		10		9		42		-		61

Recoveries:
Acquired loans initially recorded at fair value:		-		-		-		15		3		-		-		18
Sub-total:		-		-		-		15		3		-		-		18

Provisions:
Originated Loans:		137		1,199		136		(179)		(125)		1		(269)		900
Acquired loans initially recorded at fair value:		(138)		(92)		-		(55)		(3)		-		-		(288)
Acquired loans with deteriorated credit:		(15)		241		-		63		6		-		-		295
Sub-total:		(16)		1,348		136		(171)		(122)		1		(269)		907

Totals:
Originated Loans:		2,386		14,283		652		3,211		313		-		19		20,864
Acquired loans initially recorded at fair value:		280		-		-		-		-		-		-		280
Acquired loans with deteriorated credit:		38		253		-		63		6		-		-		360
Ending Balance, September 30, 2018	$	2,704	$	14,536	$	652	$	3,274	$	319	$	-	$	19	$	21,504
_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2018 (in thousands).


	Residential			Commercial & Multi-family	Construction		Commercial Business (1)			Home Equity (2)	Consumer		Unallocated		Total
Allowance for loan losses:

Originated Loans:	$	2,368	$	11,656	$	518	$	2,018	$	338	$	6	$	177	$	17,081
Acquired loans initially recorded at fair value:		242		-		-		-		-		-		-		242
Acquired loans with deteriorated credit:		40		12		-		-		-		-		-		52
Beginning Balance, December 31, 2017		2,650		11,668		518		2,018		338		6		177		17,375

Charge-offs:
Originated Loans:		302		-		-		15		9		42		-		368
Acquired loans initially recorded at fair value:		72		-		-		-		6		-		-		78
Sub-total:		374		-		-		15		15		42		-		446

Recoveries:
Originated Loans:		1		-		-		6		-		-		-		7
Acquired loans recorded at fair value:		85		-		-		27		3		-		-		115
Acquired loans with deteriorated credit:		-		-		-		143		1		-		-		144
Sub-total:		86		-		-		176		4		-		-		266

Provisions:
Originated Loans:		319		2,627		134		1,202		(16)		36		(158)		4,144
Acquired loans initially recorded at fair value:		25		-		-		(27)		3		-		-		1
Acquired loans with deteriorated credit:		(2)		241		-		(80)		5		-		-		164
Sub-total:		342		2,868		134		1,095		(8)		36		(158)		4,309

Totals:
Originated Loans:		2,386		14,283		652		3,211		313		-		19		20,864
Acquired loans initially recorded at fair value:		280		-		-		-		-		-		-		280
Acquired loans with deteriorated credit:		38		253		-		63		6		-		-		360
Ending Balance, September 30, 2018	$	2,704	$	14,536	$	652	$	3,274	$	319	$	-	$	19	$	21,504

_____________________________
(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the amount recorded in loans receivable at December 31, 2018. 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).


		Residential		Commercial & Multi-family		Construction		Commercial Business (1)		Home Equity (2)		Consumer		Unallocated		Total
Allowance for credit losses:
Originated Loans:	$	2,368	$	11,656	$	518	$	2,018	$	338	$	6	$	177	$	17,081
Acquired loans initially recorded at fair value:		242		-		-		-		-		-		-		242
Acquired loans with deteriorated credit:		40		12		-		-		-		-		-		52
Beginning Balance, January 1, 2018		2,650		11,668		518		2,018		338		6		177		17,375

Charge-offs:
Originated Loans:		302		-		-		15		9		42		-		368
Acquired loans initially recorded at fair value:		72		-		-		-		6		-		-		78
Acquired loans with deteriorated credit:		-		-		-		-		-		-		-		-
Sub-total:		374		-		-		15		15		42		-		446

Recoveries:
Originated Loans:		1		-		-		14		-		2		-		17
Acquired loans recorded at fair value:		85		-		-		48		6		-		-		139
Acquired loans with deteriorated credit:		-		-		-		143		1		-		-		144
Sub-total:		86		-		-		205		7		2		-		300

Provisions:
Originated Loans:		307		2,344		485		1,852		(16)		36		12		5,020
Acquired loans initially recorded at fair value:		80		-				(48)		-		-		-		32
Acquired loans with deteriorated credit:		(1)		156		-		(79)		2		-		-		78
Sub-total:		386		2,500		485		1,725		(14)		36		12		5,130

Totals:
Originated Loans:		2,374		14,000		1,003		3,869		313		2		189		21,750
Acquired loans initially recorded at fair value:		335		-		-		-		-		-		-		335
Acquired loans with deteriorated credit:		39		168		-		64		3		-		-		274
Ending Balance, December 31, 2018	$	2,748	$	14,168	$	1,003	$	3,933	$	316	$	2	$	189	$	22,359
Loans Receivable:

Ending Balance Originated Loans:	$	213,200	$	1,540,766	$	106,187	$	136,966	$	54,271	$	726	$	-	$	2,052,116
Ending Balance Acquired Loans:		43,495		150,239		1,596		27,373		18,376		83		-		241,162
Ending Balance Acquired loans with deteriorated credit:		1,390		6,832		-		854		248		-		-		9,324
Total Gross Loans:	$	258,085	$	1,697,837	$	107,783	$	165,193	$	72,895	$	809	$	-	$	2,302,602

Ending Balance: Loans individually
evaluated for impairment:
Ending Balance Originated Loans:	$	6,043	$	12,822	$	-	$	2,372	$	915	$	-	$	-	$	22,152
Ending Balance Acquired Loans:		6,139		4,881		-		53		306		-		-		11,379
Ending Balance Acquired loans with deteriorated credit:		1,390		6,628		-		810		49		-		-		8,877
Ending Balance Loans individually evaluated
for impairment:	$	13,572	$	24,331	$	-	$	3,235	$	1,270	$	-	$	-	$	42,408

Ending Balance: Loans collectively
evaluated for impairment:
Ending Balance Originated Loans:	$	207,157	$	1,527,944	$	106,187	$	134,594	$	53,356	$	726	$	-	$	2,029,964
Ending Balance Acquired Loans:		37,356		145,358		1,596		27,320		18,070		83		-		229,783
Ending Balance Acquired loans with deteriorated credit:		-		204		-		44		199		-		-		447
Ending Balance Loans collectively
evaluated for impairment:	$	244,513	$	1,673,506	$	107,783	$	161,958	$	71,625	$	809	$	-	$	2,260,194

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The table below sets forth the amounts and types of non-accrual loans in the Company’s loan portfolio as of September 30, 2019 and December 31, 2018. 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 September 30, 2019 and December 31, 2018, total 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 and until the borrower has demonstrated its ability to satisfy the terms of the restructured loan.



		As of September 30, 2019		As of December 31, 2018
		(In Thousands)		(In Thousands)
Non-Accruing Loans:

Originated loans:
Residential one-to-four family	$	814	$	1,160
Commercial and multi-family		1,584		2,568
Commercial business(1)		887		356
Home equity(2)		350		277

Sub-total:		3,635		4,361

Acquired loans initially recorded at fair value:
Residential one-to-four family		1,046		2,165
Commercial and multi-family		-		605
Commercial business(1)		378		48
Home equity(2)		15		42

Sub-total:		1,439		2,860

Total	$	5,074	$	7,221

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Nonaccrual loans in the preceding table do not include loans acquired with deteriorated credit quality which were recorded at their fair value at acquisition and totaled $5.5 million at September 30, 2019, and $7.0 million at December 31, 2018.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes the average recorded investment and interest income recognized on impaired loans with no related allowance recorded by portfolio class for the three and nine months ended September 30, 2019 and 2018 (In thousands):


		Three Months Ended September 30,								Nine Months Ended September 30,
		2019		2019		2018		2018		2019		2019		2018		2018

		Average		Interest		Average		Interest		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
Originated loans		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
with no related allowance recorded:

Residential one-to-four family	$	2,179	$	20	$	1,921	$	7	$	2,627	$	66	$	1,910	$	22
Commercial and Multi-family		8,655		56		12,345		86		9,680		310		12,090		257
Commercial business(1)		1,131		43		1,074		43		1,138		126		910		130
Home equity(2)		598		6		912		7		649		18		910		22

Sub-total:	$	12,563	$	125	$	16,252	$	143	$	14,094	$	520	$	15,820	$	431


Acquired loans initially recorded at fair value
with no related allowance recorded:

Residential one-to-four family	$	1,931	$	23	$	3,349	$	16	$	2,081	$	73	$	3,443	$	76
Commercial and Multi-family		3,882		55		3,733		53		3,898		165		3,760		168
Commercial business(1)		119		12		51		1		96		14		34		2
Home equity(2)		311		3		223		3		294		9		230		10
Consumer		-		-		11		-		-		-		7		-

Sub-total	$	6,243	$	93	$	7,367	$	73	$	6,369	$	261	$	7,474	$	256

Acquired loans with deteriorated credit
with no related allowance recorded:

Residential one-to-four family(3)	$	839	$	14	$	1,030	$	16	$	898	$	44	$	1,032	$	48
Commercial and Multi-family(3)		4,264		7		10,980		7		4,666		20		7,490		20
Construction(3)		-		-		1,335		-		-		-		890		-
Commercial business(1)(3)		894		-		922		-		849		-		614		-
Home equity(2)(3)		41		-		226		-		43		-		151		-
Consumer(3)		-		-		27		-		-		-		18		-

Sub-total:	$	6,038	$	21	$	14,520	$	23	$	6,456	$	64	$	10,195	$	68

Total Impaired Loans
with no related allowance recorded:	$	24,844	$	239	$	38,139	$	239	$	26,919	$	845	$	33,489	$	755

__________

(1)

Includes business lines of credit.

