Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2014

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

For the transition period from _______________ to _______________

Commission File Number: 000-51385

	Colonial Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)

Maryland		90-0183739
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

2745 S. Delsea Drive, Vineland, New Jersey		08360
(Address of Principal Executive Offices)		(Zip Code)

	(856) 205-0058
(Registrant’s Telephone Number Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		The NASDAQ Stock Market, LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ☐ No ☒

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 reports), and (2) has been subject to such requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of March 1, 2015 there were 3,866,745 shares outstanding of the registrant’s common stock. The aggregate value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of the common stock as of June 30, 2014, was $44.4 million.

DOCUMENTS INCORPORATED BY REFERENCE

None

PART I

ITEM 1.

Business

Forward Looking Statements

This Annual Report contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” These forward-looking statements include, but are not limited to:

●

statements of our goals, intentions and expectations;

●

statements regarding our business plans, prospects, growth and operating strategies;

●

statements regarding the asset quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

general economic conditions, either nationally or in our market areas, that are worse than expected;

●

competition among depository and other financial institutions;

●

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

●

adverse changes in the securities markets;

●

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

●

our ability to manage operations in current economic conditions;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

our ability to successfully integrate acquired entities, if any;

●

changes in consumer spending, borrowing and savings habits;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

●

changes in the level of government support for housing finance;

●

significant increases in our loan losses;

●

changes in our organization, compensation and benefit plans; and

●

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Colonial Financial Services, Inc.

Colonial Financial Services, Inc. is a Maryland corporation that was incorporated in March 2010 to serve as the successor corporation to Colonial Bankshares, Inc., the former stock holding company for Colonial Bank, FSB, upon completion of the mutual-to-stock conversion of Colonial Bankshares, MHC, the former mutual holding company for Colonial Bank, FSB.

The conversion was completed July 13, 2010. Colonial Financial Services, Inc. sold a total of 2,295,000 shares of common stock at $10.00 per share in the related offering. Concurrent with the completion of the offering, shares of Colonial Bankshares, Inc. common stock owned by public stockholders were exchanged for 0.9399 shares of Colonial Financial Services, Inc.’s common stock. Net proceeds from the offering were $20.3 million. As of December 31, 2014, Colonial Financial Services, Inc. had 3,860,209 shares outstanding and a market capitalization of approximately $51.7 million.

The executive offices of Colonial Financial Services, Inc. are located at 2745 S. Delsea Drive, Vineland, New Jersey 08360, and its telephone number is (856) 205-0058. Colonial Financial Services, Inc. is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System.

Under the terms of the Merger Agreement, 50% of the Company’s common shares will be converted into Cape Bancorp common stock and the remaining 50% will be exchanged for cash. The Company’s stockholders will have the option to elect to receive either 1.412 shares of the Company’s common stock or $14.50 in cash for each common share of the Company, subject to proration to ensure that, in the aggregate, 50% of the Company’s common shares will be converted into Cape Bancorp stock. In the event that the Company’s consolidated net book value at the month-end prior to the closing date is less than $63.1 million, the cash consideration will be reduced by an amount as determined by a formula included in the Merger Agreement.

The transaction has been approved by the Boards of Directors of the Company and Cape Bancorp. Completion of the transaction is subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of the Company’s and Cape Bancorp’s stockholders.

The Merger Agreement includes customary representations, warranties and covenants of the Company and Cape Bancorp made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract by and among the Company and Cape Bancorp and are not intended to provide factual, business, or financial information about the Company or Cape Bancorp. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to stockholders or different from what a stockholder might view as material, may have been used for purposes of allocating risk between the Company and Cape Bancorp rather than establishing matters as facts, may have been qualified by certain disclosures not reflected in the Merger Agreement that were made to the other party in connection with the negotiation of the Merger Agreement and generally were solely for the benefit of the parties to that agreement. The Company has agreed to operate its business in the ordinary course consistent with past practice until the closing of the transaction and not to engage in certain kinds of transactions during such period (without the prior written consent of the Cape Bancorp).

The Company has also agreed not to (i) solicit proposals relating to alternative business combination transactions or (ii) subject to certain exceptions, enter into discussions or an agreement concerning, or to provide confidential information in connection with, any proposals for alternative business combination transactions.

Pursuant to the Merger Agreement, two current directors of the Company will be appointed to the Boards of Directors of the Cape Bancorp and Cape Bank.

The Company expects that the Merger and the Bank Merger will be effective in the second quarter of 2015.

Colonial Bank, FSB

Colonial Bank, FSB is a federally chartered savings bank headquartered in Vineland, New Jersey. Colonial Bank, FSB was originally founded in 1913. Colonial Bank, FSB conducts business from its main office located at 2745 S. Delsea Drive in Vineland, New Jersey, its eight branch offices located in Cumberland and Gloucester Counties, New Jersey, and through its operating subsidiaries, COBK Investments, LLC. (which was dissolved in August 2014), and Cohansey Bridge, LLC. The telephone number at its main office is (856) 205-0058.

Our principal business activity is the origination of one- to four-family residential and commercial real estate loans. We also offer home equity loans and lines of credit, commercial business loans and construction and land loans, and, to a lesser extent, multi-family real estate loans and consumer loans. We also invest in mortgage-backed securities and other investment securities. We offer a variety of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts and certificates of deposit. Deposits are our primary source of funds for our lending and investing activities. We have also used borrowed funds as a source of funds, and we borrow principally from the Federal Home Loan Bank of New York.

Colonial Bank, FSB is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency. Colonial Bank, FSB is a member of the Federal Home Loan Bank system. Its website address is www.colonialbankfsb.com. Information on this website is not and should not be considered to be a part of this annual report.

On May 30, 2013, Colonial Bank, FSB entered into a regulatory agreement with the Office of the Comptroller of the Currency (the “OCC”). On May 30, 2013, the OCC notified Colonial Bank, FSB that the OCC had established minimum capital requirements for Colonial Bank, FSB. See “Regulation and Supervision – Regulatory Agreement and Capital Requirements.”

COBK Investments, LLC

COBK Investments, LLC was a wholly owned subsidiary of Colonial Bank, FSB. It was a Delaware corporation that was formed in September 2013 to invest in and manage investment securities that Colonial Bank, FSB is authorized to hold. It was liquidated in August 2014.

Cohansey Bridge, LLC

Cohansey Bridge, LLC is a wholly owned subsidiary of Colonial Bank, FSB. It is a New Jersey corporation that was formed in March 2012 whose purpose is to invest in and manage real estate.

Market Area

We conduct our operations from our main office in Vineland, New Jersey and eight full-service branch offices located in Cumberland and Gloucester counties in New Jersey, which is our primary market area for loans and deposits. These counties are in the southwest part of New Jersey, within a one hour driving distance of Philadelphia, Pennsylvania, Wilmington, Delaware and Atlantic City, New Jersey.

Our market areas have a broad range of private employers, as well as public employers such as federal, state and local governments. Gloucester County is located within the Greater Philadelphia Metropolitan Statistical Area of the United States Census Bureau, and diverse employment opportunities exist within this area. Cumberland County is predominantly rural, with a smaller proportion of higher paying white collar jobs. Industries represented in the employment base include healthcare, retail, glass manufacturing, higher education, agriculture and food processing. The New Jersey Motor Sports Park opened in July 2008. This motorsports attraction has hosted nationally broadcast races from its 700 acre facility in Cumberland County. As a result, over a dozen hotels and restaurants have come to the area during the past five years. In addition, Boeing has a facility at Millville airport, which replaced many positions lost upon the departure of another company from the same facility. A large number of other Fortune 500 companies are located within Colonial Bank, FSB’s footprint. Higher education attainment is increasing with record numbers of students attending Cumberland and Gloucester County Colleges. Rutgers and Rowan Universities have campuses and research facilities in both counties while both schools, along with St. Joseph’s University and several others offer undergraduate and graduate degrees on the County College campuses.

According to the U. S. Census, the population of Cumberland and Gloucester counties, New Jersey grew 0.3% and 0.7%, respectively, from April 2010 to June 2013. The unemployment rates for Cumberland and Gloucester counties were 9.2% and 6.4% as of December 2014, respectively, compared to 10.5% and 6.9% as of December 2013, respectively. This compares to 6.2% for the entire State of New Jersey and 5.6% for the United States as a whole as of December 31, 2014.

U.S. Census Bureau data indicates the median household income as of December 31, 2013 was $50,750 and $74,524 for Cumberland and Gloucester counties, New Jersey, respectively, compared to $39,150 and $54,273 as of December 31, 2000. Based on the American Community Survey for 2013 and the U. S. Census Bureau for 2000, the median home value in Cumberland County, New Jersey was $158,800 as of December 2013 compared to $91,200 for 2000. Similarly, for Gloucester County, New Jersey, the median home value has increased to $207,900 as of 2013 compared to $120,100 as of 2000.

Competition

We face significant competition in both originating loans and attracting deposits. Cumberland and Gloucester Counties, New Jersey, which comprise our primary market area, have a high concentration of financial institutions, many of which are significantly larger and have greater financial resources than we, and many of which are our competitors to varying degrees. As of June 30, 2014 (the latest date for which information is available), our market share was 15.30% of total FDIC-insured deposits in Cumberland County, making us the second largest of 12 financial institutions in Cumberland County based upon deposit share as of that date. As of June 30, 2014, our market share was 1.80% of total deposits in Gloucester County, making us the 14th largest of 22 financial institutions based on deposit share as of that date. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. Our competition for loans comes principally from commercial banks, savings banks, mortgage banking companies and credit unions. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from nondepository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.

We seek to meet this competition by emphasizing personalized banking, competitive pricing strategies and the advantage of local decision-making in our banking business. Specifically, we promote and maintain relationships and build customer loyalty within our market area by focusing our marketing and community involvement on the specific needs of local communities.

Lending Activities

General. We originate one- to four-family residential real estate loans, home equity loans and lines of credit, commercial real estate loans, commercial business loans, construction and land loans, consumer loans and multi-family mortgage loans. At December 31, 2014, our gross loan portfolio totaled $272.2 million compared to $282.9 million at December 31, 2013.

One- to Four-Family Residential Real Estate Loans. We offer conforming and non-conforming, fixed-rate and adjustable-rate residential real estate loans with maturities of up to 30 years. This portfolio totaled $150.5 million, or 55.3% of our total loan portfolio, at December 31, 2014.

We currently offer fixed-rate conventional mortgage loans with terms of 10 to 30 years that are fully amortizing with monthly loan payments, and adjustable-rate conventional residential real estate loans with initial fixed-rate terms of one, three, five or seven years that amortize up to 30 years. One- to four-family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and loans that conform to such guidelines are referred to as “conforming loans.” We generally originate both fixed- and adjustable-rate loans in amounts up to the maximum conforming loan limits as established by Fannie Mae, which is currently $417,000 for single-family homes located in our primary market area. We also originate loans above conforming limits, referred to as “jumbo loans,” although the significant majority of the loans we have originated have been within conforming loan limits.

We currently offer several adjustable-rate loan products secured by residential properties with rates that are fixed for an initial period ranging from one year to seven years. After the initial fixed-rate period, the interest rate on these loans resets based upon a contractual spread or margin above the average yield on U.S. Treasury securities, adjusted to a constant maturity of one, three or five years, as published weekly by the Federal Reserve Board, subject to certain periodic and lifetime limitations on interest rate changes. We do not offer “teaser” rates on our adjustable-rate loans. We underwrite our adjustable-rate loans in the same manner as we underwrite fixed-rate loans, but do not qualify borrowers based on the fully-indexed interest rate (the maximum interest rate permitted under the terms of the loan). Adjustable-rate residential real estate loans generally pose different credit risks than fixed-rate loans primarily because the underlying debt service payments of the borrowers rise as interest rates rise, thereby increasing the potential for default. We attempt to mitigate this risk through our maximum loan-to-value ratio of 80% for all one- to four-family residential real estate loans (including adjustable-rate loans). At December 31, 2014, our adjustable-rate, one- to four-family residential real estate loan portfolio totaled $7.0 million.

We require title insurance on all of our one- to four-family residential real estate loans, and we also require that borrowers maintain fire and extended coverage casualty insurance (and, if appropriate, flood insurance) in an amount at least equal to the lesser of the loan balance or the replacement cost of the improvements. Nearly all residential real estate loans must have a mortgage escrow account from which disbursements are made for real estate taxes. We do not conduct environmental testing on residential real estate loans unless specific concerns for hazards are determined by the appraiser utilized in connection with the loan.

Home Equity Loans and Lines of Credit. In addition to traditional one- to four-family residential real estate loans, we offer home equity loans and home equity lines of credit that are secured by the borrower’s primary residence. At December 31, 2014, the outstanding balance of home equity loans totaled $18.9 million, or 6.9% of our total loan portfolio, and the outstanding balance of home equity lines of credit totaled $5.4 million, or 2.0% of our total loan portfolio. The borrower is permitted to draw on a home equity line of credit at any time after it is originated and may repay the outstanding balance over a term not to exceed 15 years from the date of the borrower’s last draw on the home equity line of credit. We generally review each performing line of credit every six years to determine whether to continue to offer the unused portion of the line of credit to the borrower. However, due to the current economic environment, we reviewed and evaluated every home equity line of credit during 2011. Our home equity loans are generally originated as mortgages with fixed terms of five to 15 years or with balloon maturities of three or five years. Home equity loans and lines of credit are generally underwritten with the same criteria that we use to underwrite fixed-rate, one- to four-family residential mortgage loans. We currently underwrite fixed-rate home equity loans with a loan-to-value ratio of up to 80% when combined with the principal balance of the existing first mortgage loan and we underwrite lines of credit with a loan-to-value ratio of up to 75% when combined with the principal balance of the existing mortgage loan. We obtain an appraisal of the property securing the loan at the time of the loan application in order to determine the value of the property securing the home equity loan or line of credit. At the time we close a home equity loan or line of credit, we file a mortgage to perfect our security interest in the underlying collateral.

