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

Completion of Acquisition

On October 14, 2011, the Bank completed its merger with Allegiance Community Bank, as contemplated by the Agreement and Plan of Merger by and between BCB Bancorp, and Allegiance Community Bank dated April 4, 2011 (the "Agreement"). Under the terms of the Agreement, each share of Allegiance Community Bank stock was converted into 0.35 of a share of BCB Bancorp common stock. The transaction is valued at approximately $6.2 million based on BCB Bancorp's closing share price of $9.57 per share on October 13, 2011.

Financial Condition

Total assets decreased by $12.4 million or 1.0% to $1.205 billion at March 31, 2012 from $1.217 billion at December 31, 2011. The decrease in total assets occurred primarily as a result of decreases in loans receivable of $12.4 million and cash and cash equivalents of $1.5 million, partially offset by an increase in securities held to maturity of $4.5 million. Management is concentrating on controlled balance sheet growth and maintaining adequate liquidity in the anticipation of funding loans in the loan pipeline as well as seeking opportunities in the secondary market that provide reasonable returns. During the first quarter, the composition of the Bank's statement of financial condition remained similar to the composition of the statement of financial condition at year end December 31, 2011, with the exception of a decrease of $15.4 million or 11.9% in the balance of long-term debt to $114.1 million at March 31, 2012, from $129.5 million at December 31, 2011, as the Bank prepaid advances from the Federal Home Loan Bank of New York that were acquired at the completion of the Allegiance Community Bank acquisition. It is our intention to grow the statement of financial condition at a measured pace consistent with our capital levels and as business opportunities permit.

Total cash and cash equivalents decreased by $1.5 million or 1.3% to $115.6 million at March 31, 2012 from $117.1 million at December 31, 2011. Investment securities classified as held-to-maturity increased by $4.5 million or 2.2% to $211.5 million at March 31, 2012 from $207.0 million at December 31, 2011. This increase in investment securities resulted primarily from purchases of $40.7 million for the three months ended March 31, 2012 partially offset by allowable sales of $16.3 million of mortgage-backed securities from the held-to-maturity portfolio, $13.1 million of repayments and prepayments in the mortgage-backed securities portfolio, $3.3 million in maturities of certain Government Sponsored Enterprise bonds and $3.0 million of call options exercised on certain callable agency securities for the three months ended March 31, 2012.

Loans receivable decreased by $12.4 million or 1.5% to $828.4 million at March 31, 2012 from $840.8 million at December 31, 2011. The decrease resulted primarily from the subsequent sale of commercial loans acquired from Allegiance Community Bank totaling approximately $10.8 million. The sale of the aforementioned resulted in a gain on sale of loans of approximately $286,000. The decrease was also attributable to a $2.8 million decrease in consumer loans, net of amortization and a $430,000 increase in the allowance for loan losses, partially offset by a $3.1 million increase in real estate mortgages comprising residential, commercial, construction and participation loans with other financial institutions. The balance in the loan pipeline as of March 31, 2012 stood at $83.9 million. As of March 31, 2012, the allowance for loan losses was $10.9 million or 21.1% of non-performing loans. As a result of the loans acquired in the recent business combination transactions being recorded at their fair value, the balance in the allowance for loan losses that were on the balance sheet of the former Pamrapo Bancorp, Inc., and Allegiance Community Bank were not carried over in the allowance balance previously discussed.

Deposit liabilities increased by $3.9 million or 0.4% to $981.5 million at March 31, 2012 from $977.6 million at December 31, 2011. The increase resulted primarily from a $2.0 million increase in non-interest bearing deposits and a $1.9 million increase in interest bearing deposits. During the three months ended March 31, 2012, the Federal Open Market Committee (FOMC) has continued its low short term interest rate policy. This has resulted in a continuing low short term market rates that have further resulted in low time deposit account yields which in turn has had the effect of decreasing interest expense.

The balance of borrowed money decreased by $15.4 million or 11.9% to $114.1 million at March 31, 2012 from $129.5 million at December 31, 2011. The decrease in borrowed money resulted primarily from the pre-payment of $15.4 million in Federal Home Loan Bank Advances that we acquired in the Allegiance Community Bank acquisition. As a result, a pre-payment penalty of $49,000 was recognized in interest expense. The purpose of the borrowings reflects the use of long term Federal Home Loan Bank advances to augment deposits as the Bank's funding source for originating loans and investing in GSE investment securities.

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Stockholders' equity decreased by $1.29 million or 1.3% to $98.76 million at March 31, 2012 from $100.05 million at December 31, 2011. The decrease in stockholders' equity is primarily attributable to the repurchase of 180,271 shares of the Company's common stock at a cost of $1.9 million, consistent with the 10b5-1 stock repurchase plan in place during the quarter ended March 31, 2012, as well as the payment of a quarterly cash dividend totaling $1.1 million, partially offset by net income for the three months ended March 31, 2012 of $1.6 million, an increase of $30,000 resulting from the exercise of stock options totaling 5,775 shares, and an $87,000 increase in the fair value of our available-for-sale securities portfolio, net of tax. As of March 31, 2012, the Bank's Tier 1, Tier 1 Risk-Based and Total Risk Based Capital Ratios were 8.48%, 14.81% and 15.98% respectively.