(2)

Includes home equity lines of credit.

(3)

Does not include accretable yield on loans acquired with deteriorated credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes the average recorded investment and interest income recognized on impaired loans with allowance recorded by portfolio class for the three and nine months ended September 30, 2019 and 2018. (In thousands):




		Three Months Ended September 30,								Nine Months Ended September 30,
		2019		2019		2018		2018		2019		2019		2018		2018

		Average		Interest		Average		Interest		Average		Interest		Average		Interest
		Recorded		Income		Recorded		Income		Recorded		Income		Recorded		Income
Originated loans		Investment		Recognized		Investment		Recognized		Investment		Recognized		Investment		Recognized
with an allowance recorded:

Residential one-to-four family	$	2,032	$	18	$	4,310	$	47	$	2,175	$	67	$	4,601	$	141
Commercial and Multi-family		-		-		485		-		-		-		485		-
Commercial business(1)		822		3		1,266		22		658		57		1,199		65
Home equity(2)		268		1		155		2		229		5		155		5
Consumer		-		-		21		-		-		-		14		-

Sub-total:	$	3,122	$	22	$	6,237	$	71	$	3,062	$	129	$	6,454	$	211


Acquired loans initially recorded at fair value
with an allowance recorded:

Residential one-to-four family	$	3,291	$	30	$	3,210	$	24	$	3,286	$	82	$	3,384	$	73
Commercial and Multi-family		881		14		916		4		889		22		919		13
Commercial business(1)		377		-		124		-		251		-		82		-
Home equity(2)		84		1		85		1		84		4		85		4

Sub-total	$	4,633	$	45	$	4,335	$	29	$	4,510	$	108	$	4,470	$	90

Acquired loans with deteriorated credit
with an allowance recorded:

Residential one-to-four family(3)	$	527	$	7	$	369	$	5	$	473	$	19	$	369	$	10
Commercial and Multi-family		943		-		-		-		629		-		-		-

Sub-total:	$	1,470	$	7	$	369	$	5	$	1,102	$	19	$	369	$	10

Total Impaired Loans
with an allowance recorded:	$	9,225	$	74	$	10,941	$	105	$	8,674	$	256	$	11,293	$	311

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

(3) Does not include accretable yield on loans acquired with deteriorated credit.

Note 7 - 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 at

September 30, 2019 and December 31, 2018. (In thousands):



		As of September 30, 2019						As of December 31, 2018
		Recorded		Unpaid Principal		Related		Recorded		Unpaid Principal		Related
Originated loans		Investment		Balance		Allowance		Investment		Balance		Allowance
with no related allowance recorded:

Residential one-to-four family	$	2,246	$	2,342	$	-	$	2,623	$	2,689	$	-
Commercial and multi-family		6,044		6,297		-		12,711		13,308		-
Commercial business(1)		1,124		3,695		-		974		3,411		-
Home equity(2)		589		600		-		762		779		-

Sub-total:	$	10,003	$	12,934	$	-	$	17,070	$	20,187	$	-

Acquired loans initially recorded at fair
value with no related allowance
recorded:

Residential one-to-four family	$	1,812	$	1,918	$	-	$	3,123	$	3,254	$	-
Commercial and Multi-family		3,861		3,861		-		3,961		3,961		-
Commercial business(1)		187		602		-		53		53		-
Home equity(2)		209		210		-		222		222		-

Sub-total:	$	6,069	$	6,591	$	-	$	7,359	$	7,490	$	-

Acquired loans with deteriorated
credit with no related allowance
recorded:

Residential one-to-four family	$	834	$	1,391	$	-	$	1,023	$	1,579	$	-
Commercial and Multi-family		3,078		4,175		-		6,628		7,957		-
Commercial business(1)		889		5,936		-		810		6,253		-
Home equity(2)		39		49		-		49		57		-

Sub-total:	$	4,840	$	11,551	$	-	$	8,510	$	15,846	$	-

Total Impaired Loans
with no related allowance recorded:	$	20,912	$	31,076	$	-	$	32,939	$	43,523	$	-

__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

Note 7 - 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 at September 30, 2019 and December 31, 2018. (In thousands):



		As of September 30, 2019						As of December 31, 2018
		Recorded		Unpaid Principal		Related		Recorded		Unpaid Principal		Related
Originated loans		Investment		Balance		Allowance		Investment		Balance		Allowance
with an allowance recorded:

Residential one-to-four family	$	1,622	$	1,622	$	81	$	3,420	$	3,420	$	229
Commercial and Multi-family		-		-		-		111		153		111
Commercial business(1)		827		1,943		800		1,398		1,549		905
Home equity(2)		384		384		22		153		153		21

Sub-total:	$	2,833	$	3,949	$	903	$	5,082	$	5,275	$	1,266

Acquired loans initially recorded at fair
value with an allowance
recorded:

Residential one-to-four family	$	3,367	$	3,532	$	484	$	3,016	$	3,166	$	532
Commercial and Multi-family		872		1,064		302		920		1,094		369
Commercial business(1)		377		1,489		1,117		-		-		-
Home equity(2)		83		83		4		84		84		5

Sub-total	$	4,699	$	6,168	$	1,907	$	4,020	$	4,344	$	906

Acquired loans with deteriorated
credit with an allowance
recorded:

Residential one-to-four family	$	526	$	573	$	9	$	367	$	414	$	9
Commercial and Multi-family		1,886		1,895		34		-		-		-

Sub-total:	$	2,412	$	2,468	$	43	$	367	$	414	$	9

Total Impaired Loans
with an allowance recorded:	$	9,944	$	12,585	$	2,853	$	9,469	$	10,033	$	2,181

Total Impaired Loans
with no related allowance recorded:	$	20,912	$	31,076	$	-	$	32,939	$	43,523	$	-

Total Impaired Loans:	$	30,856	$	43,661	$	2,853	$	42,408	$	53,556	$	2,181

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

A troubled debt restructured loan (“TDR”) is a loan that has been modified whereby the Company has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Company to maximize the ultimate recovery of a loan. A TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a concession that would otherwise not be granted to the borrower. The types of concessions granted generally include, but are not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. 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.


		At September 30, 2019		At December 31, 2018
		(In thousands)
Recorded investment in TDRs:
Accrual status	$	16,489	$	22,477
Non-accrual status		1,890		4,136
Total recorded investment in TDRs	$	18,379	$	26,613

TDRs restructured for the three months ended September 30, 2019 totaled $415,652 for three contracts, and no new TDRs were originated for the three months ended September 30, 2018.

TDRs restructured for the nine months ended September 30, 2019 totaled $1.8 million for six contracts and $640,000 for one contract during the nine months ended September 30, 2018.

TDRs for which there was a payment default within twelve months of restructuring totaled $105,000 during the three months ended September 30, 2019 and $640,000 for one contract during the three months ended September 30, 2018.

TDRs for which there was a payment default within twelve months of restructuring totaled $105,000 during the nine months ended September 30, 2019 and $640,000 for one contract during the nine months ended September 30, 2018.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable as of September 30, 2019:



													Loans Receivable
	30-59 Days		60-90 Days		Greater Than		Total Past				Total Loans		>90 Days
	Past Due		Past Due		90 Days		Due		Current		Receivable		and Accruing
		(In Thousands)
Originated loans:
Residential one-to-four family	$	1,288	$	-	$	-	$	1,288	$	211,978	$	213,266	$	-
Commercial and multi-family		2,910		1,012		-		3,922		1,532,870		1,536,792		-
Construction		-		-		-		-		131,697		131,697		-
Commercial business(1)		57		529		932		1,518		138,644		140,162		45
Home equity(2)		196		-		27		223		48,275		48,498		27
Consumer		-		-		-		-		693		693		-

Sub-total:	$	4,451	$	1,541	$	959	$	6,951	$	2,064,157	$	2,071,108	$	72

Acquired loans initially recorded at fair value:
Residential one-to-four family	$	274	$	-	$	1,213	$	1,487	$	36,858		38,345	$	167
Commercial and multi-family		201		77		153		431		126,599		127,030		153
Construction		-		-		-		-		-		-		-
Commercial business(1)		437		-		516		953		19,578		20,531		138
Home equity(2)		69		-		-		69		14,839		14,908		-
Consumer		-		-				-		35		35		-
						-
Sub-total:	$	981	$	77	$	1,882	$	2,940	$	197,909	$	200,849	$	458

Acquired loans with deteriorated credit:
Residential one-to-four family	$	-	$	-	$	-	$	-	$	1,360		1,360	$	-
Commercial and multi-family		-		-		4,386		4,386		774		5,160		-
Commercial business(1)		-		-		891		891		65		956		-
Home equity(2)		239		-		-		239		-		239		-
												-
Sub-total:	$	239	$	-	$	5,277	$	5,516	$	2,199	$	7,715	$	-