Commercial Real Estate Lending. We also originate real estate loans secured by first liens on commercial real estate. The commercial real estate properties are predominantly professional offices, churches and hotels and, to a lesser extent, manufacturing and retail facilities and healthcare facilities. We have also originated commercial real estate loans as a participant with other lenders. We emphasize commercial real estate loans with initial principal balances between $100,000 and $2.0 million. Loans secured by commercial real estate totaled $65.6 million, or 24.1% of our total loan portfolio, at December 31, 2014, and consisted of 185 loans outstanding with an average loan balance of approximately $355,000, although we have originated loans with balances substantially higher than this average. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.

Our commercial real estate loans are generally written as mortgages with balloon maturities of five years. Amortization of these loans is typically based on 10- to 20-year payout schedules. We also originate some 10 and 15-year, fixed-rate, fully amortizing loans. We establish margins for commercial real estate loans based upon our cost of funds, but we also consider rates offered by our competitors in our market area. Interest rates may be fixed or adjustable, but may not be fixed for periods of longer than 10 years.

In the underwriting of commercial real estate loans, we currently lend up to 75% of the lower of the purchase price or the property’s appraised value. We base our decisions to lend on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%), computed after deduction for a vacancy factor and property expenses we deem appropriate. Personal guarantees are usually obtained from commercial real estate borrowers. We require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property.

Commercial real estate loans generally have higher interest rates and shorter terms than those on one- to four-family residential mortgage loans. Commercial real estate loans, however, entail significant additional credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the repayment of loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent than one- to four-family residential loans to adverse conditions in the real estate market and in the general economy.

Commercial Loans. We offer various types of secured and unsecured commercial loans to customers in our market area for business expansion, working capital and other general business purposes. The terms of these loans generally range from less than one year to five years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates indexed to the prime rate, as published in The Wall Street Journal, although the significant majority of our commercial loans are fixed-rate loans. At December 31, 2014, we had 150 commercial loans outstanding with an aggregate balance of $18.2 million, or 6.7% of the total loan portfolio. These totals include 33 unsecured commercial loans with an aggregate outstanding balance of $4.4 million. As of December 31, 2014, the average commercial loan balance (secured and unsecured loans) was approximately $121,000, although we have originated loans with balances substantially greater than this average.

Commercial credit decisions are based upon our credit assessment of the loan applicant. We determine the applicant’s ability to repay in accordance with the proposed terms of the loans and we assess the risks involved. We also evaluate the applicant’s credit and business history and ability to manage the loan and its business. We usually obtain personal guarantees of the principals. In addition to evaluating the loan applicant’s financial statements, we consider the adequacy of the primary and secondary sources of repayment for the loan. We supplement our analysis of the applicant’s creditworthiness with credit agency reports of the applicant’s credit history. We may also check with other banks and conduct trade investigations. Collateral supporting a secured transaction also is analyzed to determine its marketability. Commercial business loans generally have higher interest rates than residential loans of like duration because they have a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral. Our pricing of commercial business loans is based primarily on the credit risk of the borrower, with due consideration given to borrowers with appropriate deposit relationships and competition.

Construction and Land Loans. We originate construction and land loans to individuals and builders in our market area. These loans totaled $8.1 million, or 3.0% of our total loan portfolio, at December 31, 2014. At December 31, 2014, we had 35 construction and land loans outstanding with an average balance of $232,000. Our construction loans are often originated in conjunction with development loans. In the case of residential subdivisions, these loans finance the cost of completing homes on the improved property. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction, but are generally limited to 75% of actual construction costs and a 75% loan to completed appraised value ratio. Repayment of construction loans on residential subdivisions is normally expected from the sale of units to individual purchasers.

Construction lending exposes us to greater credit risk than permanent mortgage financing. The repayment of construction loans may depend upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan, at the dates indicated.


	At December 31,
	2014					2013					2012					2011					2010
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent

Real estate loans:
One- to four-family residential	$	150,502		55.3	%	$	149,726		52.9	%	$	148,674		49.2	%	$	141,013		46.6	%	$	140,244		43.3	%
Home equity loans and lines of credit		24,324		8.9			26,442		9.4			28,657		9.5			32,553		10.7			35,373		10.9
Multi-family		4,618		1.7			284		0.1			397		0.1			102		—			3,124		1.0
Commercial		65,644		24.1			79,601		28.1			90,143		29.9			96,737		32.0			114,242		35.2
Construction and land		8,106		3.0			8,665		3.1			9,683		3.2			9,470		3.1			5,944		1.8
Commercial		18,223		6.7			17,302		6.1			23,345		7.7			21,890		7.2			23,253		7.2
Consumer and other		773		0.3			834		0.3			1,043		0.4			1,295		0.4			1,783		0.6

Total loans receivable		272,190		100.0	%		282,854		100.0	%		301,942		100.0	%		303,060		100.0	%		323,963		100.0	%
Deferred loan fees		(107	)				(847	)				(614	)				(463	)				(433	)
Allowance for loan losses		(4,294	)				(5,853	)				(4,146	)				(5,027	)				(3,543	)

Total loans receivable, net	$	267,789				$	276,154				$	297,182				$	297,570				$	319,987

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2014. Demand loans, which are loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	One- to Four-Family Residential					Home Equity Loans and Lines of Credit					Multi-Family					Commercial Real Estate
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Due During the Years Ending December 31,
2015	$	1,610		6.68	%	$	6,200		3.85	%	$	514		5.50	%	$	5,802		5.65	%
2016		729		5.10			418		5.24			1,111		5.92			3,458		5.16
2017		1,631		5.35			557		4.20			-		-			18,197		4.41
2018 through 2019		4,531		4.76			1,888		4.92			-		-			27,751		4.31
2020 through 2024		13,679		3.84			4,423		6.13			1,975		4.50			6,546		4.52
2025 through 2029		29,066		3.59			10,292		4.79			1,018		3.63			2,622		4.96
2030 and beyond		99,256		4.57			546		4.50			-		-			1,268		4.22

Total	$	150,502		4.35	%	$	24,324		4.79	%	$	4,618		4.76	%	$	65,644		4.55	%

	Construction and Land					Commercial					Consumer and Other					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Due During the Years Ending December 31,
2015	$	3,103		4.43	%	$	4,077		3.58	%	$	342		7.38	%	$	21,648		4.67	%
2016		2,222		3.18			81		4.80			105		8.79			8,124		4.76
2017		305		5.52			2,421		4.16			241		8.32			23,352		4.50
2018 through 2019		1,091		5.19			7,301		3.99			63		5.00			42,625		4.35
2020 through 2024		17		7.01			1,908		4.01			22		6.75			28,570		4.41
2025 through 2029		269		4.00			485		4.00			-		-			43,752		3.96
2030 and beyond		1,099		4.24			1,950		4.22			-		-			104,119		4.56

Total	$	8,106		4.20	%	$	18,223		3.95	%	$	773		7.65	%	$	272,190		4.42	%

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2014 that are contractually due after December 31, 2015.

	Due After December 31, 2015
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans:
One- to four-family residential	$	141,921	$	6,971	$	148,892
Home equity loans and lines of credit		12,695		5,429		18,124
Multi-family		4,104		-		4,104
Commercial		59,842		-		59,842
Construction and land		5,003		-		5,003
Commercial		14,146		-		14,146
Consumer and other		431		-		431

Total loans	$	238,142	$	12,400	$	250,542

Loan Originations, Purchases, Sales and Servicing. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed- versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders competing in our market area. Loan originations are derived from a number of sources, including branch office personnel, existing customers, borrowers, builders, attorneys, accountants and other professionals, real estate broker referrals and walk-in customers.

Our loan origination activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand, while declining interest rates may stimulate increased loan demand. Accordingly, the volume of loan originations, the mix of fixed and adjustable-rate loans, and the profitability of this activity can vary from period to period. One- to four-family residential mortgage loans are generally underwritten to current Fannie Mae seller/servicer guidelines, and are closed on documents that conform to Fannie Mae guidelines.

During 2014, we did not sell any whole loans. We have not purchased any whole non-government loans in recent periods.

Loan Approval Authority and Underwriting. Our board of directors grants lending authority to our Board Management Loan Committee, Senior Management Loan Committee and to individual executive officers and loan officers. Our lending activities are subject to written policies established by the board of directors. These policies are reviewed periodically.

The Board Management Loan Committee and the Senior Management Loan Committee may approve loans in accordance with applicable loan policies, including our policy governing loans to one borrower. This policy limits the aggregate dollar amount of credit that may be extended to any one borrower and related entities. The Senior Management Loan Committee may approve secured loans in amounts up to $750,000, and unsecured loans in amounts up to $300,000 with an aggregate exposure not to exceed $1.5 million. The Board Management Loan Committee may approve loans up to the Bank’s legal lending limit so long as unanimous approval is obtained. The full Board of Directors may approve all loans in excess of committee limits.

In connection with our residential and commercial real estate loans, we generally require property appraisals to be performed by independent appraisers who are approved by the board of directors. Appraisals are then received by our loan underwriting personnel and reviewed by an independent third party. Under certain conditions, we may not require appraisals for loans under $250,000, but we obtain appraisals in nearly all of these cases. We also require title insurance, hazard insurance and, if necessary, flood insurance on property securing mortgage loans.

Loan Origination Fees and Costs. In addition to interest earned on loans, we also receive loan origination fees. Such fees vary with the volume and type of loans and commitments made, and competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money. We defer loan origination fees and costs and amortize such amounts as an adjustment to yield over the term of the loan by use of the level-yield method. Deferred loan origination fees (net of deferred costs) were $847,000 and $107,000 at December 31, 2014 and 2013, respectively.

Loans to One Borrower. At December 31, 2014, our five largest aggregate amounts loaned to any borrower and related interests were: (i) a $7.9 million relationship which is collateralized by six commercial properties; (ii) a $5.7 million relationship which is collateralized by two multi-family units, two single family dwellings and two letters of credit; (iii) a $4.5 million relationship which is collateralized by two commercial properties and two single family dwellings; (iv) a $4.5 million relationship collateralized by four commercial properties, commercial vehicles and equipment; and (v) a $3.7 million relationship collateralized by four commercial properties and two single family dwellings. The balances noted above include the unused portion of credit lines. At December 31, 2014, these loans were all performing according to their original terms. Under federal banking regulations, at December 31, 2014 our maximum regulatory loan-to-one borrower limit was $8.9 million. See “Supervision and Regulation—Federal Banking Regulation—Loans to One Borrower” for a discussion of applicable regulatory limitations.

Delinquent Loans, Other Real Estate Owned and Classified Assets

Collection Procedures. When a loan is more than 10 days delinquent, we generally contact the borrower by telephone to determine the reason for delinquency and arrange for payment, and accounts are monitored electronically for receipt of payments. We also send a computer-generated late notice on the tenth day after the payment due date on a commercial loan (the 15th day for a consumer or residential loan), which requests the payment due plus any late charge that is assessed. If payments are not received within 30 days of the original due date, a letter demanding payment of all arrearages is sent and contact efforts are continued. If payment is not received within 60 days of the due date, we accelerate loans and demand payment in full. Failure to pay within 90 days of the original due date may result in legal action, notwithstanding ongoing collection efforts. Unsecured consumer loans are charged-off between 90 to 120 days. For commercial loans, procedures with respect to demand letters and legal action may vary depending upon individual circumstances.

Loans Past Due and Nonperforming Assets. Loans are reviewed on a regular basis, and are placed on nonaccrual status when either principal or interest is 90 days or more past due. In addition, we place loans on nonaccrual status when we believe that there is sufficient reason to question the borrower’s ability to continue to meet contractual principal or interest payment obligations. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are not recognized as income unless warranted based on the borrower’s financial condition and payment record.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less estimated costs of disposal. If the fair value of the property is less than the loan balance, the difference is charged against the allowance for loan losses.

For all loans secured by real estate, carrying values in excess of net realizable value are charged off at or before the time foreclosure is completed or when settlement is reached with the borrower. If foreclosure is not pursued and there is no reasonable expectation for recovery, the account is charged off no later than the end of the month in which the account becomes six months contractually delinquent. For all secured and unsecured commercial business loans, loan balances are charged off at the time all or a portion of the balance is deemed uncollectible.

We currently obtain updated appraisals and title searches on all collateral-dependent loans secured by real estate that are 90 days or more past due and placed on non-accrual status. All appraisals for $250,000 or more are reviewed internally or by an outside service.

The performances and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status at the dates indicated. At each date, we had no loans that were 90 days or more delinquent and still accruing interest.