Results of Operations

Net income decreased by $333,000 or 17.3% to $1.59 million for the three months ended March 31, 2012 from $1.92 million for the three months ended March 31, 2011. The decrease in net income was due to increases in non-interest expense and the provision for loan losses, partially offset by increases in net interest income and non-interest income and a decrease in the income tax provision. Net interest income after provision for loan losses increased by $375,000 or 4.0% to $9.70 million for the three months ended March 31, 2012 from $9.32 million for the three months ended March 31, 2011. The increase in net interest income resulted primarily from an increase in the average balance of interest earning assets of $109.0 million or 10.1% to $1.193 billion for the three months ended March 31, 2012 from $1.084 billion for the three months ended March 31, 2011, partially offset by a decrease in the average yield on interest earning assets of twenty-eight basis points to 4.54% for the three months ended March 31, 2012 from 4.82% for the three months ended March 31, 2011. The average balance of interest bearing liabilities increased by $108.1 million or 11.6% to $1.039 billion for the three months ended March 31, 2012 from $930.9 million for the three months ended March 31, 2011, and the average cost of interest bearing liabilities decreased by twenty basis points to 1.25% for the three months ended March 31, 2012 from 1.45% for the three months ended March 31, 2011. The decrease of twenty-eight basis points in the average yield of interest earning assets more than offset the decrease of twenty basis points on the average cost of interest bearing liabilities. As a consequence and in contrast to the increase in net interest income, our net interest margin decreased to 3.45% for the three months ended March 31, 2012 from 3.57% for the three months ended March 31, 2011. The increase in the average balance of interest earning assets and the average balance of interest bearing liabilities reflects the completion of the Allegiance Community Bank acquisition.

Interest income on loans receivable increased by $712,000 or 6.3% to $11.97 million for the three months ended March 31, 2012 from $11.26 million for the three months ended March 31, 2011. The increase was primarily attributable to an increase in the average balance of loans receivable of $68.8 million or 8.7% to $863.6 million for the three months ended March 31, 2012 from $794.8 million for the three months ended March 31, 2011, partially offset by a decrease in the average yield on loans receivable to 5.55% for the three months ended March 31, 2012 from 5.67% for the three months ended March 31, 2011. The increase in the average balance of loans is primarily attributable to the acquisition of Allegiance Community Bank. The decrease in average yield reflects the competitive price environment prevalent in the Bank's primary market area on loan facilities as well as the repricing downward of variable rate loans.

Interest income on securities decreased by $219,000 or 12.4% to $1.55 million for the three months ended March 31, 2012 from $1.77 million for the three months ended March 31, 2011. This decrease was primarily due to a decrease in the average yield of securities held-to-maturity to 2.84% for the three months ended March 31, 2012 from 3.50% for the three months ended March 31, 2011.The decrease in the average yield reflects low long term interest rate environment during the three months ended March 31, 2012, partially offset by an increase in the average balance of securities held-to-maturity of $15.9 million or 7.9% to $217.5 million for the three months ended March 31, 2012 from $201.6 million for the three months ended March 31, 2011. The increase in the average balance reflects the completion of the acquisition of Allegiance Community Bank.

Interest income on other interest-earning assets increased by $2,000 or 7.1% to $30,000 for the three months ended March 31, 2012 from $28,000 for the three months ended March 31, 2011. This increase was primarily due to an increase of $24.5 million or 27.9% in the average balance of other interest-earning assets to $112.4 million for the three months ended March 31, 2012 from $87.9 million for the three months ended March 31, 2011. The average yield on other interest-earning assets decreased slightly to 0.11% for the three months ended March 31, 2012 from 0.13% for the three month ended March 31, 2011. The static nature of the average yield on other interest earning assets reflects the current philosophy by the FOMC of keeping short term interest rates at historically low levels for the last two years. The increase in the average balance of other interest earning assets is primarily attributable to the completion of the acquisition of Allegiance Community Bank.

Total interest expense decreased by $130,000 or 3.8% to $3.25 million for the three months ended March 31, 2012 from $3.38 million for the three months ended March 31, 2011. The decrease resulted primarily from a decrease in the average cost of interest bearing liabilities of twenty basis points to 1.25% for the three months ended March 31, 2012 from 1.45% for the three months ended March 31, 2011, partially offset by an increase in the balance of average interest bearing liabilities of $108.1 million or 11.6% to $1.039 billion for the three months ended March 31, 2012 from $930.9 million for the three months ended March 31, 2011. The increase in the balance of average interest bearing liabilities is primarily attributable to the completion of the acquisition of Allegiance Community Bank. The decrease in the average cost reflects the Company's reaction to the lower short term interest rate environment and our ability to reduce our pricing on a select number of retail deposit products.