Total	$	5,671	$	1,618	$	8,118	$	15,407	$	2,264,265	$	2,279,672	$	530

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable at December 31, 2018:



													Loans Receivable
	30-59 Days		60-90 Days		Greater Than		Total Past				Total Loans		>90 Days
	Past Due		Past Due		90 Days		Due		Current		Receivable		and Accruing
		(In thousands)
Originated loans:
Residential one-to-four family	$	980	$	1,014	$	1,452	$	3,446	$	209,754	$	213,200	$	545
Commercial and multi-family		7,074		299		988		8,361		1,532,405		1,540,766		877
Construction		-		-		-		-		106,187		106,187		-
Commercial business(1)		1,331		-		349		1,680		135,286		136,966		-
Home equity(2)		498		87		-		585		53,686		54,271		-
Consumer		-		-		-		-		726		726		-

Sub-total:	$	9,883	$	1,400	$	2,789	$	14,072	$	2,038,044	$	2,052,116	$	1,422

Acquired loans initially recorded at fair value:
Residential one-to-four family	$	1,117	$	520	$	1,917	$	3,554	$	39,941		43,495	$	-
Commercial and multi-family		1,480		78		-		1,558		148,681		150,239		-
Construction		594		-		-		594		1,002		1,596		-
Commercial business(1)		1,876		-		46		1,922		25,451		27,373		-
Home equity(2)		682		22		42		746		17,630		18,376		-
Consumer		-		-		-		-		83		83		-

Sub-total:	$	5,749	$	620	$	2,005	$	8,374	$	232,788	$	241,162	$	-

Acquired loans with deteriorated credit:
Residential one-to-four family	$	-	$	-	$	-	$	-	$	1,390	$	1,390	$	-
Commercial and multi-family		-		-		6,012		6,012		820		6,832		-
Construction		-		-		-		-		-		-		-
Commercial business(1)		-		-		806		806		48		854		-
Home equity(2)		-		-		48		48		200		248		-
Consumer		-		-		-		-		-		-		-

Sub-total:	$	-	$	-	$	6,866	$	6,866	$	2,458	$	9,324	$	-

Total	$	15,632	$	2,020	$	11,660	$	29,312	$	2,273,290	$	2,302,602	$	1,422

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

Criticized and Classified Assets.

Company policies provide for a classification system for problem assets. Under this classification system, problem assets are classified as “substandard,” “doubtful,” or “loss.”

When the Company classifies problem assets, the Company 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 September 30, 2019, we had $0 in assets classified as losses, and $16.0 million in assets classified as substandard, of which $16.0 million were classified as impaired. The loans classified as substandard are 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 1-5) are treated as “pass” for grading purposes. The “criticized” risk rating (6) and the “classified” risk ratings (7-9) are detailed below:

6 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency.

7 – 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.

8 – Doubtful- Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.

9 – Loss- Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery.

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 September 30, 2019. (In thousands):


	Pass		Special Mention		Substandard		Total

Originated loans:
Residential one-to-four family	$	210,463	$	1,989	$	814	$	213,266
Commercial and multi-family		1,530,755		2,189		3,848		1,536,792
Construction		130,352		1,345		-		131,697
Commercial business(1)		136,702		2,013		1,447		140,162
Home equity(2)		48,148		-		350		48,498
Consumer		688		5		-		693

Sub-total:	$	2,057,108	$	7,541	$	6,459	$	2,071,108


Acquired loans initially recorded at fair value:
Residential one-to-four family	$	37,203	$	-	$	1,142	$	38,345
Commercial and multi-family		123,782		1,140		2,108		127,030
Construction		-		-		-		-
Commercial business(1)		18,829		1,187		515		20,531
Home equity(2)		14,873		-		35		14,908
Consumer		35		-		-		35
Sub-total:	$	194,722	$	2,327	$	3,800	$	200,849

Acquired loans with deteriorated credit:
Residential one-to-four family	$	794	$	250	$	316	$	1,360
Commercial and multi-family		196		495		4,469		5,160
Construction		-		-		-		-
Commercial business(1)		-		41		915		956
Home equity(2)		200		-		39		239
Consumer		-		-		-		-

Sub-total:	$	1,190	$	786	$	5,739	$	7,715

Total Gross Loans	$	2,253,020	$	10,654	$	15,998	$	2,279,672

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



	Pass		Special Mention		Substandard		Total

Originated loans:
Residential one-to-four family	$	207,991	$	2,400	$	2,809	$	213,200
Commercial and multi-family		1,526,591		3,608		10,567		1,540,766
Construction		105,886		301		-		106,187
Commercial business(1)		133,054		1,923		1,989		136,966
Home equity(2)		53,903		91		277		54,271
Consumer		719		7		-		726

Sub-total:	$	2,028,144	$	8,330	$	15,642	$	2,052,116

Acquired loans initially recorded at fair value:
Residential one-to-four family	$	41,009	$	1	$	2,485		43,495
Commercial and multi-family		146,701		2,618		920		150,239
Construction		1,596		-		-		1,596
Commercial business(1)		26,199		1,128		46		27,373
Home equity(2)		18,309		-		67		18,376
Consumer		83		-		-		83

Sub-total:	$	233,897	$	3,747	$	3,518	$	241,162

Acquired loans with deteriorated credit:
Residential one-to-four family	$	812	$	562	$	16		1,390
Commercial and multi-family		204		502		6,126		6,832
Construction		-		-		-		-
Commercial business(1)		(4)		48		810		854
Home equity(2)		199		-		49		248
Consumer		-		-		-		-

Sub-total:	$	1,211	$	1,112	$	7,001	$	9,324

Total Gross Loans	$	2,263,252	$	13,189	$	26,161	$	2,302,602

________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

Note 8 – Stockholders’ Equity

On April 17, 2018, the Company issued 631,896 shares of its common stock, 438,889 shares of series E 6% non-cumulative convertible preferred stock and 6,465 shares of series F 6% non-cumulative convertible preferred stock in connection with its acquisition of IA Bancorp, Inc. The series E 6% non-cumulative convertible preferred stock was converted, at the shareholders’ discretion, on July 10, 2018. The series F 6% non-cumulative perpetual convertible preferred stock is convertible at the shareholder’s discretion.

On May 16, 2018, the Company issued 82,950 shares of its common stock in connection with the conversion of the 438,889 shares of Series E preferred stock issued in connection with the acquisition of IA Bancorp, Inc.

On January 30, 2019, the Company closed a private placement of Series G 6.0% Noncumulative Perpetual Preferred Stock, resulting in gross proceeds of $5,330,000 for 533 shares.

On February 25, 2019, the Company closed a private placement offering of 496,224 shares of its common stock, of which directors and officers of the Company purchased 286,244 shares (the “Offering”). The Offering resulted in gross proceeds of $6.272 million to the Company.

Note 9 – Goodwill and Other Intangible Assets

The Company’s intangible assets consist of goodwill and core deposit intangibles in connection with the acquisition of IA Bancorp, Inc. as of April 17, 2018. Goodwill is not amortized but is subject to annual tests for impairment or more often if events or circumstances indicate it may be impaired.

The Company’s core deposit intangibles are amortized on an accelerated basis using an estimated life of 10 years and in accordance with U.S. GAAP are evaluated annually for impairment. An impairment loss will be recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.

We believe that the fair values of our intangible assets were in excess of their carrying amounts and therefore there was no impairment to intangible assets at September 30, 2019.

Amortization expense of the core deposit intangibles was $18,000 and $54,000 for the three and nine months ended September 30, 2019, respectively, and $19,000 and $39,000 for the three and nine months ended September 30, 2018, respectively. The unamortized balance of the core deposit intangibles and the amount of goodwill at September 30, 2019 were $317,000 and $5.3 million, respectively, and at September 30, 2018 were $391,000 and $5.2 million, respectively.

Note 10 – Fair Values of Financial Instruments

Guidance on fair value measurements 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 and 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 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.

The only assets or liabilities that the Company measured at fair value on a recurring basis were as follows. (In thousands):


			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
As of September 30, 2019:
Debt Securities Available for Sale
Residential mortgage backed securities	$	98,218	$	-	$	98,218	$	-
Total Debt Securities Available for Sale	$	98,218	$	-	$	98,218	$	-

Equity Investments
Preferred Stock	$	5,857	$	5,857	$	-	$	-
Total Equity Investments	$	5,857	$	5,857	$	-	$	-

As of December 31, 2018:
Debt Securities Available for Sale
Residential mortgage backed securities	$	115,640	$	-	$	115,640	$	-
Municipal obligations		3,695		-		3,695		-
Total Debt Securities Available for Sale	$	119,335	$	-	$	119,335	$	-

Equity Investments
Preferred Stock	$	7,672	$	7,672	$	-	$	-
Total Equity Investments	$	7,672	$	7,672	$	-	$	-

The Company’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers of assets or liabilities into or out of Level 1, Level 2, or Level 3 of the fair value hierarchy during the three months ended September 30, 2019 and 2018.