	30-59 Days Past Due		60-89 Days Past due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable
	(In thousands)
At December 31, 2014
Real estate loans:
One- to four-family residential	$	1,597	$	724	$	1,621	$	3,942	$	146,560	$	150,502
Multi-family		-		-		-		-		4,618		4,618
Commercial		125		-		119		244		65,400		65,644
Construction and land		-		-		-		-		8,106		8,106
Home equity loans and lines of credit		224		124		446		794		23,530		24,324
Commercial		-		-		-		-		18,223		18,223
Consumer and other		10		-		-		10		763		773
Total	$	1,956	$	848	$	2,186	$	4,990	$	267,200	$	272,190

At December 31, 2013
Real estate loans:
One- to four-family residential	$	3,393	$	2,422	$	3,399	$	9,214	$	140,512	$	149,726
Multi-family		-		-		-		-		284		284
Commercial		62		403		1,054		1,519		78,082		79,601
Construction and land		-		-		-		-		8,665		8,665
Home equity loans and lines of credit		356		15		464		835		25,607		26,442
Commercial		-		340		-		340		16,962		17,302
Consumer and other		-		-		-		-		834		834
Total	$	3,811	$	3,180	$	4,917	$	11,908	$	270,946	$	282,854

At December 31, 2012
Real estate loans:
One- to four-family residential	$	5,296	$	1,353	$	2,553	$	9,202	$	139,472	$	148,674
Multi-family		-		-		-		-		397		397
Commercial		2,288		593		1,432		4,313		85,830		90,143
Construction and land		-		-		325		325		9,358		9,683
Home equity loans and lines of credit		38		169		628		835		27,822		28,657
Commercial		-		384		75		459		22,886		23,345
Consumer and other		1		2		2		5		1,038		1,043
Total	$	7,623	$	2,501	$	5,015	$	15,139	$	286,803	$	301,942

At December 31, 2011
Real estate loans:
One- to four-family residential	$	4,568	$	909	$	3,726	$	9,203	$	131,810	$	141,013
Multi-family		-		-		-		-		102		102
Commercial		1,993		162		1,645		3,800		92,937		96,737
Construction		-		89		383		472		8,998		9,470
Home equity loans and lines of credit		48		150		363		561		31,992		32,553
Commercial		588		-		36		624		21,266		21,890
Consumer and other		82		5		-		87		1,208		1,295
Total	$	7,279	$	1,315	$	6,153	$	14,747	$	288,313	$	303,060

At December 31, 2010
Real estate loans:
One- to four-family residential	$	3,429	$	2,354	$	5,574	$	11,357	$	128,887	$	140,244
Multi-family		-		-		-		-		3,124		3,124
Commercial		124		1,899		4,337		6,360		107,882		114,242
Construction		-		-		384		384		5,560		5,944
Home equity loans and lines of credit		446		302		106		854		34,519		35,373
Commercial		-		-		288		288		22,965		23,253
Consumer and other		67		3		31		101		1,682		1,783
Total	$	4,066	$	4,558	$	10,720	$	19,344	$	304,619	$	323,963

Nonperforming Assets. The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated. We will not advance any new funds to any of the troubled debt restructurings. As of December 31, 2014, we have 26 loans totaling $7.6 million that were considered performing troubled debt restructurings (where, for economic or legal reasons related to a borrower’s financial difficulties, we granted a concession to the borrower that we would not otherwise consider). These loans consisted of two commercial real estate loans with a recorded investment of $2.1 million, one construction and land loan with a recorded investment of $2.0 million, 22 one- to four-family residential real estate loans with a recorded investment of $3.4 million and one home equity loan with a recorded investment of $45,000. As of December 31, 2013, we had 29 loans totaling $9.8 million that were considered performing troubled debt restructurings (where, for economic or legal reasons related to a borrower’s financial difficulties, we granted a concession to the borrower that we would not otherwise consider). These loans consisted of five commercial real estate loans with a recorded investment of $4.2 million, one construction and land loan with a recorded investment of $2.1 million, 22 one- to four-family residential real estate loans with a recorded investment of $3.5 million and one home equity loan with a recorded investment of $45,000. As of December 31, 2012, we had 46 loans totaling $16.8 million that were considered performing troubled debt restructurings (where, for economic or legal reasons related to a borrower’s financial difficulties, we granted a concession to the borrower that we would not otherwise consider). These loans consisted of ten commercial real estate loans with a recorded investment of $8.3 million, four construction and land loans with a recorded investment of $3.8 million, 30 one- to four-family residential real estate loans with a recorded investment of $4.2 million, one home equity loan with a recorded investment of $46,000 and one commercial loan with a recorded investment of $384,000. As of December 31, 2011, we had 39 loans totaling $19.8 million that were considered performing troubled debt restructurings (where, for economic or legal reasons related to a borrower’s financial difficulties, we granted a concession to the borrower that we would not otherwise consider). These loans consisted of 12 commercial real estate loans, construction and multi-family loans with recorded investment totaling $14.8 million, 21 one- to four-family residential real estate loans and home equity loans with a recorded investment totaling $4.2 million, five commercial non-mortgage loans with a recorded investment of $750 thousand and one consumer loan with an immaterial outstanding balance. As of December 31, 2010, we had 15 loans totaling $15.9 million that were performing considered troubled debt restructurings. These loans consisted of 11 commercial real estate loans, construction and multi-family loans with a recorded investment totaling $15.1 million, three one- to four-family residential real estate loans with a recorded investment totaling $3.1 million, and one consumer loan with an immaterial outstanding balance. In each instance, we lowered the interest rate and deferred principal payments.

We will also grant concessions that we do not consider troubled debt restructurings.

	At December 31,
	2014			2013			2012			2011			2010
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential	$	5,126		$	5,162		$	2,553		$	3,726		$	5,574
Multi-family		-			-			-			-			-
Commercial		593			5,215			6,889			1,645			4,337
Construction and land		1,046			1,233			325			383			384
Home equity loans and lines of credit		620			715			628			363			106
Commercial		-			1,235			2,742			36			288
Consumer		-			-			2			-			31
Total non-accrual loans		7,385			13,560			13,139			6,153			10,720

Accruing loans 90 days or more past due:
All loans		-			-			-			-			-

Total non-performing loans		7,385			13,560			13,139			6,153			10,720

Real estate owned		2,220			3,258			5,347			3,092			276

Total non-performing assets		9,605			16,818			18,486			9,245			10,996

Performing troubled debt restructurings:
Real estate loans:
One- to four-family residential		3,430			3,464			4,246			3,818			855
Multi-family		-			-			-			-			645
Commercial		2,121			4,186			8,240			13,184			13,051
Construction and land		2,028			2,091			3,841			1,655			1,369
Home equity loans and lines of credit		45			45			46			363			-
Commercial		-			-			384			750			-
Consumer		-			-			-			7			9

Total performing troubled debt restructurings		7,624			9,786			16,757			19,777			15,929

Total non-performing assets and performing troubled debt restructurings	$	17,229		$	26,604		$	35,243		$	29,022		$	26,925

Ratios:
Total non-performing loans to total loans		2.71	%		4.79	%		4.35	%		2.03	%		3.31	%
Total non-performing loans to total assets		1.36	%		2.33	%		2.11	%		1.02	%		1.82	%
Total non-performing assets to total assets		1.77	%		2.88	%		2.96	%		1.53	%		1.86	%

The amount of the allowance for loan losses allocated to the $7.4 million of non-performing loans at December 31, 2014, noted above, was $565,000. See discussion on page 16 regarding charge-offs on impaired loans.

For the year ended December 31, 2014, gross interest income that would have been recorded had our non-accruing loans and troubled debt restructurings been current in accordance with their original and restructured terms was $658,000 and $341,000, respectively. We recognized $126,000 and $329,000, respectively, of interest income on such loans during the year.

Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, questionable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention.

The allowance for loan losses represents amounts that have been established to recognize losses inherent in the loan portfolio that are both probable and reasonably estimable at the date of the financial statements. When we classify problem assets as loss, we charge-off such amounts. Our determination as to the classification of our assets and the amount of our loss allowances are subject to review by our regulatory agencies, which can require that we establish additional loss allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

The following table sets forth our amounts of classified assets and assets designated as special mention as of December 31, 2014 and 2013. The classified assets totals at December 31, 2014 and 2013 include $7.4 million and $13.6 million, respectively, of nonperforming loans.

	At December 31,
	2014		2013
	(In thousands)

Classified assets:
Substandard	$	11,213	$	21,850
Doubtful		-		2,444
Loss		-		-
Total classified assets	$	11,213	$	24,294
Special mention	$	2,928	$	9,324

At December 31, 2014, substandard assets consisted primarily of (i) 63 residential mortgage loans with a recorded investment of $6.1 million, (ii) 16 home equity loans with a recorded investment totaling $744,000, (iii) 10 commercial real estate loan relationships with a recorded investment totaling $3.2 million, and (iv) 6 construction and land loans with a recorded investment totaling $1.2 million. At December 31, 2014, special mention assets consisted primarily of (i) 2 residential mortgage loans with a recorded investment totaling $207,000, (ii) 6 commercial real estate loan relationships with a recorded investment totaling $2.7 million and (iii) one consumer loan with principal balance of $45,000.

At December 31, 2013, substandard assets consisted primarily of (i) 69 residential mortgage loans with a recorded investment of $9.4 million, (ii) 21 home equity loans with a recorded investment totaling $846,000, (iii) 14 commercial real estate loan relationships with a recorded investment totaling $7.8 million, (iv) five construction and land loans with a recorded investment totaling $3.5 million and (v) three commercial loans with a recorded investment of $340,000. At December 31, 2013, special mention assets consisted primarily of (i) eighteen residential mortgage loans with a recorded investment totaling $1.8 million, (ii) three home equity loans with a recorded investment totaling $108,000, (iii) ten commercial real estate loan relationships with a recorded investment totaling $3.7 million, (iv) one commercial loan with a recorded investment totaling $3.7 million and (v) two consumer loans with principal balances of $20,000. At December 31, 2013, doubtful assets consisted of two commercial loans with a recorded investment of $2.4 million.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of Operating Results for the Years Ended December 31, 2014 and 2013—Provision for Loan Losses” and “—Allowance for Loan Losses.”

Allowance for Loan Losses. We provide for loan losses based on the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating probable losses. We regularly review the loan portfolio and make provisions for loan losses in order to maintain the allowance for loan losses in accordance with GAAP. The allowance for loan losses consists of three components:

(1)

specific allowances established for (a) any impaired commercial real estate, commercial, construction and multi-family mortgage loans or (b) non-accrual residential real estate loans, in either case where the recorded investment in the loan exceeds the measured value of the loan;

(2)

general allowances for loan losses for each loan type based on historical loan loss experience; and

(3)

unallocated maintained to cover uncertainties that affect our estimate of probable losses.

The adjustments to historical loss experience are based on our evaluation of several factors, including:

●

levels of, and trends in, charge-offs and recoveries;

●

national and local economic trends and conditions;

●

trends in volume and terms of loans, including any credit concentrations in the loan portfolio; and

●

experience, ability, and depth of lending management and other relevant staff.

We evaluate the allowance for loan losses based upon the combined total of the specific, historical loss and general components. Generally when the loan portfolio increases, absent other factors, the allowance for loan loss methodology results in a higher dollar amount of estimated probable losses than would be the case without the increase. Generally when the loan portfolio decreases, absent other factors, the allowance for loan loss methodology results in a lower dollar amount of estimated probable losses than would be the case without the decrease.

We consider commercial loans, commercial real estate loans and construction loans to be riskier than one- to four-family residential mortgage loans. Commercial loans involve a higher risk of default than residential loans of like duration since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Commercial real estate loans also have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Construction loans have greater credit risk than permanent mortgage financing. The repayment of these loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

The fair value of impaired collateral dependent loans is estimated using an appraisal of the collateral less estimated liquidation expenses or discounted cash flows for non-collateral dependent loans. Those impaired loans not requiring a write-down represent loans for which the fair value of the collateral or expected repayments exceeds the recorded investment in such loans. Impaired loans are charged off to the estimated fair value.

We periodically evaluate the carrying value of loans and the allowance is adjusted accordingly. While we use the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their evaluation of information available to them at the time of their examination.

The allowance for loan losses was $4.3 million, or 1.58% of total loans, at December 31, 2014, compared to $5.9 million, or 2.07% of total loans, at December 31, 2013. The allowance for loan losses represented 58.14% of nonperforming loans at December 31, 2014 and 43.2% of nonperforming loans at December 31, 2013, as nonperforming loans decreased to $7.4 million at December 31, 2014 from $13.6 million at December 31, 2013. Loans delinquent 30 days or greater decreased to $5.0 million at December 31, 2014 from $11.9 million at December 31, 2013.

For further discussion regarding how we determined the allowance for loan losses as of December 31, 2014 and 2013, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of Operating Results for the Years Ended December 31, 2014 and December 31, 2013—Provisions for Loan Losses.”

The following table sets forth activity in our allowance for loan losses for the years indicated.

	At or For the Years Ended December 31,
	2014			2013			2012			2011			2010
	(Dollars in thousands)

Balance at beginning of year	$	5,853		$	4,146		$	5,027		$	3,543		$	2,606

Charge-offs:
Real estate loans:
One- to four-family residential		(526	)		(217	)		(2,108	)		(262	)		(223	)
Home equity loans and lines of credit		(102	)		(258	)		(184	)		(13	)		—
Multi-family		-			-			—			—			—
Commercial		(234	)		(1,826	)		(4,652	)		(87	)		(144	)
Construction and land		(76	)		(37	)		(49	)		(33	)		—
Commercial		(2,389	)		(1,965	)		(450	)		—			(15	)
Consumer and other		-			(14	)		(20	)		(12	)		(38	)
Total charge-offs		(3,327	)		(4,317	)		(7,463	)		(407	)		(420	)

Recoveries:
Real estate loans:
One- to four-family residential		70			58			43			18			—
Home equity loans and lines of credit		30			-			2			—			—
Multi-family		-			-			—			—			—
Commercial		909			-			—			—			5
Construction and land		-			54			—			—			—
Commercial		671			203			33			6			—
Consumer and other		55			10			8			7			12
Total recoveries		1,735			325			86			31			17

Net charge-offs		(1,592	)		(3,992	)		(7,377	)		(376	)		(403	)
Provision for loan losses		33			5,699			6,496			1,860			1,340

Balance at end of year	$	4,294		$	5,853		$	4,146		$	5,027		$	3,543

Ratios:
Net charge-offs to average loans outstanding		(0.59	)%		(1.37	)%		(2.50	)%		(0.12	)%		(0.12	)%
Allowance for loan losses to non-performing loans at end of year		58.14	%		43.16	%		31.55	%		81.70	%		33.05	%
Allowance for loan losses to total loans at end of year		1.58	%		2.07	%		1.37	%		1.66	%		1.09	%

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the percent of the allowance to the total allowance and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category.