The provision for loan losses totaled $600,000 and $350,000 for the three month periods ended March 31, 2012 and 2011, respectively. The provision for loan losses is established based upon management's review of the Bank'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) our level of loan growth and
(5) the existing level of reserves for loan losses that are probable and estimable. During the three months ended March 31, 2012, the Bank experienced $173,000 in net charge-offs, (consisting of $173,000 in charge-offs and no recoveries). During the three months ended March 31, 2011, the Bank experienced $380,000 in net charge-offs, (consisting of $380,000 in charge-offs and no recoveries). The Bank had non-performing loans totaling $51.8 million or 6.16% of gross loans at March 31, 2012, $47.8 million or 5.61% of gross loans at December 31, 2011 and $43.1 million or 5.57% of gross loans at March 31, 2011. The increase in non-performing loans resulted primarily from troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six months until the borrower has demonstrated its ability to satisfy the terms of the restructured loan. The allowance for loan losses was $10.9 million or 1.30% of gross loans at March 31, 2012, $10.5 million or 1.23% of gross loans at December 31, 2011 and $8.4 million or 1.08% of gross loans at March 31, 2011. 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 Bank 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 as of March 31, 2012, December 31, 2011 and March 31, 2011.

Total non-interest income increased by $749,000 or 140.5% to $1.3 million for the three months ended March 31, 2012 from $533,000 for the three months ended March 31, 2011. The increase in non-interest income resulted primarily from an increase of $159,000 or 44.8% increase in fees and service charges and other non-interest income to $514,000 for the three months ended March 31, 2012 from $355,000 for the three months ended March 31, 2011, an increase in gain on sale of securities of $128,000 for the three months ended March 31, 2012 from no corresponding entry for the three months ended March 31, 2011 and an increase of $462,000 or 259.6% in gain on sale of loans to $640,000 for the three months ended March 31, 2012 from $178,000 for the three months ended March 31, 2011. The increase in gain on sale of loans occurred primarily as a result of the active local market for refinancing one-to four-family residential mortgages, aided in large part by the low interest rate environment. In addition, the Bank sold approximately $10.7 million of commercial business loans acquired in the Allegiance Community Bank acquisition which resulted in a gain of approximately $286,000.

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Total non-interest expense increased by $1.67 million or 24.9% to $8.38 million for the three months ended March 31, 2012 from $6.71 million for the three months ended March 31, 2011. Unless specified otherwise, the increase in the categories of non-interest expense occurred primarily as a result of the acquisition of Allegiance Community Bank. Salaries and employee benefits expense increased by $926,000 or 30.8% to $3.93 million for the three months ended March 31, 2012 from $3.01 million for the three months ended March 31, 2011. This increase occurred primarily as the result of an increase in the number of full time equivalent employees to 222 at March 31, 2012, from 182 at March 31, 2011. Occupancy expense increased by $67,000 or 8.6% to $846,000 for the three months ended March 31, 2012 from $779,000 for the three months ended March 31, 2011. Equipment expense increased by $425,000 or 41.5% to $1.45 million for the three months ended March 31, 2012 from $1.02 million for the three months ended March 31, 2011. The primary component of this expense item is data service provider expense which increases with the growth in the Bank's assets. In addition, system conversion costs due to the acquisition of Allegiance Community Bank totaled approximately $250,000. Professional fees increased by $228,000 or 112.3% to $431,000 for the three months ended March 31, 2012 from $203,000 for the three months ended March 31, 2011. Directors' fees increased by $91,000 or 76.5% to $210,000 for the three months ended March 31, 2012 from $119,000 for the three months ended March 31, 2011. Regulatory assessments decreased by $128,000 or 29.2% to $310,000 for the three months ended March 31, 2012 from $438,000 for the three months ended March 31, 2011 primarily due to the new assessment base methodology pursuant to Dodd- Frank which lowered the Bank's insurance premium. Advertising expense increased by $45,000 or 62.5% to $117,000 for the three months ended March 31, 2012 from $72,000 for the three months ended March 31, 2011. Loss on sale of real estate owned increased by $57,000 or 71.3% to a loss of $137,000 on the sale of certain REO properties for the three months ended March 31, 2012 from a loss of $80,000 on the sale of certain REO properties for the three months ended March 31, 2011. Other non-interest expense decreased by $38,000 or 3.8% to $950,000 for the three months ended March 31, 2012 from $988,000 for the three months ended March 31, 2011. Other non-interest expense is comprised of loan expense, stationary, forms and printing, check printing, correspondent bank fees, telephone and communication, and other fees and expenses.

The income tax provision decreased by $216,000 or 17.6% to $1.01 million for the three months ended March 31, 2012 from $1.23 million for the three months ended March 31, 2011, reflecting decreased taxable income during the three month time period ended March 31, 2012. The consolidated effective tax rate for the three months ended March 31, 2012 was 38.9% compared to 38.9% for the three months ended March 31, 2011.