The only assets or liabilities that the Company measured at fair value on a nonrecurring basis were as follows. (In thousands):




			(Level 1)		(Level 2)
			Quoted Prices in		Significant		(Level 3)
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
Description	Total		Assets		Inputs		Inputs
As of September 30, 2019
Impaired Loans	$	7,091	$	-	$	-	$	7,091

As of December 31, 2018:
Impaired Loans	$	7,288	$	-	$	-	$	7,288
Other real estate owned	$	1,333	$	-	$	-	$	1,333

Note 10 – Fair Values of Financial Instruments (Continued)

The following tables present additional quantitative information as of September 30, 2019 and December 31, 2018 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):


Quantitative Information about Level 3 Fair Value Measurements
		Fair Value	Valuation	Unobservable
		Estimate	Techniques	Input	Range
September 30, 2019:
Impaired Loans	$	7,091	Appraisal of collateral (1)	Appraisal adjustments (2)	0%-10%


		Fair Value	Valuation	Unobservable
		Estimate	Techniques	Input	Range
December 31, 2018:
Impaired Loans	$	7,288	Appraisal of collateral (1)	Appraisal adjustments (2)	0%-10%

Other real estate owned	$	1,333	Appraisal of collateral (1)	Appraisal adjustments (2)	0%-10%

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not objectively determinable.

(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.

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 as of September 30, 2019 and December 31, 2018.

Cash and Cash Equivalents and Interest-Earning Time Deposits (Carried at Cost)

The carrying amounts reported in the consolidated statements of financial condition for cash and short-term instruments approximate fair values.

Securities Available for Sale

The fair value of securities available for sale (carried at fair value) are determined by 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.

Equity Securities

The fair values of available-for-sale securities are based on quoted market prices (Level 1).

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 as of September 30, 2019 and December 31, 2018.

Loans Receivable (Carried at Cost)

The fair value of 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.

Note 10 – Fair Values of Financial Instruments (Continued)

Impaired Loans

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the original contractual terms of the loan agreement. 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 loans observable market price or the fair value of the collateral if the loan is collateral dependent. 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 September 30, 2019 and December 31, 2018 consisted of the loan balances of $9.9 million and $9.5 million, net of a valuation allowance of $2.9 million and $2.2 million, respectively.

Real Estate Owned (Generally Carried at Lower of Cost or Fair Value)

Real Estate Owned is generally carried at fair value less estimated costs to sell which is determined based upon independent third-party appraisals of the properties, or based upon the expected proceeds from a pending sale. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

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.

Borrowings and Subordinated Debt (Carried at Cost)

Fair values 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. 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

Fair values for the Company’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.

Note 10 – Fair Values of Financial Instruments (Continued)

The carrying values and estimated fair values of financial instruments were as follows as of September 30, 2019 and December 31, 2018:


		As of September 30, 2019

					Quoted Prices in Active		Significant		Significant
	Carrying				Markets for Identical Assets		Other Observable Inputs		Unobservable Inputs
	Value		Fair Value		(Level 1)		(Level 2)		(Level 3)

	(In Thousands)
Financial assets:
Cash and cash equivalents	$	376,611	$	376,611	$	376,611	$	-	$	-
Interest-earning time deposits		735		735		735		-		-
Debt securities available for sale		98,218		98,218		-		98,218		-
Equity investments		5,857		5,857		5,857		-		-
Loans held for sale		3,195		3,195		-		3,195		-
Loans receivable, net		2,253,699		2,264,676		-		-		2,264,676
FHLB of New York stock, at cost		15,171		15,171		-		15,171		-
Accrued interest receivable		8,959		8,959		-		8,959		-
Other Real Estate Owned		-		-		-		-		-

Financial liabilities:
Deposits		2,263,457		2,275,038		1,148,516		1,126,522		-
Borrowings		275,800		277,344		-		277,344		-
Subordinated debentures		36,752		36,958		-		36,958		-
Accrued interest payable		2,231		2,231		-		2,231		-


		As of December 31, 2018

					Quoted Prices in Active		Significant		Significant
	Carrying				Markets for Identical Assets		Other Observable Inputs		Unobservable Inputs
	Value		Fair Value		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Financial assets:
Cash and cash equivalents	$	195,264	$	195,264	$	195,264	$	-	$	-
Interest-earning time deposits		735		735		735		-		-
Debt securities available for sale		119,335		119,335		-		119,335		-
Equity investments		7,672		7,672		7,672		-		-
Loans held for sale		1,153		1,153		-		1,153		-
Loans receivable, net		2,278,492		2,245,150		-		-		2,245,150
FHLB of New York stock, at cost		13,405		13,405		-		13,405		-
Accrued interest receivable		8,378		8,378		-		8,378		-
Other Real Estate Owned		1,333		1,333		-		-		1,333

Financial liabilities:
Deposits		2,180,724		2,189,404		1,075,539		1,113,865		-
Borrowings		245,800		244,049		-		244,049		-
Subordinated debentures		36,577		36,316		-		36,316		-
Accrued interest payable		2,561		2,561		-		2,561		-

Note 11 – Subordinated debt

On July 30, 2018, the Company issued $33.5 million of fixed-to-floating rate subordinated debentures (the “Notes”) in a private placement. The Notes have a ten-year term and bear interest at a fixed annual rate of 5.625% for the first five years of the term (the "Fixed Interest Rate Period"). From and including August 1, 2023, the interest rate will adjust to a floating rate based on the three-month LIBOR plus 2.72% until redemption or maturity (the "Floating Interest Rate Period"). The Notes are scheduled to mature on August 1, 2028. Subject to limited exceptions, the Company cannot redeem the Notes for the first five years of the term. The Company will pay interest in arrears semi-annually during the Fixed Interest Rate Period and quarterly during the Floating Interest Rate Period during the term of the Notes. The Notes constitute an unsecured and subordinated obligation of the Company and rank junior in right of payment to any senior indebtedness and obligations to general and secured creditors. The Notes qualify as Tier 2 capital for the Company for regulatory purposes, when applicable, and the portion that the Company contributes to the Bank will qualify as Tier 1 capital for the Bank. The additional capital will be used for general corporate purposes including organic growth initiatives. Subordinated debt includes associated deferred costs of $872,000 at September 30, 2019.

The Company also has $4,124,000 of mandatory redeemable Trust Preferred securities. The interest rate on these floating rate junior subordinated debentures adjusts quarterly, equal to the three-month LIBOR and 2.65%.

As it is anticipated that LIBOR will be discontinued after 2021, the Company is reviewing the agreements for the above debentures to determine alternative reference rates, and does not anticipate there will be a significant financial statement impact.

Note 12 – Lease Obligations

In February 2016, FASB issued ASU 2016-02, Leases, which requires a lessee to recognize the assets and liabilities that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a right-of-use (“ROU”) asset. The Company adopted this standard in the first quarter of 2019 using the option to apply the transition provisions of the new standard at the adoption date instead of the earliest period presented as provided in ASU 2018-11.

The Company leases 28 of our offices under various operating lease agreements. The leases have remaining terms of 1 year to 13 years. The leases contain provisions for the payment by the Company of its pro-rata share of real estate taxes, insurance, common area maintenance and other variable expenses. The Company will allocate payments made under such leases between lease and non-lease components. Some leases contain renewal options and options to purchase the assets.

The Company evaluates its contracts and service agreements in order to determine if there is an asset imbedded in such contracts and agreements. Such determination is based upon whether there is a specific asset covered by the agreement, whether the Company is entitled to all of the economic benefits to the asset over the term of the agreement, and whether the Company has full control and use of the asset over the term of the agreement without substitution rights or direction of use of the asset by the lessor.

The Company includes in its determination of its lease liability and concurrent right of use asset those renewal or purchase options for which it is reasonably certain it will exercise. Currently, the Company does not expect to exercise such options and, accordingly, they are excluded in the determination of the lease liabilities and the concurrent right of use assets.

The Company has elected not to recognize a lease liability and a right of use asset for leases with a lease term of 12 or fewer months.

To calculate its lease liabilities, the Company uses a discount rate based upon the applicable borrowing rates of the Federal Home Loan Bank for maturities corresponding to the termination dates of the specific leases.

The following tables present certain information related to the Company’s adoption of ASU 2016-02 (in thousands):


		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	812	$	2,374
Variable lease cost-operating leases	$	132	$	440

		At September 30, 2019
Supplemental balance sheet information related to leases:
Operating Leases
Operating lease right-of-use assets	$	13,951

Current liabilities	$	2,631
Operating lease liabilities (noncurrent portion)		11,423
Total operating lease liabilities	$	14,054

The following tables summarize the Company’s weighted average remaining lease terms and weighted average discount rates:


Weighted Average Remaining Lease Term
Operating leases	6.82	years

Weighted Average Discount Rate
Operating leases	3.08	%

Note 12 – Lease Obligations (continued)

The following table summarizes the Company’s maturity of lease obligations for operating and finance leases at September 30, 2019 (in thousands):


Maturities of lease liabilities:
		At September 30, 2019
		Operating Leases
One year or less	$	2,631
Over one year through three years		4,782
Over three years through five years		3,062
Over five years		3,579
Total	$	14,054

Note 13 – Subsequent Events

On October 9, 2019, the Board of Directors of the Company declared a common stock dividend of $0.14 per share to shareholders of record on November 8, 2019 with a payment date of November 22, 2019.