	At December 31,
	2014								2013								2012
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	640		14.9	%		55.3	%	$	1,650		28.2	%		52.9	%	$	692		16.7	%		49.2	%
Home equity loans and lines of credit		239		5.5			8.9			275		4.7			9.4			277		6.7			9.5
Multi-family		50		1.2			1.7			3		0.1			0.1			6		0.1			0.1
Commercial		627		14.6			24.1			1,222		20.9			28.1			1,107		26.7			29.9
Construction and land		176		4.1			3.0			90		1.5			3.1			138		3.3			3.2
Commercial		1,229		28.6			6.7			1,843		31.5			6.1			405		9.8			7.7
Consumer and other		8		0.2			0.3			20		0.3			0.3			21		0.5			0.4
Unallocated		1,325		30.9			-			750		12.8			-			1,500		36.2			-

Total allowance for loan losses	$	4,294		100.0	%		100.0	%	$	5,853		100.0	%		100.0	%	$	4,146		100.0	%		100.0	%

	At December 31,
	2011								2010
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	1,220		24.3	%		46.4	%	$	580		16.4	%		43.3	%
Home equity loans and lines of credit		114		2.3			10.7			35		1.0			10.9
Multi-family		27		0.5			0.2			27		0.8			1.0
Commercial		2,400		47.8			33.7			1,800		50.8			35.2
Construction and land		34		0.6			1.4			65		1.8			1.8
Commercial		713		14.2			7.2			406		11.4			7.2
Consumer and other		19		0.4			0.4			130		3.7			0.6
Unallocated		500		9.9			—			500		14.1			—

Total allowance for loan losses	$	5,027		100.0	%		100.0	%	$	3,543		100.0	%		100.0	%

Securities Activities

Our securities investment policy is established by our board of directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy. Our Asset/Liability Management Committee, which consists of senior management, oversees our investing strategies. The board of directors reviews the Asset/Liability Management Committee’s activities and strategies, and evaluates on an ongoing basis our investment policy and objectives. Our Asset/Liability Management Committee is responsible for making securities portfolio decisions in accordance with established policies. Our chief executive officer and our chief financial officer have the authority to purchase and sell securities within specific guidelines established by the investment policy. In addition, all transactions are reviewed by the Asset/Liability Management Committee at least monthly.

Our current investment policy generally permits securities investments in debt securities issued by the U.S. Government and U.S. Government agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of U.S. Government agencies and U.S. Government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank. Securities in these categories are classified as “investment securities” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, as well as collateralized mortgage obligations (“CMOs”) issued or backed by securities issued by these government agencies or government-sponsored enterprises. Also permitted are investments in securities issued or backed by the Small Business Administration, United States Department of Agriculture and mortgage-related mutual funds. As of December 31, 2014, we held no asset-backed securities (securities collateralized by automobile loans, credit card receivables and home equity loans), no preferred securities issued by either Fannie Mae or Freddie Mac and no private-label mortgage backed securities. Our current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable-rate securities, which may have a longer term to maturity. The emphasis of this approach is to increase overall investment securities yields, manage interest rate risk, ensure adequate liquidity for loan demand, deposit fluctuations and other changes to our balance sheet, and provide collateral for our long-term debt needs.

At December 31, 2014, we did not have any securities from an issuer (other than securities issued by the U. S. Governments or by its agencies) that had an aggregate book value of more than 10% of our consolidated stockholders’ equity.

FASB ASC Topic 320-10-25, “Accounting for Certain Investments in Debt and Equity Securities,” requires that, at the time of purchase and at each balance sheet date thereafter, we designate a security as held to maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale are reported at fair value, while securities held to maturity are reported at amortized cost. We do not have a trading portfolio. During 2014, the Company reclassified its held to maturity portfolio as available-for-sale. In accordance with regulatory and accounting requirements, the Company is prohibited from classifying security purchases as held to maturity for a period of two years.

Effective December 10, 2013, pursuant to the Dodd-Frank Act, federal banking and securities regulators issued final rules to implement Section 619 of the Dodd-Frank Act (the “Volcker Rule”). Generally, subject to a transition period and certain exceptions, the Volcker Rule restricts insured depository institutions and their affiliated companies from engaging in short-term proprietary trading of certain securities, investing in funds with collateral comprised of less than 100% loans if such funds are not registered with the Securities and Exchange Commission and from engaging in hedging activities that do not hedge a specific identified risk. After the transition period, the Volcker Rule prohibitions and restrictions will apply to banking entities unless an exception applies. We are currently analyzing the impact of the Volcker Rule on our investment portfolio, and if any changes are required to our investment strategies that could negatively affect our earnings. The Volcker Rule has had no impact on our investment portfolio or earnings.

Mortgage-Backed Securities. We invest in government-sponsored enterprise (“GSE”) mortgage-backed securities to generate positive interest rate spreads with minimal administrative expense, lower credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae and Ginnie Mae, and increase liquidity. We invest primarily in mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. At December 31, 2014, our mortgage-backed securities portfolio had a fair value of $55.3 million, and consisted of pass-through securities.

Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (government sponsored enterprises, such as Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as Colonial Bank, FSB, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk that actual prepayments will be greater or lesser than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield on such securities. We review prepayment estimates for our mortgage-backed securities at the time of purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio.

Collateralized Mortgage Obligations. Government-sponsored enterprise collateralized mortgage obligations (CMO’s) are types of debt securities issued by a special-purpose entity that aggregates pools of mortgages and mortgage-backed securities and creates different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Our practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with emphasis on the relative trade-offs between lifetime interest rate caps, prepayment risk and interest rates. At December 31, 2014, our collateralized mortgage obligation portfolio had a fair value of $57.8 million.

Municipal Bonds. At December 31, 2014, we held $4.0 million in bonds issued by states and political subdivisions, which were classified as available for sale at fair value. Although municipal bonds may offer a higher yield than a U.S. Treasury or agency security of comparable duration, these securities also have a higher risk of default due to adverse changes in the creditworthiness of the issuer. In recognition of this potential risk, we generally limit investments in municipal bonds to issues that are insured unless the issuer is a local government entity within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In, addition our investment policy imposes an investment limitation of $1.5 million per municipal bond and a limitation equal to our loan-to-one borrower limitation for bond anticipation notes and tax anticipation notes.

Equity Securities. At December 31, 2014, our equity securities consisted of Federal Home Loan Bank of New York common stock and mutual funds. We hold the Federal Home Loan Bank of New York common stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of New York’s advance program. There is no market for the common stock, but it is the current practice of the Federal Home Loan Bank of New York to redeem shares at par value. The aggregate fair value of our Federal Home Loan Bank of New York common stock as of December 31, 2014 was $503,000 based on its par value. No unrealized gains or losses have been recorded because the par value of the common stock represents its fair value. Our mutual funds consist solely of Shay Asset Management Funds.

U.S. Government Agency Securities. At December 31, 2014, we held U.S. government agency securities available for sale with a fair value of $86.9 million. Generally, these securities have short- to medium-term maturities (one to five years) and may have call or step-up features. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes, as collateral for borrowings, and for prepayment protection.

Small Business Administration (SBA) Securities . At December 31, 2014, we held SBA securities available for sale with a fair value of $17.2 million. Generally, these securities have medium to long-term maturities (five years or greater) with fixed or adjustable rates. These securities are unconditionally guaranteed as to timely principal and interest payments by the full faith and credit of the U. S. government.

Other-Than-Temporary Impairment of Securities. For the years ended December 31, 2014 and 2013, there was no charge against operating results for other-than-temporarily impaired securities.

The following table sets forth the composition of our securities portfolio (excluding Federal Home Loan Bank of New York common stock) at the dates indicated.

	At December 31,
	2014				2013				2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available-for-sale:
GSE mortgage-backed securities	$	54,519	$	55,306	$	14,794	$	15,463	$	32,340	$	34,721
GSE collateralized mortgage obligations		58,574		57,826		64,120		61,622		50,846		52,134
U.S. Government obligations		88,315		86,944		141,836		136,783		126,524		127,053
Corporate debt obligations		-		-		4,493		4,501		6,603		6,753
Mutual funds		850		892		903		945		4,909		4,948
Municipal debt obligations		4,038		4,012		6,828		6,719		6,171		6,256
SBA pools		17,255		17,255		1,097		1,093		1,427		1,439
Total securities available-for-sale	$	223,551	$	222,235	$	234,071	$	227,126	$	228,820	$	233,304

Securities held-to-maturity:
GSE mortgage-backed securities	$	-	$	-	$	188	$	208	$	429	$	469
Corporate debt obligations		-		-		1,193		1,396		1,192		1,502
Municipal debt obligations		-		-		15,910		16,278		28,318		28,953
Total securities held-to-maturity	$	-	$	-	$	17,291	$	17,882	$	29,939	$	30,924

The following tables show the gross unrealized losses and fair value, and the length of time that individual securities have been in a continuous unrealized loss position, for our available-for-sale investment securities at the dates indicated.

	At December 31, 2014
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)

GSE mortgage-backed securities	$	15,902	$	48	$	-	$	-	$	15,902	$	48
GSE collateralized mortgage obligations		3,428		81		31,281		861		34,709		942
U. S. Government obligations		41,466		490		43,460		899		84,926		1,389
Corporate debt obligations		-		-		-		-		-		-
Municipal debt obligations		871		10		834		22		1,705		32
SBA pools		4,445		62		-		-		4,445		62
Total	$	66,112	$	691	$	75,575	$	1,782	$	141,687	$	2,473

	At December 31, 2013
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)

GSE mortgage-backed securities	$	1,629	$	82	$	33	$	1	$	1,662	$	83
GSE collateralized mortgage obligations		46,346		2,628		781		60		47,127		2,688
U. S. Government obligations		126,055		4,590		8,006		479		134,061		5,069
Corporate debt obligations		1,497		4		-		-		1,497		4
Municipal debt obligations		3,319		123		565		21		3,884		144
SBA pools		1,093		4		-		-		1,093		4
Total	$	179,939	$	7,431	$	9,385	$	561	$	189,324	$	7,992

At December 31, 2013, there were no held-to-maturity investment securities with gross unrealized losses.

At December 31, 2014, there were 42 securities in the less-than-twelve-months unrealized loss category and 45 securities in the twelve-months-or-more unrealized loss category for the available-for-sale portfolio. Included in the 42 securities in the less-than-twelve month category for available-for-sale securities are: (a) 21 U. S. government obligations; (b) four municipal debt obligations; (c) four SBA pools; (d) ten mortgage-backed securities; and (f) three collateralized mortgage obligations. Included in the 45 securities in the twelve-months-or-more category are: (a) 23 U. S. government obligations; (b) three municipal debt obligations; and (c) 19 collateralized mortgage obligation.

At December 31, 2013, there were 120 securities in the less-than-twelve-months unrealized loss category and eight securities in the twelve-months-or-more unrealized loss category for the available-for-sale portfolio. Included in the 120 securities in the less-than-twelve month category for available-for-sale securities are: (a) 68 U. S. government obligations; (b) two corporate debt obligations which have been in a loss position for one and two months, respectively; (c) twelve municipal debt obligations; (d) three SBA pools; (e) two mortgage-backed securities; and (f) 33 collateralized mortgage obligations. Included in the eight securities in the twelve-months-or-more category are: (a) four U. S. government obligations; (b) two municipal debt obligations; (c) one mortgage-backed security; and (d) one collateralized mortgage obligation.

As of December 31, 2014 and 2013, management believed that the unrealized losses of the securities noted above were primarily dependent on movements in market interest rates. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service, pools of loans from the Small Business Administration and pools of loans from a government-sponsored enterprise. Management believes that these fair values will recover as the underlying portfolios mature. We did not intend to sell and expect that it is not more likely than not that we would be required to sell these investment securities prior to an anticipated recovery in fair value. Accordingly, management did not believe any individual unrealized loss as of December 31, 2014 and 2013, represented an other-than-temporary impairment.

Portfolio Maturities and Yields. The composition and maturities of the investment debt securities portfolio and the mortgage-backed securities portfolio at December 31, 2014 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have been adjusted to a tax-equivalent basis, assuming a federal income tax rate of 34.0%. At December 31, 2014, the non-tax adjusted weighted average yield on total state and municipal securities was 2.54%.

	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)

Securities available for sale:
Mortgage-backed securities	$	-	-	%	$	259	4.64	%	$	96	2.50	%	$	54,164	2.42	%	$	54,519	$	55,306	2.43	%
Collateralized mortgage obligations		-	-			2,634	1.84			7,404	1.89			48,536	1.80			58,574		57,826	1.81
U.S. government obligations		-	-			58,856	1.27			29,459	1.70			-	-			88,315		86,944	1.41
Corporate debt obligations		-	-			-	-			-	-			-	-			-		-	-
Mutual funds		850	1.23			-	-			-	-			-	-			850		892	1.23
Municipal debt obligations		306	4.55			1,855	3.77			1,877	3.80			-	-			4,038		4,012	3.85
SBA pools		-	-			-	-			185	2.88			17,070	2.18			17,255		17,255	2.19
Total securities available for sale	$	1,156	2.11	%	$	63,604	1.38	%	$	39,021	1.84	%	$	119,770	2.13	%	$	223,551	$	222,235	1.87	%

Securities held to maturity:
Mortgage-backed securities	$	-	-	%	$	-	-	%	$	-	-	%	$	-	-	%	$	-	$	-	-	%
Corporate debt obligations		-	-			-	-			-	-			-	-			-		-	-
Municipal debt obligations		-	-			-	-			-	-			-	-			-		-	-
Total securities held to maturity	$	-	-	%	$	-	-	%	$	-	-	%	$	-	-	%	$	-	$	-	-	%

Sources of Funds

General. Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of securities, proceeds from maturing securities and cash flows from operations are the primary sources of our funds for use in lending, investing and for other general purposes.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of certificates of deposit, savings accounts, NOW accounts, checking accounts, money market deposit accounts, club accounts and individual retirement accounts. We provide commercial checking accounts for businesses, municipalities and school boards. In addition, we provide low-cost checking account services for our customers.

Our deposits are obtained predominantly from the areas in which our branch offices are located. We rely on our customer service and competitive pricing to attract and retain these deposits. We accept certificates of deposit in excess of $100,000 for which we may provide preferential rates. At December 31, 2014, we had no brokered certificates of deposits. In addition, at December 31, 2014, we had $142.2 million in deposits from municipalities and school boards within the State of New Jersey.

The following tables set forth the distribution of total deposit accounts, by account type, at the dates indicated.