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report on Form 10-Q contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, or the PSLRA. Such forward-looking statements, in addition to historical information, involve risk and uncertainties, and are based on the beliefs, assumptions and expectations of our management team. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variation of such similar expressions are intended to identify such forward-looking statements. Forward-looking statements speak only as of the date they are made. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from historical performance.

Factors that could cause future results to vary from current management expectations as reflected in our forward looking statements include, but are not limited to:

unfavorable economic conditions in the United States generally and particularly in our primary market area;

the effects of declines in housing markets and real estate values that may adversely impact the collateral underlying our loans;

increase in unemployment levels and slowdowns in economic growth;

our level of non-performing assets and the costs associated with resolving any problem loans including litigation and other costs;

the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of our loan and investment securities portfolios;

the credit risk associated with our loan portfolio;

changes in the quality and composition of the Bank’s loan and investment portfolios;

changes in our ability to access cost-effective funding;

deposit flows;

legislative and regulatory changes, including increases in Federal Deposit Insurance Corporation, or FDIC, insurance rates;

monetary and fiscal policies of the federal government;

changes in tax policies, rates and regulations of federal, state and local tax authorities;

inflation;

demands for our loan products;

demand for financial services;

competition;

changes in the securities or secondary mortgage markets;

changes in management’s business strategies;

our ability to enter new markets successfully;

our ability to successfully integrate acquired businesses;

changes in consumer spending;

our ability to retain key employees;

the effects of any reputational, credit, interest rate, market, operational, legal, liquidity, or regulatory risk;

expanded regulatory requirements as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which could adversely affect operating results; and

other factors discussed elsewhere in this report, and in other reports we filed with the SEC, including under “Risk Factors” in Part I, Item 1A of our annual Report on Form 10-K and our other periodic reports that we file with the SEC.

You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this Form 10-Q. We do not assume any obligation to revise forward-looking statements except as may be required by law.

Overview

BCB Bancorp, Inc. is a New Jersey corporation, and is the holding company parent of BCB Community Bank, or the Bank. The Company has not engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. At September 30, 2019, we had approximately $2.825 billion in consolidated assets, $2.263 billion in deposits and $223.7 million in consolidated stockholders’ equity.

BCB Community Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. The Bank changed its name from Bayonne Community Bank to BCB Community Bank in April 2007. At September 30, 2019 the Bank operated through thirty branches in Bayonne, Carteret, Colonia, Edison, Jersey City, Hoboken, Fairfield, Holmdel, Lodi, Lyndhurst, Maplewood, Monroe Township, Parsippany, Plainsboro, River Edge, Rutherford, South

Orange, Union, and Woodbridge, New Jersey, as well as three branches in Hicksville and Staten Island, NY, and through executive offices located at 104-110 Avenue C and an administrative office located at 591-595 Avenue C, Bayonne, New Jersey 07002. The Bank’s deposit accounts are insured by the FDIC, and the Bank is a member of the Federal Home Loan Bank System.

We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank, together with funds generated from operations, in loans and investment securities. We offer our customers:

loans, including commercial and multi-family real estate loans, one- to four-family mortgage loans, home equity loans, construction loans, consumer loans and commercial business loans. In recent years the primary growth in our loan portfolio has been in loans secured by commercial real estate and multi-family properties;

FDIC-insured deposit products, including savings and club accounts, interest and non-interest bearing demand accounts, money market accounts, certificates of deposit and individual retirement accounts; and

retail and commercial banking services including wire transfers, money orders, safe deposit boxes, a night depository, debit cards, online banking, mobile banking, gift cards, fraud detection (positive pay), and automated teller services.

Critical Accounting Policies

The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses. We regularly evaluate these estimates and assumptions including those used to determine the allowance for loan losses, deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2019, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Actual results may differ from these estimates under different assumptions or conditions.

See further discussion of these critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2018 and Note 1, Basis of Presentation, to the unaudited Consolidated Financial Statements. There has been no change in critical accounting policies since the Company’s last annual report on Form 10-K.

Financial Condition

Total assets increased by $150.8 million, or 5.6 percent, to $2.825 billion at September 30, 2019 from $2.675 billion at December 31, 2018. The increase in total assets was primarily the result of an increase in total cash and cash equivalents as a result of new deposit relationships, proceeds from FHLB borrowings, and the inclusion of operating leases on the balance sheet due to accounting standards changes as mandated by the Financial Accounting Standards Board’s Accounting Standards Update - Leases Topic 842.

Loans receivable decreased by $24.8 million, or 1.1 percent, to $2.254 billion at September 30, 2019 from $2.278 billion at December 31, 2018. After a significant growth in loans in 2018, management focused on repositioning the balance sheet, which included curtailing loan growth and strengthening our capital position. The change in loans over the first nine months of 2019 represented decreases of $28.9 million in commercial real estate and multi-family loans, $9.2 million in home equity loans, $5.1 million in residential one-to-four family loans, $3.5 million in commercial business loans, $81,000 in consumer loans, partly offset by an increase of $23.9 million in construction loans. The allowance for loan losses was $24.7 million, or 486.6 percent of non-accruing loans and 1.08 percent of gross loans, at September 30, 2019 as compared to an allowance for loan losses of $22.4 million, or 309.6 percent of non-accruing loans and 0.97 percent of gross loans, at December 31, 2018.

Total cash and cash equivalents increased by $181.3 million, or 92.9 percent, to $376.6 million at September 30, 2019 from $195.3 million at December 31, 2018. The Company’s level of cash and cash equivalents is a part of the Company’s strategy to maintain strong levels of liquidity.

Total investment securities decreased by $22.9 million, or 18.1 percent, to $104.0 million at September 30, 2019 from $127.0 million at December 31, 2018, representing normal repayments, calls, maturities, and the sale of $13.9 million of securities.

On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02 - Leases, requiring on-balance sheet reporting for all operating leases. Adoption of the Standard resulted in the recording of $14.0 million in operating lease right-of-use assets and a corresponding $14.1 million in operating lease liabilities at September 30, 2019.

Deposit liabilities increased by $82.7 million, or 3.8 percent, to $2.263 billion at September 30, 2019 from $2.181 billion at December 31, 2018. Increases over the first nine months of 2019 included $50.2 million in money market checking accounts, $12.2 million in non-interest bearing deposits, $13.9 million in transaction accounts, and $10.4 million in certificates of deposit, partly offset by decreases of $4.0 million in savings and club accounts. The Company uses listing service and brokered certificates of deposit as additional sources of deposit liquidity, which totaled $10.9 million and $0, respectively, at September 30, 2019, and $36.9 million and $248.0 million, respectively, at December 31, 2018.

Debt obligations increased by $30.2 million, or 10.7 percent, to $312.6 million at September 30, 2019 from $282.4 million at December 31, 2018 and consisted of both Federal Home Loan Bank (“FHLB”) borrowings and subordinated debt balances. The increase in FHLB borrowings for the year to date related to replacing $40 million in advance of the maturity dates in the next quarter that were secured at favorable interest rates. FHLB borrowings reflect the use of long-term advances to augment deposits as the Company’s funding source for originating loans and investing in investment securities. The weighted average interest rate of FHLB advances was 2.15 percent at September 30, 2019 and 2.18 percent at December 31, 2018. The issuance of subordinated debt was to maintain adequate capital ratios for further growth. The fixed interest rate of subordinated debt balances was 5.625 percent at September 30, 2019 and December 31, 2018.

Stockholders’ equity increased by $23.5 million, or 11.7 percent, to $223.7 million at September 30, 2019 from $200.2 million at December 31, 2018. The increase in stockholders’ equity was primarily attributable to the Company’s issuance of $6.3 million of common stock in a private placement which closed in February, 2019 and the issuance of $5.3 million of preferred series G stock in a private placement, which was issued in January, 2019. Retained earnings increased by $7.5 million to $45.9 million at September 30, 2019 from $38.4 million at December 31, 2018, due primarily to the increase in net income, net of dividends paid. Accumulated other comprehensive loss decreased $2.6 million to $2.4 million at September 30, 2019 from $5.0 million at December 31, 2018, related to market improvements lowering the unrealized loss on available-for-sale securities.

Net Interest Income Analysis

Net interest income represents the difference between income earned on our interest-earning assets and the expense incurred on our interest-bearing liabilities, and is analyzed and monitored by the Company on a regular basis. The following tables set forth average balance sheets, yields, and costs. The yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or expense.


		Three Months Ended September 30,
		2019					2018
		Average Balance		Interest Earned/Paid	Average Yield/Rate (3)		Average Balance		Interest Earned/Paid	Average Yield/Rate (3)
		(Dollars in thousands)
Interest-earning assets:
Loans Receivable	$	2,309,703	$	28,860	5.00%	$	2,183,872	$	26,019	4.77%
Investment Securities		111,551		759	2.72%		148,540		943	2.54%
Interest-earning deposits		289,080		1,750	2.42%		164,944		1,009	2.45%
Total Interest-earning assets		2,710,334		31,369	4.63%		2,497,356		27,971	4.48%
Non-interest-earning assets		75,904					63,729
Total assets	$	2,786,238				$	2,561,085
Interest-bearing liabilities:
Interest-bearing demand accounts	$	344,439	$	661	0.77%	$	336,373	$	504	0.60%
Money market accounts		269,775		1,237	1.84%		195,436		626	1.28%
Savings accounts		257,392		102	0.16%		265,610		116	0.17%
Certificates of Deposit		1,095,481		6,603	2.41%		969,475		4,591	1.89%
Total interest-bearing deposits		1,967,087		8,603	1.75%		1,766,894		5,837	1.32%
Borrowed funds		298,152		2,006	2.69%		324,767		2,054	2.53%
Total interest-bearing liabilities		2,265,239		10,609	1.87%		2,091,661		7,891	1.51%
Non-interest-bearing liabilities		299,230					274,850
Total liabilities		2,564,469					2,366,511
Stockholders' equity		221,769					194,574
Total liabilities and stockholders' equity	$	2,786,238				$	2,561,085
Net interest income			$	20,760				$	20,080
Net interest rate spread(1)					2.76%					2.97%
Net interest margin(2)					3.06%					3.22%

(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Annualized.


		Nine Months Ended September 30,
		2019					2018
		Average Balance		Interest Earned/Paid	Average Yield/Rate (3)		Average Balance		Interest Earned/Paid	Average Yield/Rate (3)
		(Dollars in thousands)
Interest-earning assets:
Loans Receivable	$	2,318,047	$	85,727	4.93%	$	1,983,562	$	69,588	4.68%
Investment Securities		120,560		2,592	2.87%		142,712		2,779	2.60%
Interest-earning deposits		220,318		4,270	2.58%		127,977		2,242	2.34%
Total Interest-earning assets		2,658,925		92,589	4.64%		2,254,251		74,609	4.41%
Non-interest-earning assets		72,718					53,375
Total assets	$	2,731,643				$	2,307,626
Interest-bearing liabilities:
Interest-bearing demand accounts	$	342,515	$	1,913	0.74%	$	328,908	$	1,402	0.57%
Money market accounts		253,593		3,311	1.74%		179,290		1,500	1.12%
Savings accounts		259,093		325	0.17%		263,156		318	0.16%
Certificates of Deposit		1,079,090		18,690	2.31%		859,949		10,726	1.66%
Total interest-bearing deposits		1,934,291		24,239	1.67%		1,631,303		13,946	1.14%
Borrowed funds		288,399		5,823	2.69%		245,567		4,153	2.26%
Total interest-bearing liabilities		2,222,690		30,062	1.80%		1,876,870		18,099	1.29%
Non-interest-bearing liabilities		293,557					243,973
Total liabilities		2,516,247					2,120,843
Stockholders' equity		215,396					186,783
Total liabilities and stockholders' equity	$	2,731,643				$	2,307,626
Net interest income			$	62,527				$	56,510
Net interest rate spread(1)					2.84%					3.13%
Net interest margin(2)					3.14%					3.34%

(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

(3)

Annualized.

Results of Operations comparison for the Three Months Ended September 30, 2019 and 2018

Net income increased $638,000, or 13.9 percent, to $5.2 million for the three months ended September 30, 2019, compared with $4.6 million for the three months ended September 30, 2018. The increase in net income was primarily related to an increase in total interest income and decreases in the provision for loan losses and non-interest expense, partly offset by an increase in interest expense, a decrease in total non-interest income, and a higher income tax provision for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

Net interest income increased by $680,000, or 3.4 percent, to $20.8 million for the three months ended September 30, 2019 from $20.1 million for the three months ended September 30, 2018. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $213.0 million, or 8.5 percent, to $2.710 billion for the three months ended September 30, 2019 from $2.497 billion for the three months ended September 30, 2018. There was also an increase in the average yield on interest-earning assets of 15 basis points to 4.63 percent for the three months ended September 30, 2019 from 4.48 percent for the three months ended September 30, 2018, partly offsetting the increase in interest income was an increase in the average balance of interest-bearing liabilities of $173.6 million, or 8.3 percent, to $2.265 billion for the three months ended September 30, 2019 from $2.092 billion for the three months ended September 30, 2018, and there was an increase in the average rate on interest-bearing liabilities of 36 basis points to 1.87 percent for the three months ended September 30, 2019 from 1.51 percent for the three months ended September 30, 2018.

Interest income on loans receivable increased by $2.8 million, or 10.9 percent, to $28.9 million for the three months ended September 30, 2019 from $26.1 million for the three months ended September 30, 2018. The increase was primarily attributable to an increase in the average balance of loans receivable of $125.8 million, or 5.8 percent, to $2.310 billion for the three months ended September 30, 2019 from $2.184 billion for the three months ended September 30, 2018, as well as an increase in the average yield on loans of 23 basis points to 5.00 percent for the three months ended September 30, 2019 from 4.77 percent for the three months ended September 30, 2018. The increase in the average balance of loans receivable was in accordance with the Company’s growth strategy, which included growing the Bank’s geographic footprint vis-à-vis our organic branching strategy. Interest income on loans also included $505,000 of amortization of purchase credit fair value adjustments related to the acquisition of IAB for the three months ended September 30, 2019, which added approximately seven basis points to the average yield on interest earning assets on an annualized basis.

Interest income on securities decreased by $184,000, or 19.5 percent, to $759,000 for the three months ended September 30, 2019 from $943,000 for the three months ended September 30, 2018. This decrease was primarily due to a decrease in the average balance of securities of $37.0 million, or 24.9 percent, to $111.6 million for the three months ended September 30, 2019 from $148.6 million for the three months ended September 30, 2018, partly offset by an increase in the average yield on securities of 18 basis points to 2.72 percent for the three months ended September 30, 2019 from 2.54 percent for the three months ended September 30, 2018. The decrease in the average balance of securities related to repayments, calls, maturities, and the sale of $13.9 million of securities.

Interest income on other interest-earning assets increased by $741,000, or 73.4 percent, to $1.8 million for the three months ended September 30, 2019 from $1.0 million for the three months ended September 30, 2018. This increase was primarily due to an increase in the average balance of other interest earning assets of $124.1 million, or 75.3 percent, to $289.1 million for the three months ended September 30, 2019 from $165.0 million for the three months ended September 30, 2018 with only a slight decline of three basis points in the average rate. The increase in the average balance of other interest-earning assets was consistent with the Company’s strategy of maintaining strong levels of liquidity.

Total interest expense increased by $2.7 million, or 34.4 percent, to $10.6 million for the three months ended September 30, 2019 from $7.9 million for the three months ended September 30, 2018. This increase resulted, primarily, from an increase in the average balance of interest-bearing liabilities of $173.6 million, or 8.3 percent, to $2.265 billion for the three months ended September 30, 2019 from $2.092 billion for the three months ended September 30, 2018, as well as an increase in the average rate on interest-bearing liabilities of 36 basis points to 1.87 percent for the three months ended September 30, 2019 from 1.51 percent for the three months ended

September 30, 2018. The increase in the average balance of interest-bearing liabilities was in line with the increase in the average balance of interest-earning assets. The increase in the cost of funds primarily related to higher rates offered on our deposits, resulting from both market competition and the increases in the Fed Funds rates.

Net interest margin was 3.06 percent for the three-month period ended September 30, 2019 and 3.22 percent for the three-month period ended September 30, 2018. The decrease in the net interest margin was the result of a competitively higher interest rate environment, with the increase in the cost of funds outpacing the return on interest earning assets for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

The provision for loan losses remained relatively flat at $900,000 for the three months ended September 30, 2019 as compared to $907,000 for the three months ended September 30, 2018. 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 dynamic activity and fluctuating balance of loans receivable; and (5) the existing level of reserves for loan losses that are probable and estimable. During the three months ended September 30, 2019, the Company recognized $2,000 in net recoveries compared to $43,000 in net charge-offs for the three months ended September 30, 2018. The Bank had non-accrual loans totaling $5.1 million, or 0.22 percent, of gross loans at September 30, 2019 as compared to $7.2 million, or 0.31 percent, of gross loans at December 31, 2018. The allowance for loan losses was $24.7 million, or 1.08 percent, of gross loans at September 30, 2019, and $22.4 million, or 0.97 percent, of gross loans at December 31, 2018 and $21.5 million, or 0.96 percent, of gross loans at September 30, 2018. 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 September 30, 2019 and December 31, 2018.

Total non-interest income decreased by $469,000, or 25.3 percent, to $1.4 million for the three months ended September 30, 2019 from $1.9 million for the three months ended September 30, 2018. The decrease in total non-interest income was mainly related to lower income from fees and service charges as well as lower gains on sale of loans, partly offset by higher gains on sale of other real estate owned properties and gains on sale of investment securities. Fees and service charges decreased $237,000, or 21.7 percent to $855,000 for the three months ended September 30, 2019 from $1.1 million for the three months ended September 30, 2018, mainly related to less mortgage servicing fee income with less sales of loans. Gain on sales of loans decreased by $649,000, or 87.9 percent, to $89,000 for the three months ended September 30, 2019 from $738,000 for the three months ended September 30, 2018. Factors included when deciding to sell loans include market conditions, demand, and the loan portfolio. Gains on sale of other real estate owned properties increased by $110,000, to $124,000 for the three months ended September 30, 2019 from a gain of $14,000 for the three months ended September 30, 2018. Gain on sale of investment securities was $283,000 for the three months ended September 30, 2019, with no comparable sales for the three months ended September 30, 2018.