	At December 31,
	2014								2013								2012
	Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Non-interest bearing demand	$	48,341		10.17	%		-	%	$	42,739		8.19	%		-	%	$	39,301		7.09	%		-	%
Savings		85,913		18.07			0.33			111,219		21.31			0.56			106,469		19.22			0.65
NOW accounts		150,415		31.64			0.41			152,279		29.17			0.42			168,150		30.35			0.82
Super NOW accounts		37,466		7.88			0.26			43,740		8.38			0.35			44,548		8.04			0.54
Money market deposit		56,545		11.90			0.31			63,811		12.22			0.40			72,051		13.00			0.63
Total transaction accounts		378,680		79.66			0.31			413,788		79.27			0.40			430,519		77.70			0.64

Certificates of deposit		96,700		20.34			1.44			108,239		20.73			1.45			123,571		22.30			1.60

Total deposits	$	475,380		100.00	%		0.53	%	$	522,027		100.00	%		0.62	%	$	554,090		100.00	%		0.86	%

As of December 31, 2014, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $36.8 million. The following table sets forth the maturity of those certificates of deposit as of December 31, 2014.

Certificates of Deposits in Amounts Greater than or Equal to $100,000	At December 31, 2014
	(In thousands)

Three months or less	$	5,951
Over three months through six months		4,136
Over six months through one year		5,733
Over one year to three years		16,916
Over three years		4,016

Total	$	36,752

At December 31, 2014, $46.1 million of our certificates of deposit had maturities of one year or less.

Borrowings. Our borrowings consist of short-term and long-term Federal Home Loan Bank advances. The following table sets forth information concerning the borrowing balances and interest rates at the dates and for the years indicated.

	At or For the Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)

Balance at end of year	$	-		$	-		$	-
Average balance during year	$	4,445		$	7,557		$	1,836
Maximum outstanding at any month end	$	24,670		$	34,020		$	2,000
Weighted average interest rate at end of year		-	%		-	%		-	%
Average interest rate during year		0.38	%		0.38	%		1.91	%

At December 31, 2014, there was no outstanding balance of borrowings from the FHLB.

At December 31, 2014, we had the ability to borrow approximately $162.5 million under our credit facilities with the Federal Home Loan Bank of New York of which no balance was outstanding.

Employees

As of December 31, 2014, we had 93 full-time employees and 9 part-time employees. The employees are not represented by a collective bargaining unit and we believe we have a good working relationship with our employees.

Subsidiary Activities

Cohansey Bridge, LLC is a wholly owned subsidiary of Colonial Bank, FSB. It is a New Jersey corporation that was formed in 2012 to invest hold and sell foreclosed real estate.

COBK Investments, LLC was a wholly owned subsidiary of Colonial Bank, FSB that was liquidated in August 2014.

FEDERAL AND STATE TAXATION

Tax Allocation

Colonial Bank, FSB, Colonial Financial Services, Inc. and Cohansey Bridge, LLC have established a method for allocating and for reimbursing the payment of their consolidated tax liability.

Federal Taxation

General. Colonial Financial Services, Inc., Colonial Bank, FSB, COBK Investments, LLC and Cohansey Bridge, LLC are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. Colonial Financial Services Inc.’s and Colonial Bank, FSB’s federal tax returns are not currently under audit, and have not been audited during the past five years. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the applicable tax rules.

Method of Accounting. For federal income tax purposes, Colonial Financial Services, Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves. Historically, Colonial Bank, FSB has been subject to special provisions in the tax law regarding allowable tax bad debt deductions and related reserves. Tax law changes were enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), that eliminated the use of the percentage of taxable income method for tax years after 1995 and required recapture into taxable income over a six-year period of all bad debt reserves accumulated after 1987. Colonial Bank, FSB recaptured approximately $50,000 of reserves over the six-year period ended December 31, 2002.

Currently, the Colonial Financial Services, Inc. consolidated group uses the specific charge off method to account for bad debt deductions for income tax purposes.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to November 1, 1988 were subject to recapture into taxable income if Colonial Bank, FSB failed to meet certain thrift asset and definitional tests.

At December 31, 2014, our total federal pre-1988 base year reserve was approximately $1.5 million. However, under current law, base-year reserves remain subject to recapture if Colonial Bank, FSB makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years. Colonial Financial Services, Inc. and Colonial Bank, FSB have been subject to the AMT but currently have no such amounts available as credits for carryover.

Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. However, subject to certain limitations, the carryback period for net operating losses incurred in 2008 or 2009 (but not both years) was expanded to five years. At December 31, 2014, Colonial Bank, FSB had no net operating loss carryforwards for federal income tax purposes.

Corporate Dividends-Received Deduction. Colonial Financial Services, Inc. may exclude from its federal taxable income 100% of dividends received from Colonial Bank, FSB as a wholly owned subsidiary.

Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. At December 31, 2014, Colonial Financial Services, Inc. and its subsidiaries have federal capital loss carryforwards of approximately $195,000 expiring in 2015. The Company expects to fully realize the benefit of such carryforwards through tax planning strategies.

State Taxation

Colonial Bank, FSB currently files New Jersey Corporation Business tax returns for banking and financial corporations. Generally, the income of savings institutions in New Jersey is subject to the New Jersey Corporation Business tax at the rate of 9% on its “entire net income,” which generally means federal taxable income before net operating loss and special deductions, subject to certain adjustments (including addition of interest income on state and municipal obligations). With the formation of CB Delaware Investments Inc. (now known as COBK Investments, Inc.) in 2006 and the transfer of investment securities to it, the taxable state income of Colonial Bank, FSB had been substantially reduced. With the reduction, Colonial Bank, FSB is in a net operating loss position for state tax purposes and may utilize state net operating loss carryforwards to reduce future state income taxes, though there is no guarantee that these carryforwards will be utilized before they expire. In September 2013, Colonial Bank FSB dissolved COBK Investments, Inc. and formed COBK Investments, LLC which returns the investment income to the Bank as taxable state income.

At December 31, 2014, Colonial Bank, FSB has New Jersey net operating loss carryforwards of $19.2 million, of which $3.2 million expires in 2015 and the balance expires from 2029 through 2032. New Jersey net operating losses occurring for periods before January 1, 2009 can be carried forward for seven succeeding years and net operating losses accruing for periods after January 1, 2009 may be carried forward 20 succeeding tax years. At December 31, 2014, the Company has recorded a valuation allowance of approximately $324,000 against the deferred tax assets attributable to the New Jersey net operating loss carryforwards.

At December 31, 2014, Colonial Bank, FSB had New Jersey capital loss carryforwards of $115,000. For New Jersey purposes, capital losses can be carried back three years and carried forward five succeeding years. At December 31, 2014, the Company has recorded a full valuation allowance of $12,000 for the state capital loss carryforwards.

Colonial Financial Services, Inc. is not currently under audit with respect to their state income tax returns and their state income tax returns have not been audited for the past five years. Colonial Bank, FSB is not currently under audit with respect to their state income tax returns.

SUPERVISION AND REGULATION

General

Colonial Bank, FSB is examined and supervised by the Office of the Comptroller of the Currency and is subject to examination by the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance fund and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. Colonial Bank, FSB also is a member of and owns stock in the Federal Home Loan Bank of New York, which is one of the twelve regional banks in the Federal Home Loan Bank System. Colonial Bank, FSB is also regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Office of the Comptroller of the Currency examines Colonial Bank, FSB and prepares reports for the consideration of its board of directors on any operating deficiencies. Colonial Bank, FSB’s relationship with its depositors and borrowers is also regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of Colonial Bank, FSB’s mortgage documents.

As a savings and loan holding company, Colonial Financial Services, Inc. is required to comply with the rules and regulations of the Federal Reserve Board, and is required to file certain reports with and be subject to examination by the Federal Reserve Board. Colonial Financial Services, Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Reserve Board or Congress, could have a material adverse impact on Colonial Financial Services, Inc. and Colonial Bank, FSB and their operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes in the regulation of federal savings banks such as Colonial Bank, FSB. Under the Dodd-Frank Act, the Office of Thrift Supervision has been eliminated and responsibility for the supervision and regulation of federal savings banks has been transferred to the Office of the Comptroller of the Currency, which is the agency that is currently primarily responsible for the regulation and supervision of national banks. Responsibility for the regulation and supervision of savings and loan holding companies, such as Colonial Financial Services, Inc. has been transferred to the Federal Reserve Board, which currently supervises bank holding companies. Additionally, a new Consumer Financial Protection Bureau has been established as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau has assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to federal banking regulators, and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as Colonial Bank, FSB, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their primary regulator rather than the Consumer Financial Protection Bureau.

Set forth below is a brief description of certain regulatory requirements that are or will be applicable to Colonial Financial Services, Inc. and Colonial Bank, FSB. The description below is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Colonial Financial Services, Inc. and Colonial Bank, FSB.

Regulatory Agreement and Capital Requirements

On May 30, 2013, Colonial Bank, FSB entered into an agreement with the Office of the Comptroller of the Currency. The agreement provides, among other things, that within specified time frames:

●

Colonial Bank, FSB must establish a Compliance Committee to monitor and coordinate Colonial Bank, FSB’s adherence to the agreement and submit reports to the Office of the Comptroller of the Currency;

●

Colonial Bank, FSB must hire an independent consultant to review Colonial Bank, FSB’s lending function, and Colonial Bank, FSB must implement a written plan to correct deficiencies noted by the consultant;

●

Colonial Bank, FSB must submit for review and non-objection by the Office of the Comptroller of the Currency a three-year written capital plan;

●

Colonial Bank, FSB must submit for review and non-objection by the Office of the Comptroller of the Currency a three-year strategic plan;

●

Colonial Bank, FSB must implement a profit plan to improve and sustain Colonial Bank, FSB’s earnings;

●

Colonial Bank, FSB must take immediate and continuing action to protect its interest in criticized assets, and must implement a written program to eliminate the basis of criticism of criticized, classified and certain other assets;

●

Colonial Bank, FSB must review the adequacy of Colonial Bank, FSB’s allowance for loan losses and establish a program for the maintenance of an adequate allowance for loan losses;

●

Colonial Bank, FSB must implement a written program to improve credit risk management; and

●

Colonial Bank, FSB must implement a policy to ensure that other real estate owned is managed in accordance with applicable federal regulations.

On May 30, 2013, Colonial Bank, FSB was notified by the Office of the Comptroller of the Currency that it established minimum capital ratios for Colonial Bank, FSB requiring it to maintain a Tier 1 capital to adjusted total assets ratio of 9.50%, a Tier 1 capital to risk-weighted assets ratio of 11.00%, and a Total risk-based capital to risk-weighted assets ratio of 13.00%. As of December 31, 2014, Colonial Bank, FSB’s ratios for these items were 11.06%, 23.57% and 24.83%, respectively.

Failure to comply with the regulatory capital ratios can result in Colonial Bank, FSB being required to submit a revised capital plan for the Office of the Comptroller of the Currency’s review and non-objection as well as imposition of a revised enforcement order.

Holding Company Board Resolutions

In July 2013, Colonial Financial Services, Inc. adopted board resolutions as requested by the Federal Reserve Board. The resolutions provide, among other things, that within specified time frames:

●

Colonial Financial Services, Inc. must serve as a source of strength to Colonial Bank, FSB, including assuring compliance with the regulatory agreement and other supervisory actions;

●

Colonial Financial Services, Inc. must submit to the Federal Reserve Bank of Philadelphia a written plan to strengthen board oversight related to financial and risk management

●

Colonial Financial Services, Inc. may not pay dividends, incur debt or repurchase its stock without prior written approval from the Federal Reserve Bank of Philadelphia; and

●

Colonial Bank, FSB must submit to the Federal Reserve Bank of Philadelphia a capital plan.

Failure to comply with the board resolutions could result in enforcement action by the Federal Reserve Board.

Federal Banking Regulation

Business Activities. A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and the regulations of the Office of the Comptroller of the Currency. Under these laws and regulations, Colonial Bank, FSB may invest in mortgage loans secured by residential and nonresidential real estate, commercial business loans and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. Colonial Bank, FSB also may establish subsidiaries that may engage in activities not otherwise permissible for Colonial Bank, FSB, including real estate investment and securities and insurance brokerage. The Dodd-Frank Act authorized the payment of interest on commercial checking accounts, effective July 21, 2011.

Capital Requirements. Office of the Comptroller of the Currency regulations require savings banks to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for savings banks receiving the highest rating on the CAMELS rating system) and an 8% risk-based capital ratio.

The risk-based capital standard for savings banks requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of the Comptroller of the Currency, based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. Additionally, a savings bank that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the purchaser’s recourse to the savings bank. Colonial Bank, FSB does not typically engage in asset sales.

In July 2013, the Office of the Comptroller of the Currency and the other federal bank regulatory agencies issued a final rule that will revise 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 establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers 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 also implements the Dodd-Frank Act’s directive to apply to savings and loan holding companies consolidated capital requirements that are not less stringent than those applicable to their subsidiary institutions. The final rule was effective January 1, 2015. The “capital conservation buffer” will be phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.

In accordance with OTS regulations, at the time of the mutual-to-stock conversion, the Company substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their accounts at Colonial Bank, FSB after conversion. The Bank established a parallel liquidation account to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of Colonial Bank, FSB or the Company, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

At December 31, 2014, Colonial Bank, FSB’s capital exceeded all applicable requirements.

Loans to One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2014, Colonial Bank, FSB was in compliance with the loans-to-one-borrower limitations.

Qualified Thrift Lender Test. As a federal savings bank, Colonial Bank, FSB must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, Colonial Bank, FSB must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12 months. A savings bank that fails the qualified thrift lender test must operate under specified restrictions. The Dodd-Frank Act made noncompliance with the QTL Test potentially subject to agency enforcement action for a violation of law.

Capital Distributions. Office of the Comptroller of the Currency regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the capital account. A savings bank must file an application for approval of a capital distribution if:

●

the total capital distributions for the applicable calendar year exceed the sum of the savings bank’s net income for that year to date plus the savings bank’s retained net income for the preceding two years;

●

the savings bank would not be at least adequately capitalized following the distribution;

●

the distribution would violate any applicable statute, regulation, agreement or Office of the Comptroller of the Currency-imposed condition; or

●

the savings bank is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

The Federal Reserve Board or Office of the Comptroller of the Currency may disapprove a notice or application if:

●

the savings bank would be undercapitalized following the distribution;

●

the proposed capital distribution raises safety and soundness concerns; or

●

the capital distribution would violate a prohibition contained in any statute, regulation, agreement with a federal banking regulatory agency or any formal or informal enforcement action.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution, if after making such distribution the institution would be undercapitalized.

Liquidity. A federal savings bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

Community Reinvestment Act and Fair Lending Laws. All savings banks have a responsibility under the Community Reinvestment Act and related regulations of the Office of the Comptroller of the Currency to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings bank, the Office of the Comptroller of the Currency is required to assess the association’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice. Colonial Bank, FSB received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings bank’s authority to engage in transactions with its affiliates is limited by federal regulations and by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as Colonial Bank, FSB. Colonial Financial Services, Inc. will be an affiliate of Colonial Bank, FSB. In general, loan transactions between an insured depository institution and its affiliate are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured depository institution and its affiliate are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Collateral in specified amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the association. In addition, federal regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. The Office of the Comptroller of the Currency requires savings banks to maintain detailed records of all transactions with affiliates.

Colonial Bank, FSB’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Colonial Bank, FSB’s capital. In addition, extensions of credit in excess of certain limits must be approved by Colonial Bank, FSB’s board of directors.

Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the Office of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to terminate deposit insurance or to recommend to the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the Office of the Comptroller of the Currency is required and authorized to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank is placed in one of the following five categories based on the savings bank’s capital:

●

well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);

●

adequately capitalized (at least 4% leverage capital (3% for savings banks with a composite examination rating of 1), 4% Tier 1 risk-based capital and 8% total risk-based capital);

●

undercapitalized (less than 4% leverage capital (3% for savings banks with a composite examination rating of 1), 4% Tier 1 risk-based capital or 8% total risk-based capital);

●

significantly undercapitalized (less than 6% total risk-based capital, 3% Tier 1 risk-based capital or 3% leverage capital); or

●

critically undercapitalized (less than 2% tangible capital).

Generally, the Office of the Comptroller of the Currency is required to appoint a receiver or conservator for a savings bank that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the Office of the Comptroller of the Currency within 45 days of the date a savings bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings bank will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings bank. Any holding company for the savings bank required to submit a capital restoration plan must guarantee the lesser of: an amount equal to 5% of a savings bank’s assets at the time it was notified or deemed to be undercapitalized by the Office of the Comptroller of the Currency, or the amount necessary to restore the savings bank to adequately capitalized status. This guarantee remains in place until the Office of the Comptroller of the Currency notifies the savings bank that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the Office of the Comptroller of the Currency has the authority to require payment and collect payment under the guarantee. Failure by a holding company to provide the required guarantee will result in certain operating restrictions on the savings bank, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations. The Office of the Comptroller of the Currency may also take any one of a number of discretionary supervisory actions against undercapitalized savings banks, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2014, Colonial Bank, FSB met the criteria for being considered “well-capitalized.”

In connection with the final capital rule described earlier, the federal banking agencies have adopted revisions, effective January 1, 2015, to the prompt corrective action framework. Under the revised prompt corrective action requirements, insured depository institutions would be required to meet the following in order to qualify as “well capitalized:” (1) a common equity Tier 1 risk-based capital ratio of 6.5%; (2) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (3) a total risk-based capital ratio of 10% (unchanged from current rules) and (4) a Tier 1 leverage ratio of 5% (unchanged from the current rules). We anticipate that the Bank will meet the requirements for being considered “well capitalized.”

Insurance of Deposit Accounts. Colonial Bank, FSB’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Federal deposit insurance per account owner has been raised to $250,000.

Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by Federal Deposit Insurance Corporation regulations. The Federal Deposit Insurance Corporation may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.

Assessment rates previously ranged from seven to 77.5 basis points of assessable deposits. The Dodd-Frank Act required the Federal Deposit Insurance Corporation to revise its procedures to base its assessments upon total assets less tangible equity instead of deposits. The Federal Deposit Insurance Corporation finalized a rule, effective April 1, 2011, that changed the assessment range to 2.5 to 45 basis points of total assets less tangible equity.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly and during the quarter ended December 31, 2014 equaled 0.15 basis points of total assets less tangible capital.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation and the Federal Deposit Insurance Corporation has recently exercised that discretion by establishing a long range fund ratio of 2%.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Colonial Bank, FSB. We cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.

Prohibitions Against Tying Arrangements. Federal savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. Colonial Bank, FSB is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of New York, Colonial Bank, FSB is required to acquire and hold shares of capital stock in the Federal Home Loan Bank. As of December 31, 2014, Colonial Bank, FSB was in compliance with this requirement.

Qualified Mortgages and Retention of Credit Risk. The Consumer Financial Protection Bureau has issued a rule designed to clarify for lenders how they can avoid legal liability under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet this “qualified mortgage“ definition will be presumed to have complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including:

●

excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans);

●

interest-only payments;

●

negative-amortization; and

●

terms longer than 30 years.

Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive/and or time consuming to make these loans, which could limit our growth or profitability.

In addition, the Dodd-Frank Act requires the regulatory agencies to issue regulations that require securitizers of loans to retain not less than 5% of the credit risk for any asset that is not a “qualified residential mortgage.” The regulatory agencies have issued a proposed rule to implement this requirement. The Dodd-Frank Act provides that the definition of “qualified residential mortgage” can be no broader than the definition of “qualified mortgage” issued by the Consumer Financial Protection Bureau for purposes of its regulations (as described above). Although the final rule with respect to the retention of credit risk has not yet been issued, the final rule could have a significant effect on the secondary market for loans and the types of loans we originate, and restrict our ability to make loans.

Federal Reserve System

Federal Reserve Board regulations require savings banks to maintain noninterest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2014, Colonial Bank, FSB was in compliance with these reserve requirements.

Other Regulations

Interest and other charges collected or contracted for by Colonial Bank, FSB are subject to state usury laws and federal laws concerning interest rates. Colonial Bank, FSB’s operations are also subject to federal laws applicable to credit transactions, such as the:

●

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

●

Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

●

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

●

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

●

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

●

Truth in Savings Act; and

●

Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of Colonial Bank, FSB also are subject to the:

●

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

●

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

●

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

●

The USA PATRIOT Act, which requires savings banks to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

●

The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

Colonial Financial Services, Inc. is a unitary savings and loan holding company, subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement authority over Colonial Financial Services, Inc. and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to Colonial Bank, FSB.

Colonial Financial Services, Inc.’s activities are limited to those activities permissible for financial holding companies or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance, incidental to financial activities or complementary to a financial activity. The Dodd-Frank Act added that any savings and loan holding company that engages in activities permissible for a financial holding company must meet the qualitative requirements for a bank holding company to be a financial holding company and conduct the activities in accordance with the requirements that would apply to a financial holding company’s conduct of the activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c) (8) of the Bank Holding Company Act, subject to the prior approval of the Federal Reserve Board, and certain additional activities authorized by Federal Reserve Board regulations.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Federal Reserve Board. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the savings institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. The previously discussed final rule regarding regulatory capital requirements implements the Dodd-Frank Act as to savings and loan holding companies. Consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions will apply to savings and loan holding companies as of January 1, 2015. As is the case with institutions themselves, the capital conservation buffer will be phased in between 2016 and 2019.

Dividends and Stock Repurchases. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend. The guidance also provides for prior regulatory review where the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also provides for regulatory review prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of Colonial Financial Services, Inc. to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Federal Securities Laws

Colonial Financial Services, Inc. common stock is registered with the Securities and Exchange Commission. Colonial Financial Services, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Our Chief Executive Officer and Chief Financial Officer are required to certify, among other things, that our quarterly and annual reports do not contain any untrue statement of a material fact.

ITEM 1A. Risk Factors

Not applicable, as Colonial Financial Services, Inc. is a “Smaller Reporting Company.”

ITEM 2. Properties

The following table provides certain information with respect to our banking offices as of December 31, 2014:

Location	Owned or Leased	Net Book Value of Real Property
		(In thousands)
Main Office:
2745 S. Delsea Drive Vineland, New Jersey 08360	Owned	$	4,586

Branch Offices:
85 West Broad Street Bridgeton, New Jersey 08302	Owned	$	368

339 Main Street Cedarville, New Jersey 08311	Owned	$	245

1107 North High Street Millville, New Jersey 08332	Owned	$	211

227 Bridgeton Pike Mantua, New Jersey 08051	Owned	$	440

271 Lambs Road Sewell, New Jersey 08080	Owned	$	274

Route 77 and Big Oak Road Upper Deerfield Township, New Jersey 08302	Owned	$	665

1771 South Lincoln Avenue Vineland, New Jersey 08361	Owned	$	291

125 West Landis Avenue Vineland, New Jersey 08360	Owned	$	330

The net book value of our premises, land and equipment was approximately $7.4 million at December 31, 2014.

ITEM 3. Legal Proceedings

As of December 31, 2014, we are currently involved in a lawsuit by a former employee. On March 4, 2013, Denise Davis filed a civil action against Colonial Federal Savings Bank and John Does 1-5 and 6-10 in Superior Court of New Jersey Cumberland County pursuant to the New Jersey Law Against Discrimination requesting compensatory damages, punitive damages, interest, cost of suit, attorneys’ fees, enhanced attorney’s fees, equitable reinstatement, equitable back pay and equitable front pay. Ms. Davis claims to have suffered both non-economic losses for pain, embarrassment, upset and humiliation, as well as economic losses related to unemployment due to her termination.

We are vigorously defending the claim. At this time, we are unable to predict an outcome, favorable or unfavorable, or to estimate the amount of any potential loss.

Except as noted above, we were not involved in any other pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, involve amounts that we believe are immaterial to our consolidated financial condition, results of operations and cash flows.

ITEM 4. Mine Safety Disclosures

Not applicable

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the Nasdaq Global Market under the symbol “COBK.” As of December 31, 2014, we had fifteen registered market makers, 375 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 3,860,209 shares outstanding. The following table sets forth market price and dividend information for our common stock.

Year Ended December 31, 2014	High		Low		Cash Dividends Declared
First Quarter	$	13.50	$	10.30		$	-
Second Quarter	$	13.94	$	11.01		$	-
Third Quarter	$	13.97	$	12.72		$	-
Fourth Quarter	$	13.40	$	12.79		$	-

Year Ended December 31, 2013	High		Low			Cash Dividends Declared
First Quarter	$	13.75	$	13.06		$	-
Second Quarter	$	14.30	$	13.30		$	-
Third Quarter	$	17.00	$	13.24		$	-
Fourth Quarter	$	14.41	$	12.94		$	-

Payment of dividends on our shares of common stock is subject to determination and declaration by the Board of Directors and will depend upon a number of factors, including capital requirements, regulatory limitations on the payment of dividends, our results of operations and financial condition, tax considerations and general economic conditions. No assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends, once declared, will continue.

There were no sales of unregistered securities during the quarter ended December 31, 2014.

There were no active stock repurchase programs of common stock during the quarter and year ended December 31, 2014.

ITEM 6. Selected Financial Data


	At December 31,
	2014		2013		2012		2011		2010
	(In thousands)
Selected Financial Condition Data:

Total assets	$	541,624	$	583,157	$	623,596	$	603,814	$	590,342
Cash and amounts due from banks		16,686		23,404		26,418		7,893		18,982
Investment securities held to maturity		-		17,291		29,939		37,992		38,214
Investment securities available for sale		222,235		227,126		233,304		228,543		183,311
Loans receivable, net		267,789		276,154		297,182		297,570		319,987
Deposits		475,380		522,027		554,090		520,703		512,836
Borrowings		-		-		-		10,045		7,000
Stockholders’ equity		63,837		59,163		68,037		71,685		69,412


	For the Years Ended December 31,
	2014		2013			2012			2011		2010
	(In thousands)
Selected Operating Data:

Interest income	$	15,536	$	18,129		$	21,407		$	24,067	$	26,292
Interest expense		2,651		3,848			5,431			7,154		9,216
Net interest income		12,885		14,281			15,976			16,913		17,076
Provision for loan losses		33		5,699			6,496			1,860		1,340
Net interest income after provision for loan losses		12,852		8,582			9,480			15,053		15,736
Non-interest income		2,326		2,755			1,844			1,809		1,574
Non-interest expense		13,971		14,799			14,395			12,376		11,747
Income (loss) before income taxes		1,207		(3,462	)		(3,071	)		4,486		5,563
Income tax expense (benefit)		672		(1,637	)		(1,322	)		1,179		1,693
Net income (loss)	$	535	$	(1,825	)	$	(1,749	)	$	3,307	$	3,870

	At or For the Years Ended December 31,
	2014			2013			2012			2011			2010

Selected Financial Ratios and Other Data:

Performance Ratios:
Return on average assets		0.10	%		(0.30	)%		(0.28	)%		0.55	%		0.67	%
Return on average equity		0.85	%		(2.87	)%		(2.46	)%		4.64	%		6.83	%
Interest rate spread (1)		2.47	%		2.46	%		2.74	%		2.90	%		3.05	%
Net interest margin (2)		2.54	%		2.54	%		2.83	%		3.06	%		3.21	%
Efficiency ratio (3)		91.85	%		86.87	%		80.78	%		66.07	%		62.99	%
Noninterest expense to average total assets		2.69	%		2.42	%		2.29	%		2.06	%		2.02	%
Average interest-earning assets to average interest-bearing liabilities		114.34	%		111.62	%		109.79	%		112.92	%		109.33	%

Asset Quality Ratios:
Non-performing assets as a percent of total assets		1.77	%		2.88	%		2.96	%		1.53	%		1.86	%
Non-performing loans as a percent of total loans		2.71	%		4.79	%		4.35	%		2.03	%		3.31	%
Allowance for loan losses as a percent of non-performing loans		58.14	%		43.16	%		31.55	%		81.70	%		33.05	%
Allowance for loan losses as a percent of total loans		1.58	%		2.07	%		1.37	%		1.66	%		1.09	%
Net charge-offs to average loans outstanding		(0.59	)%		(1.37	)%		(2.50	)%		(0.12	)%		(0.12	)%

Capital Ratios:
Total risk-based capital (to risk weighted assets)		24.83	%		20.45	%		20.55	%		19.99	%		18.39	%
Tier 1 risk-based capital (to risk weighted assets)		23.57	%		19.19	%		19.30	%		19.27	%		17.64	%
Tangible capital (to tangible assets)		11.06	%		9.74	%		10.00	%		10.82	%		10.44	%
Tier 1 leverage (core) capital (to adjusted tangible assets)		11.06	%		9.74	%		10.00	%		10.82	%		10.44	%
Equity to total assets		11.79	%		10.15	%		10.91	%		11.87	%		11.76	%

Other Data:
Number of full service offices		9			9			9			9			9
Dividends declared per share	$	—		$	—		$	—		$	—		$	—

Earnings (loss) per share:
Basic and diluted	$	0.14		$	(0.49	)	$	(0.46	)	$	0.83		$	0.97

(1)	Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year.