Total non-interest expense decreased by $739,000, or 5.1 percent, to $13.7 million for the three months ended September 30, 2019 from $14.4 million for the three months ended September 30, 2018.

Regulatory fees associated with FDIC assessments decreased by $510,000 for the three months ended September 30, 2019 from $419,000 for the three months ended September 30, 2018. The decrease was primarily due to a decrease in the assessment rate, a credit that related to the receipt of an FDIC Small Bank Assessment Credit, which came as a result of the FDIC exceeding its stated Deposit Fund Reserve Ratio, partly offset by an increase in the assessment base.

Data processing expense decreased by $166,000, or 17.6 percent, to $776,000 for the three months ended September 30, 2019 from $942,000 for the three months ended September 30, 2018, primarily attributable to non-recurring charges in the third quarter of 2018 related to the merger with IAB.

Merger-related expenses decreased $119,000, which was the amount incurred in the three months ended September 30, 2018 with no comparable figure for the three months ended September 30, 2019.

Salaries and employee benefits expense increased by $138,000, or 1.9 percent, to $7.3 million for the three months ended September 30, 2019 from $7.2 million for the three months ended September 30, 2018. The increase in salaries and employee benefits related in part to normal salary increases partly offset a reduction in full-time equivalent employees, from 356 at September 30, 2018 to 352 at September 30, 2019, as part of management’s continued initiative to manage headcount throughout the organization.

Occupancy expense increased by $157,000, or 6.3 percent, to $2.6 million for the three months ended September 30, 2019 from $2.5 million for the three months ended September 30, 2018, largely related to the opening of three new branches in 2019.

Director fee expense increased by $164,000, or 85.4 percent, to $356,000 for the three months ended September 30, 2019 from $192,000 for the three months ended September 30, 2018, primarily related to the awarding of stock options and restricted stock under the 2018 Equity Incentive Plan, during the second quarter of 2019 as well as in the fourth quarter of 2018.

There were also less significant variances in professional fees, advertising and promotional, other real estate owned, and other expenses, which netted to a reduction of expenses of $403,000 from the prior year. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and miscellaneous fees and expenses.

The income tax provision increased by $319,000, or 15.6 percent, to $2.4 million for the three months ended September 30, 2019 from $2.0 million for the three months ended September 30, 2018. The increase in the income tax provision was a result of higher taxable income for the three months ended September 30, 2019 as compared to that same period for 2018. The consolidated effective tax rate for the three months ended September 30, 2019 was 31.1 percent compared to 30.8 percent for the three months ended September 30, 2018.

Results of Operations comparison for the Nine Months Ended September 30, 2019 and 2018

Net income increased $4.4 million, or 37.9 percent, to $15.9 million for the nine months ended September 30, 2019, compared with $11.5 million for the nine months ended September 30, 2018. The increase in net income was primarily related to an increase in total interest income, a decrease in the provision for loan losses and a decrease in non-interest expense, partly offset by an increase in interest expense, a decrease in total non-interest income, and a higher income tax provision for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

Net interest income increased by $6.0 million, or 10.6 percent, to $62.5 million for the nine months ended September 30, 2019 from $56.5 million for the nine months ended September 30, 2018. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $404.7 million, or 18.0 percent, to $2.659 billion for the nine months ended September 30, 2019 from $2.254 billion for the nine months ended September 30, 2018. There was also an increase in the average yield on interest-earning assets of 23 basis points to 4.64 percent for the nine months ended September 30, 2019 from 4.41 percent for the nine months ended September 30, 2018. Offsetting the increase in interest income was an increase in the average balance of interest-bearing liabilities of $345.8 million, or 18.4 percent, to $2.223 billion for the nine months ended September 30, 2019 from $1.877 billion for the nine months ended September 30, 2018, and an increase in the

average rate on interest-bearing liabilities of 51 basis points to 1.80 percent for the nine months ended September 30, 2019 from 1.29 percent for the nine months ended September 30, 2018.

Interest income on loans receivable increased by $16.1 million, or 23.2 percent, to $85.7 million for the nine months ended September 30, 2019 from $69.6 million for the nine months ended September 30, 2018. The increase was primarily attributable to an increase in the average balance of loans receivable of $334.5 million, or 16.9 percent, to $2.318 billion for the nine months ended September 30, 2019 from $1.984 billion for the nine months ended September 30, 2018, as well as an increase in the average yield on loans of 25 basis points to 4.93 percent for the nine months ended September 30, 2019 from 4.68 percent for the nine months ended September 30, 2018. The increase in the average balance of loans receivable was in accordance with the Company’s growth strategy, which included growing the Bank’s geographic footprint vis-à-vis our organic branching strategy and the acquisition of IAB, which was completed in the second quarter of 2018, while the increase in the average yield on loans related to the comparable higher interest rate environment in the current year period. Interest income on loans also included $1.5 million of amortization of purchase credit fair value adjustments related to the acquisition of IAB for the nine months ended September 30, 2019, which added approximately eight basis points to the average yield on interest earning assets on an annualized basis.

Interest income on securities decreased by $187,000 to $2.6 million for the nine months ended September 30, 2019, compared to $2.8 million for the nine months ended September 30, 2018. This decrease was primarily due to a decrease in the average balance of securities of $22.2 million, or 15.5 percent, to $120.6 million for the nine months ended September 30, 2019 from $142.8 million for the nine months ended September 30, 2018, partly offset by an increase in the average yield on securities of 27 basis points to 2.87 percent for the nine months ended September 30, 2019 from 2.60 percent for the nine months ended September 30, 2018. The decrease in the average balance of securities related to repayments, calls, maturities, and the sale of $13.9 million of securities.

Interest income on other interest-earning assets increased by $2.0 million, or 90.5 percent, to $4.3 million for the nine months ended September 30, 2019 from $2.3 million for the nine months ended September 30, 2018. This increase was primarily due to an increase in the average balance of other interest earning assets of $92.3 million, or 72.2 percent, to $220.3 million for the nine months ended September 30, 2019 from $128.0 million for the nine months ended September 30, 2018 as well as an increase in the average yield on other interest-earning assets of 24 basis points to 2.58 percent for the nine months ended September 30, 2019 from 2.34 percent for the nine months ended September 30, 2018. The increase in the average balance of other interest-earning assets was consistent with the Company’s strategy of maintaining strong levels of liquidity. The increase in the average yield on other interest-earning assets correlates to the increases in the Fed Funds rate.

Total interest expense increased by $12.0 million, or 66.1 percent, to $30.1 million for the nine months ended September 30, 2019 from $18.1 million for the nine months ended September 30, 2018. This increase resulted primarily from an increase in the average balance of interest-bearing liabilities of $345.8 million, or 18.4 percent, to $2.223 billion for the nine months ended September 30, 2019 from $1.877 billion for the nine months ended September 30, 2018, as well as an increase in the average rate on interest-bearing liabilities of 51 basis points to 1.80 percent for the nine months ended September 30, 2019 from 1.29 percent for the nine months ended September 30, 2018. The increase in the average balance of interest-bearing liabilities was in line with the increase in the average balance of interest-earning assets. The increase in the cost of funds primarily related to higher rates offered on our deposits resulting from both market competition and the increases in the Fed Funds rates.

Net interest margin was 3.14 percent for the nine-month period ended September 30, 2019 and 3.34 percent for the nine-month period ended September 30, 2018. The decrease in the net interest margin was the result of a comparatively higher interest rate environment, with the increase in the cost of funds outpacing the return on interest earning assets for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

The provision for loan losses decreased by $1.8 million, to $2.5 million for the nine months ended September 30, 2019 from $4.3 million for the nine months ended September 30, 2018. 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 dynamic activity and fluctuating balance of loans receivable; and (5) the existing level of reserves for loan losses that are probable and estimable. During the nine months ended September 30, 2019, the Company experienced $212,000 in net charge-offs compared to $180,000 in net charge-offs for the nine months ended September 30, 2018. The Bank had non-accrual loans totaling $5.1 million, or 0.22 percent, of gross loans at September 30, 2019 as compared to $7.2 million, or 0.31 percent, of gross loans at December 31, 2018. The allowance for loan losses was $24.7 million, or 1.08 percent, of gross loans at September 30, 2019, and $22.4 million, or 0.97 percent, of gross loans at December 31, 2018 and $21.5 million, or 0.96 percent, of gross loans at September 30, 2018. 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 September 30, 2019 and December 31, 2018.