(2)	The net interest margin represents net interest income as a percent of average interest-earning assets for the year.

(3)	The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.

ITEM 7.

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

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, the evaluation of other-than-temporary impairment of investment securities, the valuation of and our ability to realize deferred tax assets and the measurement of fair values of financial instruments.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb estimated probable loan losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the loss content for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

We have established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for losses on loans. The allowance for losses on loans is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for losses on loans is established through a provision for loan losses based on our evaluation of the probable losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date. Our evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, our knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance. Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters. Historically, we believe our estimates and assumptions have proven to be relatively accurate. For example, over the past three years, our allowance for loan losses as a percentage of total loans outstanding has ranged from 1.37% to 2.07%, while our net charge-offs as a percentage of average loans outstanding has ranged from (0.12%) to (1.37%). Nevertheless, because a small number of non-performing loans could result in net charge-offs significantly in excess of the estimated losses inherent in our loan portfolio, you should not place undue reliance on the accuracy of past estimates.

The analysis of the allowance for loan losses has three components: specific allocations, general allocations and an unallocated component. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allowance. The principal assumption used in deriving the allowance for loan losses is the estimate of loss content for each risk rating. To illustrate, if recent loss experience dictated that the projected loss ratios changed by 10% (of the estimate) across all risk ratings, the allocated allowance as of December 31, 2014 would have changed by approximately $158,000. Actual loan losses may be significantly more than the allowances we have established, which could have a material negative effect on our financial results. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Other-Than-Temporary Impairment. In estimating other-than-temporary impairment of investment securities, securities are evaluated on at least a quarterly basis, to determine whether a decline in their value is other-than-temporary. In estimating other-than-temporary impairment losses, management considers (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 or not we intend to sell or expect that it is more likely than not that we will be required to sell the investment security prior to an anticipated recovery in fair value. Once a decline in value for a debt security is determined to be other than temporary, the other-than-temporary impairment is separated in (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss).

Valuation of Deferred Tax Assets. In evaluating our ability to realize deferred tax assets, management considers all positive and negative information, including our past operating results and our forecast of future taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets which would result in additional income tax expense in the period.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of financial instruments using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. Other factors such as model assumptions and market dislocations can affect estimates of fair value. Differences in the fair value and carrying value of certain financial instruments (including changes in the differences between the fair value and the carrying value from period to period), such as loans, securities held to maturity, deposits and borrowings do not affect our reported financial condition or results of operations, as such financial instruments are carried at cost.

Comparison of Financial Condition at December 31, 2014 and 2013

Total assets decreased $41.6 million, or 7.1%, to $541.6 million at December 31, 2014 from $583.2 million at December 31, 2013. The decrease was the result of decreases in cash and cash and amounts due from banks, investment securities available-for-sale, investment securities held-to-maturity, net loans receivable, real estate owned, Federal Home Loan Bank stock, office properties and equipment, net deferred tax asset and accrued interest receivable, offset by increases in bank-owned life insurance.

Net loans receivable decreased by $8.4 million, or 3.0%, to $267.8 million at December 31, 2014 from $276.2 million at December 31, 2013. One- to four-family residential real estate loans increased $776,000, or 0.5%, to $150.5 million at December 31, 2014 from $149.7 million at December 31, 2013. Commercial real estate loans decreased $14.0 million, or 17.6%, to $65.6 million at December 31, 2014 from $79.6 million at December 31, 2013. Home equity loans and lines of credit decreased $2.1 million, or 8.0%, to $24.3 million at December 31, 2014 from $26.4 million at December 31, 2013. Construction and land loans decreased $559,000, or 6.5%, to $8.1 million at December 31, 2014 from $8.7 million at December 31, 2013. Commercial loans increased $921,000, or 5.3%, to $18.2 million at December 31, 2014 from $17.3 million at December 31, 2013.

Investment securities available for sale decreased $4.9 million, or 2.1%, to $222.2 million at December 31, 2014 from $227.1 million at December 31, 2013. The decrease was the result of sales in the amount of $57.6 million of investment securities available for sale, $17.9 million in calls and maturities of investment securities available for sale, $22.2 million in principal amortization and accretion of discounts and premiums in the amount of $703,000 offset by purchases of $75.8 million of mortgage-backed and investment securities available for sale, an increase in the market value of investment securities available for sale of $5.6 million and transfers from the held to maturity portfolio in the amount of $10.0 million. In addition, securities held to maturity decreased $17.3 million, or 100.0% to $0.0 million at December 31, 2014 from $17.3 million at December 31, 2013. The decrease in securities held to maturity was the result of principal amortization of $36,000 and $7.3 million in calls and maturities of investment securities held to maturity and the transfers to the available to sale portfolio in the amount of $10.0 million.

Other assets decreased by $294,000 to $3.7 million at December 31, 2014 from $4.0 million at December 31, 2013. The decrease was mainly due to the decrease in prepaid income taxes. Cash and amounts due from banks decreased by $6.7 million to $16.7 million at December 31, 2014 from $23.4 million at December 31, 2013.

We invest in bank-owned life insurance to provide a funding source for benefit plan obligations. Bank-owned life insurance also generally provides non-interest income that is nontaxable. Federal regulations generally limit the investment in bank-owned life insurance to 25% of the sum of Colonial Bank, FSB’s tier 1 capital and its allowance for loan losses. At December 31, 2014, this limit was $16.0 million. The Bank is the owner of the policies and shares proceeds of the policies in a split dollar arrangement with the beneficiary of the insured employee or director. The amount of the split dollar arrangement is equal to three times the annual base salary of the insured at the time of his or her death less $50,000 for an employee and $250,000 for a director.

Deposits decreased $46.6 million, or 8.9%, to $475.4 million at December 31, 2014 from $522.0 million at December 31, 2013. NOW accounts decreased $1.9 million, or 1.2%, to $150.4 million at December 31, 2014 from $152.3 million at December 31, 2013. Money market deposit accounts decreased $7.3 million, or 11.4%, to $56.5 million at December 31, 2014 from $63.8 million at December 31, 2013. Savings accounts decreased $25.3 million, or 22.8%, to $85.9 million at December 31, 2014 from $111.2 million at December 31, 2013. Certificates of deposit decreased $11.5 million, or 10.6%, to $96.7 million at December 31, 2014 from $108.2 million at December 31, 2013. Non-interest bearing demand accounts increased $5.6 million, or 13.1% to $48.3 million at December 31, 2014 from $42.7 million at December 31, 2013. Super NOW accounts decreased $6.2 million, or 14.2%, to $37.5 million at December 31, 2014 from $43.7 million at December 31, 2013.

There were no borrowings outstanding as of December 31, 2014 and 2013, as we have not required excess liquidity to fund our operations.

Total stockholders’ equity increased $4.6 million to $63.8 million at December 31, 2014 from $59.2 million at December 31, 2013. This increase was attributable to net income of $535,000 and an increase in other comprehensive income of $3.7 million. Accumulated other comprehensive income increased by $3.7 million to a loss of $790,000 at December 31, 2014 from a loss of $4.5 million at December 31, 2013 as a result of a decrease in unrealized losses on investment securities available for sale. Because of interest rate volatility, accumulated other comprehensive income (loss) could materially fluctuate for future interim periods and years depending on economic and interest rate conditions.

Average Balance Sheet

The following table sets forth average balances, average yields and costs, and certain other information for the years indicated. Tax-equivalent yield adjustments have not been made for tax-exempt securities. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

	For the Years Ended December 31,
	2014							2013							2012
	Average Balance			Interest Income/ Expense		Yield/ Cost		Average Balance			Interest Income/ Expense		Yield/ Cost		Average Balance			Interest Income/ Expense		Yield/ Cost
								(Dollars in thousands)
Interest-earning assets:
Loans	$	269,858		$	12,071	4.47	%	$	290,975		$	13,616	4.68	%	$	294,828		$	15,682	5.32	%
Securities:
Taxable		227,360			3,274	1.44	%		248,221			4,060	1.64	%		238,255			5,117	2.15	%
Tax-exempt		9,071			191	2.11	%		23,576			453	1.92	%		30,501			608	1.99	%
Total interest-earning assets		506,289			15,536	3.07	%		562,772			18,129	3.22	%		563,584			21,407	3.81	%
Noninterest-earning assets		48,233							50,623							64,408
Total assets	$	554,522						$	613,395						$	627,992

Interest-bearing liabilities:
Savings accounts	$	85,820			284	0.33	%	$	108,803			632	0.58	%	$	107,725			774	0.72	%
NOW accounts		194,385			735	0.38	%		204,865			1,185	0.58	%		194,450			1,633	0.84	%
Money market deposits		55,237			164	0.30	%		67,425			287	0.43	%		70,241			532	0.76	%
Certificates of deposit		102,904			1,451	1.41	%		115,527			1,715	1.48	%		139,068			2,457	1.77	%
Total interest-bearing deposits		438,346			2,634	0.60	%		496,620			3,819	0.77	%		511,484			5,396	1.05	%
Borrowings		4,445			17	0.38	%		7,557			29	0.38	%		1,836			35	1.91	%
Total interest-bearing liabilities		442,791			2,651	0.60	%		504,177			3,848	0.76	%		513,320			5,431	1.06	%
Noninterest-bearing liabilities		48,781							45,649							43,575
Total liabilities		491,572							549,826							556,895
Equity		62,950							63,569							71,097
Total liabilities and equity	$	554,522						$	613,395						$	627,992

Net interest income				$	12,885						$	14,281						$	15,976
Interest rate spread (1)						2.47	%						2.46	%						2.74	%
Net interest-earning assets (2)	$	63,498						$	58,595						$	50,264
Net interest margin (3)						2.54	%						2.54	%						2.83	%
Average interest-earning assets to average interest-bearing liabilities		114.34	%						111.62	%						109.79	%

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

(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.


	Years Ended December 31, 2014 vs. 2013									Years Ended December 31, 2013 vs. 2012
	Increase (Decrease) Due to						Net			Increase (Decrease) Due to						Net
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans	$	(961	)	$	(584	)	$	(1,545	)	$	(203	)	$	(1,863	)	$	(2,066	)
Securities:
Taxable		(324	)		(462	)		(786	)		225			(1,282	)		(1,057	)
Tax-exempt		(310	)		48			(262	)		(134	)		(21	)		(155	)
Total interest-earning assets		(1,595	)		(998	)		(2,593	)		(112	)		(3,166	)		(3,278	)

Interest-bearing liabilities:
Savings accounts		(115	)		(233	)		(348	)		8			(150	)		(142	)
NOW accounts		(58	)		(392	)		(450	)		93			(541	)		(448	)
Money market deposit		(46	)		(77	)		(123	)		(20	)		(225	)		(245	)
Certificates of deposit		(181	)		(83	)		(264	)		(382	)		(360	)		(742	)
Total interest-bearing deposits		(400	)		(785	)		(1,185	)		(301	)		(1,276	)		(1,577	)
Borrowings		(12	)		-			(12	)		(8	)		2			(6	)
Total interest-bearing liabilities		(412	)		(785	)		(1,197	)		(309	)		(1,274	)		(1,583	)

Net change in interest income	$	(1,183	)	$	(213	)	$	(1,396	)	$	197		$	(1,892	)	$	(1,695	)

Comparison of Operating Results for the Years Ended December 31, 2014 and December 31, 2013

General. We experienced net income of $535,000 for the year ended December 31, 2014 compared to a net loss of $1.8 million for the year ended December 31, 2013. The principal reason for the increase in income for the year ended December 31, 2014 was a reduction in the provision for loan losses of $5.7 million. Also, net interest income decreased by $1.4 million to $12.9 million for the year ended December 31, 2014 from $14.3 million for the year ended December 31, 2013, non-interest income decreased $429,000 to $2.3 million for the year ended December 31, 2014 from $2.8 million for the year ended December 31, 2013 and non-interest expense decreased by $828,000 to $14.0 million for the year ended December 31, 2014 from $14.8 million for the year ended December 31, 2013.

Interest Income. Interest income decreased $2.6 million to $15.5 million for the year ended December 31, 2014 from $18.1 million for the year ended December 31, 2013. The decrease in interest income resulted from a $1.5 million decrease in interest income on loans and a decrease of $1.0 million on investment securities and mortgage-backed securities.

Interest income on loans decreased $1.5 million, or 11.3%, to $12.1 million for the year ended December 31, 2014 from $13.6 million for the year ended December 31, 2013. This decrease resulted from a 21 basis point decrease in the average yield on loans to 4.47% for the year ended December 31, 2014 from 4.68% for the year ended December 31, 2013 along with a decrease in the average balance of loans of $21.1 million, or 7.3%, to $269.9 million for the year ended December 31, 2014 from $291.0 million for the year ended December 31, 2013.