Total non-interest income decreased by $2.4 million, or 35.7 percent, to $4.4 million for the nine months ended September 30, 2019 from $6.8 million for the nine months ended September 30, 2018. The decrease in total non-interest income mainly related to a decrease in the amount of other non-interest income of $2.2 million, or 92.5 percent, to $179,000 for the nine months ended September 30, 2019 from $2.4 million for the nine months ended September 30, 2018. The decrease in other non-interest income was the result of $2.2 million in proceeds from a legal settlement recognized in the first quarter of 2018. The decrease in total non-interest income also related to a decrease in the gain on sale of loans of $1.1 million, or 55.5 percent, to $844,000 for the nine months ended September 30, 2019 from $1.9 million for the nine months ended September 30, 2018. Factors included when deciding to sell loans include market conditions, demand, and the loan portfolio. Fees and service charges also decreased $233,000, or 8.4 percent, to $2.5 million for the nine months ended September 30, 2019 from $2.8 million for the nine months ended September 30, 2018, mainly related to less mortgage servicing fee income with less sales of loans. The decrease in total non-interest income was partly offset by an increase in unrealized gains on equity securities of $462,000, with a gain of $220,000 for the nine months ended September 30, 2019 as compared to a loss on equity securities of $242,000 for the nine months ended September 30, 2018. There was an increase in the gain on sales of investment securities of $304,000 for the nine months ended September 30, 2019 with no comparable figure for the nine months ended September 30, 2018. There was an increase in gains on other real estate owned properties of $173,000, with a gain of $177,000 for the nine months ended September 30, 2019 as compared to a gain of $4,000 for the nine months ended September 30, 2018. There was an increase in gains on the sale of impaired loans of $131,000, with a gain of $107,000 for the nine months ended September 30, 2019 as compared to a loss of $24,000 for the nine months ended September 30, 2018.

Total non-interest expense decreased by $1.1 million or 2.5 percent, to $41.3 million for the nine months ended September 30, 2019 from $42.4 million for the nine months ended September 30, 2018.

Merger-related expenses decreased $2.3 million, which was the amount incurred in the nine months ended September 30, 2018 with no comparable figure for the nine months ended September 30, 2019.

Data processing expense decreased by $271,000, or 10.8 percent, to $2.2 million for the nine months ended September 30, 2019 from $2.5 million for the nine months ended September 30, 2018, primarily attributable to non-recurring charges in the second quarter of 2018 upon the merger with IAB.

Regulatory fees associated with FDIC assessments decreased by $165,000, or 17.4 percent, to $783,000 for the nine months ended September 30, 2019 from $948,000 for the nine months ended September 30, 2018. The decrease was primarily due to a decrease in the assessment rate, a credit that related to the receipt of an FDIC Small Bank Assessment Credit, which came as a result of the FDIC exceeding its stated Deposit Fund Reserve Ratio, partly offset by an increase in the assessment base.

Salaries and employee benefits expense increased by $579,000, or 2.8 percent, to $21.1 million for the nine months ended September 30, 2019 from $20.5 million for the nine months ended September 30, 2018. The increase in salaries and employee benefits related in part to the inclusion of IAB employees after the merger was completed in April, 2018, as well as normal salary increases. These increases were partly offset by a reduction in full-time equivalent employees, to 352 at September 30, 2019 to 356 at September 30, 2018, as part of management’s continued initiative to manage headcount throughout the organization.

Occupancy expense increased by $898,000, or 12.8 percent, to $7.9 million for the nine months ended September 30, 2019 from $7.0 million for the nine months ended September 30, 2018, largely related to the opening of three new branches in 2019.

Director fees increased by $396,000, or 66.7 percent, to $990,000 for the nine months ended September 30, 2019 from $594,000 for the nine months ended September 30, 2018, primarily related to the awarding of stock options and restricted stock under the 2018 Equity Incentive Plan during the second quarter of 2019 and the end of the fourth quarter of 2018.

There were also less significant variances in professional fees, advertising and promotional, other real estate owned, net and other expenses, which netted to a reduction in expenses of $193,000 from the prior year. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and miscellaneous fees and expenses.

The income tax provision increased by $2.0 million, or 40.1 percent, to $7.1 million for the nine months ended September 30, 2019 from $5.1 million for the nine months ended September 30, 2018. The increase in the income tax provision was a result of higher taxable income for the nine months ended September 30, 2019 as compared to that same period for 2018. The consolidated effective tax rate for the nine months ended September 30, 2019 was 30.9 percent compared to 30.6 percent for the nine months ended September 30, 2018.

Liquidity and Capital Resources

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.

The Company had total borrowings of $312.5 million at September 30, 2019 and $282.4 million at December 31, 2018. The average rate of FHLB advances was 2.15 percent at September 30, 2019 and 2.18 percent at December 31, 2018. The subordinated debentures have a ten-year term and will bear interest at a fixed annual rate of 5.625% for the first five years of the term. From and including August 1, 2023, the interest rate will adjust to a floating rate based on the LIBOR plus 2.72% until redemption or maturity. The Notes are scheduled to mature on August 1, 2028.

The Company had the ability at September 30, 2019 to obtain additional funding from the FHLB of up to $235.2 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 $784.8 million at September 30, 2019. Based upon historical experience, management estimates that a significant portion of such deposits will remain with the Company.

Capital Resources

At September 30, 2019, and December 31, 2018, BCB Community Bank exceeded all of its regulatory capital requirements to which it was subject. The following table sets forth the regulatory capital ratios for BCB Community Bank as well as regulatory capital requirements for the periods presented.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the 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 Company’s consolidated financial statements. 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 classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule established a common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.

The final rule also requires unrealized gains and losses on certain available-for-sale securities holdings and defined benefit plan obligations to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The Bank exercised the opt-out election. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The final rule became effective for the Bank on January 1, 2015. The capital conservation buffer was phased in starting at 0.625% in 2016 and increasing by 0.625% annually until it reached 2.5% in 2019. The Bank currently complies with the minimum capital requirements set forth in the final rule and operates under the 2.5% capital conservation buffer.

Notwithstanding the foregoing, pursuant to recent regulatory reform, the FDIC finalized a rule that establishes a community bank leverage ratio (tier 1 capital to average consolidated assets) at 9% for institutions under $10 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. Management is currently evaluating whether the Community Bank Leverage Ratio will be elected.

Capital Resources (continued)


		Actual				For Capital Adequacy Purposes				For Well Capitalized Under Prompt Corrective Action
	Dollars in Thousands
As of September 30, 2019:
Bank
Total capital (to risk-weighted assets)	$	279,043	13.03	%	$	171,276	8.00	%	$	214,096	10.00	%
Tier 1 capital (to risk-weighted assets)		254,352	11.88			128,457	6.00			171,276	8.00
Common Equity Tier 1 Capital (to risk-weighted assets)		254,352	11.88			96,343	4.50			139,162	6.50
Tier 1 capital (to average assets)		254,352	9.16			111,097	4.00			138,871	5.00

As of December 31, 2018:
Bank
Common Equity Tier 1 Capital (to risk-weighted assets)	$	255,631	12.01	%	$	170,222	8.00	%	$	212,777	10.00	%
Tier 1 capital (to risk-weighted assets)		233,272	10.96			127,666	6.00			170,222	8.00
Common Equity Tier 1 Capital (to risk-weighted assets)		233,272	10.96			95,750	4.50			138,305	6.50
Tier 1 capital (to average assets)		233,272	8.72			106,999	4.00			133,749	5.00

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management of Market Risk

General. 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 quarterly to review our asset/liability policies and interest rate risk position.

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 September 30, 2019. 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 non-interest 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 September 30, 2019.

The following table sets forth the Company’s NPV as of that date (dollars in thousands).



							NPV as a % of Assets
Change in Calculation	Net Portfolio Value		$ Change from PAR		% Change from PAR		NPV Ratio		Change

+300bp	$	177,445	$	(62,868)	(26.16)	%	6.71	%	(179)	bps
+200bp		200,141		(40,172)	(16.72)		7.40		(110)	bps
+100bp		223,493		(16,821)	(7.00)		8.08		(42)	bps
PAR		240,313		-	-		8.50		-	bps
-100bp		254,576		14,262	5.93		8.80		31	bps

bp – basis points

The table above indicates that as of September 30, 2019, in the event of a 100 basis point increase in interest rates, we would experience a decrease to 8.08% 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 4.

Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. As of September 30, 2019, 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 effect on our financial condition or results of operations.

ITEM 1.A. RISK FACTORS

The performance of the Bank's New York multifamily and mixed-use loans could be adversely impacted by recent legislation.

There have been no changes to the risk factors set forth under the 1.A. Risk Factors as set forth in the Company’s annual report on Form 10-K for the year ended December 31, 2018 as supplemented by the Company’s quarterly reports on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFTEY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32	Officers’ Certification filed pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation LinkBase
Exhibit 101.DEF	XBRL Taxonomy Extension Definition LinkBase
Exhibit 101.LAB	XBRL Taxonomy Extension Label LinkBase
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation LinkBase

Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.



	BCB BANCORP, INC.

Date: November 6, 2019	By:	/s/ Thomas Coughlin
		Thomas Coughlin
		President and Chief Executive Officer (Principal Executive Officer)

Date: November 6, 2019	By:	/s/ Thomas P. Keating
		Thomas P. Keating Senior Vice President and Chief Financial Officer
		(Principal Accounting and Financial Officer)