Interest income on securities decreased by $1.0 million to $3.5 million for the year ended December 31, 2014 from $4.5 million for the year ended December 31, 2013. The decrease in interest income on securities was due to a decrease in the average yield on taxable and tax-exempt securities of 19 basis points to 1.47% for the year ended December 31, 2014 from 1.66% for the year ended December 31, 2013, along with a decrease in the average balance of taxable and tax-exempt securities to $236.4 million for the year ended December 31, 2014 from $271.8 million for the year ended December 31, 2013. The yields on tax-exempt securities are not tax-affected.

Interest Expense. Interest expense decreased $1.2 million, or 31.1%, to $2.6 million for the year ended December 31, 2014 from $3.8 million for the year ended December 31, 2013.

Interest expense on interest-bearing deposits decreased by $1.2 million, or 31.0%, to $2.6 million for the year ended December 31, 2014 from $3.8 million for the year ended December 31, 2013. The decrease in interest expense on interest-bearing deposits was due to a decrease of 17 basis points in the average rate paid on interest-bearing deposits to 0.60% for the year ended December 31, 2014 from 0.77% for the year ended December 31, 2013. We experienced decreases in the average cost across all categories of interest-bearing deposits for the year ended December 31, 2014. This was augmented by a $58.3 million, or 11.7%, decrease in the average balance of interest-bearing deposits to $438.3 million for the year ended December 31, 2014 from $496.6 million for the year ended December 31, 2013.

Interest expense on borrowings decreased $12,000 to $17,000 for the year ended December 31, 2014 from $29,000 for the year ended December 31, 2013. This decrease was due to a decrease in the average balance of borrowings to $4.4 million for the year ended December 31, 2014 from $7.6 million for the year ended December 31, 2013.

Net Interest Income. Net interest income decreased by $1.4 million, or 9.8%, to $12.9 million for the year ended December 31, 2014 from $14.3 million for the year ended December 31, 2013.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable credit losses inherent in the loan portfolio. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluation of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or later events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance.

Based on our evaluation of the above factors, we recorded a provision for loan losses of $33,000 for the year ended December 31, 2014 and a provision for loan losses of $5.7 million for the year ended December 31, 2013. For the year ended December 31, 2014, the Bank recorded recoveries on several loans that were previously written down. These recoveries helped to reduce the current year’s loan loss provision. The allowance for loan losses was $4.3 million, or 1.58% of total loans, at December 31, 2014, compared to $5.9 million, or 2.07% of total loans, at December 31, 2013.

Our balance of loans we evaluated individually for impairment decreased to $15.1 million at December 31, 2014 from $25.3 million at December 31, 2013, although we provided specific allowances on loans with principal balances of $5.9 million as of December 31, 2014 and $3.9 million as of December 31, 2013. At December 31, 2014 and 2013, all nonaccrual loans were individually evaluated for impairment.

The allowance for loan losses represented 58.14% of nonperforming loans at December 31, 2014 and 43.16% of nonperforming loans at December 31, 2013. As a result of our recent decrease in nonperforming loans and an increase in our loan recoveries, we experienced net charge-offs of $1.6 million for the year ended December 31, 2014 and $4.0 million for the year ended December 31, 2013. In addition, at December 31, 2014, approximately 78% of our non-performing loans were one- to four-family residential and home equity real estate loans and 22% of our non-performing loans were commercial real estate, construction and land loans and commercial loans.

To the best of our knowledge, we have recorded all losses that are both probable and reasonable to estimate at December 31, 2014 and 2013. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio (including residential and commercial real estate loans) could result in material increases in our provisions for loan losses.

Non-interest Income. Non-interest income decreased $429,000 to $2.3 million for the year ended December 31, 2014 compared to $2.8 million for the year ended December 31, 2013. Fees and service charges on deposit accounts decreased by $72,000 to $1.1 million for the year ended December 31, 2014 from $1.2 million for the year ended December 31, 2013. Net gains on the sales and calls of investment securities decreased to $704,000 for the year ended December 31, 2014 from $1.1 million for the year ended December 31, 2013.

Non-interest Expense. Non-interest expense decreased $828,000, or 5.6%, to $14.0 million for the year ended December 31, 2014 from $14.8 million for the year ended December 31, 2013. Compensation and benefits expense decreased by $1.2 million to $5.7 million for the year ended December 31, 2014 from $6.9 million for the year ended December 31, 2013. This decrease was mainly due to the reduction in staff that occurred in the first quarter of 2014 along with reduced expenses from the ESOP and the 401k plans, and the lower expenses regarding the director retirement plan. Occupancy and equipment expense remained level at $1.6 million for the years ended December 31, 2014 and 2013. Data processing expense increased $86,000 to $1.1 million for the year ended December 31, 2014 from $968,000 for the year ended December 31, 2013. Federal Deposit Insurance Corporation insurance premiums decreased by $15,000 to $718,000 for the year ended December 31, 2014 from $733,000 for the year ended December 31, 2013. This decrease was due to the decreased insurance premium as a result of a reduction of our insurable deposits. Professional fees decreased by $172,000 to $1.1 million for the year ended December 31, 2014 from $1.3 million for the year ended December 31, 2013. This decrease was due to lower consultant fees, legal expenses and loan collection expenses offset by an increase in auditing and accounting fees. Real estate owned expense decreased to $1.2 million for the year ended December 31, 2014 from $1.5 million for the year ended December 31, 2013. This decrease is due to the lower additions to the allowance for losses on real estate owned and lower expenses on real estate owned for the year ended December 31, 2014 offset by losses on the sale of real estate owned. Merger related expenses totaled $1.1 million for the year ended December 31, 2014, including financial advisory and legal expenses solely related to the merger. Other expenses decreased $231,000 to $1.3 million for the year ended December 31, 2014. This decrease was mainly attributable to decreases in appraisal expense, training and education expense, advertising expense, postage expense and correspondent bank expense, offset by an increase in supervisory examination expense.

Income Tax Expense. We recorded income tax expense of $672,000 for the year ended December 31, 2014, compared to a benefit of $1.6 million for the year ended December 31, 2013, reflecting effective tax rates of 55.7% and (47.3)%, respectively. The increased effective tax rate for the year ended December 31, 2014 compared to the year ended December 31, 2013 was mainly due to the nondeductibility of certain merger-related expenses in the calculation of the tax expense.

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form 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 Management Committee, consisting of senior management, 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. The Asset/Liability Management Committee monitors the level of interest rate risk and our board of directors reviews our asset/liability policies and interest rate risk position.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. Given the current low interest rate environment, we intend to use the following strategies to manage our interest rate risk:

●

maintaining our portfolios of shorter-term loans, including commercial real estate loans and home equity loans, subject to the limitations with respect to the amounts of these loans as a percentage of our capital and the allowance for loan losses;

●

maintaining adjustable-rate and shorter-term investments; and

●

maintaining pricing strategies that encourage deposits in longer-term, certificates of deposit.

In addition, in previous years, we have sold long-term (greater than 15 years) loans. By following these strategies, we believe that we are better positioned to react to increases in market interest rates. However, investments in shorter-term assets generally have lower yields than longer-term investments.

Economic Value of Equity. The Bank monitors its interest rate risk through the use of a simulation model which incorporates all asset and liability rate and maturity information, assumptions regarding prepayment speeds of loans and the effective maturity of non-maturity deposits, and simulates the effect of various interest rate movements on interest income and the economic value of equity (“EVE”). The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within our policy guidelines.

The table below sets forth, as of December 31, 2014, the estimated changes in our EVE that would result from the designated instantaneous changes in the United States Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


Change in Interest			Estimated Increase (Decrease)					EVE as a Percentage of Present Value of Assets (3)
Rates (basis points)			in EVE					EVE		Increase (Decrease)
(1)	Estimated EVE (2)		Amount			Percent		Ratio (4)		(basis points)
	(Dollars in thousands)
+400	$	46,511	$	(36,988	)	-44	%	9.77	%	-549	bp
+300		66,295		(27,204	)	-32	%	11.43	%	-383	bp
+200		66,372		(17,027	)	-20	%	12.99	%	-227	bp
+100		76,244		(7,255	)	-8	%	14.40	%	-86	bp
—		83,499		-		-	%	15.26	%	-	bp
-100		93,742		10,243		12	%	16.69	%	143	bp

(1)	Assumes an instantaneous uniform change in interest rates at all maturities.

(2)	EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)	EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at December 31, 2014, in the event of a 100 basis point decrease in interest rates, we would experience a 12% increase in the economic value of equity. In the event of a 200 basis point increase in interest rates, we would experience a 20% decrease in the economic value of equity. Both of these calculations are based on the calculated economic value of equity of $83.5 million at December 31, 2014.

In addition to modeling changes in our portfolio value of equity, we also run simulations on our net interest income for a twelve-month period under rising and falling interest rate scenarios. The table below sets forth the changes in our net interest income that would result from the designated instantaneous changes in the United States Treasury yield curve at December 31, 2014. As with the market value portfolio equity simulation model, the changes in net interest income are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


Change in Interest Rates (basis points)	Estimated Net		Estimated Increase (Decrease) in Net Interest Income
(1)	Interest Income		Amount			Percent
	(Dollars in thousands)

+400	$	10,762	$	(2,217	)	-17.08	%
+300		11,582		(1,397	)	-10.77	%
+200		12,314		(665	)	-5.12	%
+100		12,743		(236	)	-1.81	%
—		12,979		-		-
-100		12,231		(748	)	-5.76	%

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes 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 tables presented assume 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 tables provide 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 economic value of equity and net interest income and will differ from actual results.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings. For further information, see Note 14 to the Notes to our Consolidated Financial Statements.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Colonial Bank, FSB’s primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities.

We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2014.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2014, cash and cash equivalents totaled $16.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $222.2 million at December 31, 2014. In addition, at December 31, 2014, we had the ability to borrow approximately $162.5 million from the Federal Home Loan Bank of New York. On that date, we had no advances outstanding.

At December 31, 2014, we had $9.1 million in loan commitments outstanding. In addition to commitments to originate loans, we had $24.8 million in unadvanced funds to borrowers and $3.2 million of commitments issued under standby letters of credit. We also have commitments to purchase $3.4 million in SBA and USDA loans. Certificates of deposit due within one year of December 31, 2014 totaled $46.1 million, or 9.7% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2014. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We have no material commitments or demands that are likely to affect our liquidity other than set forth below. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we would access our borrowing capacity with the Federal Home Loan Bank of New York.

Colonial Financial Services, Inc. is a separate legal entity from Colonial Bank, FSB and it must provide for its liquidity to pay any dividends or repurchase any stock, and for other corporate purposes. The primary source of liquidity for Colonial Financial Services, Inc. is the receipt of dividend payments from Colonial Bank, FSB. The ability of Colonial Bank, FSB to pay dividends is subject to regulatory limitations. At December 31, 2014, Colonial Financial Services, Inc. had liquid assets of $1.0 million.

Our primary investing activities are the origination of loans and the purchase of securities. In 2014, we originated $60.3 million of loans and purchased $75.8 million of securities.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net decrease in total deposits of $46.6 million and $32.1 million for the years ended December 31, 2014 and 2013, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits so that we are competitive in our market area.

We did not have any Federal Home Loan Bank advances outstanding as of December 31, 2014 and 2013. Federal Home Loan Bank advances have been used primarily to fund new loans and purchase securities.

Colonial Bank, FSB is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2013, Colonial Bank, FSB exceeded all regulatory capital requirements. Colonial Bank, FSB is considered “well-capitalized” under regulatory guidelines. See “Supervision and Regulation—Regulatory Agreement and Capital Requirements,” “—Federal Banking Regulation—Capital Requirements,” “and Note 13 of the Notes to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we enter into commitments to sell mortgage loans. For additional information, see Note 12 of the Notes to the Consolidated Financial Statements.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 2 of the Notes to our Consolidated Financial Statements.

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of Colonial Financial Services, Inc. have been prepared in accordance with US GAAP. US GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

ITEM 8.

Financial Statements and Supplementary Data

COLONIAL FINANCIAL SERVICES, INC.

TABLE OF CONTENTS

		Page No.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Statements of Financial Condition		F-3

Consolidated Statements of Operations		F-4

Consolidated Statements of Comprehensive Income (Loss)		F-5

Consolidated Statements of Stockholders’ Equity		F-6

Consolidated Statements of Cash Flows		F-7

Notes to Consolidated Financial Statements		F-8

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Colonial Financial Services, Inc.

Vineland, New Jersey

We have audited the accompanying consolidated statements of financial condition of Colonial Financial Services, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Colonial Financial Services, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Philadelphia, Pennsylvania

March 30, 2015

F-2

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2014			2013

	(Dollars In Thousands, Except Per Share Data)

Assets

Cash and amounts due from banks	$	16,686		$	23,404
Investment securities available for sale		222,235			227,126
Investment securities held to maturity (fair value 2014 - $0; 2013 - $17,882)		-			17,291
Loans receivable (net of allowance for loan losses 2014 - $4,294; 2013 - $5,853)		267,789			276,154
Real estate owned, net		2,220			3,258
Federal Home Loan Bank stock, at cost		503			702
Office properties and equipment, net		7,410			7,825
Bank-owned life insurance		15,031			14,607
Accrued interest receivable		1,345			1,530
Deferred tax asset, net		4,715			7,276
Other assets		3,690			3,984
Total Assets	$	541,624		$	583,157

Liabilities and Stockholders’ Equity

Liabilities

Deposits:
Non-interest-bearing	$	48,341		$	42,739
Interest-bearing		427,039			479,288
Total deposits		475,380			522,027
Advances from borrowers for taxes and insurance		995			831
Accrued interest payable and other liabilities		1,412			1,136
Total Liabilities		477,787			523,994

Commitments and contingencies (Note 12)

Stockholders’ Equity

Preferred stock, $0.01 par value; authorized 50,000,000 shares; none issued		—			—
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 3,860,209 shares in 2014 and 3,853,058 shares in 2013		39			39
Additional paid-in capital		37,533			37,289
Unearned shares held by Employee Stock Ownership Plan (ESOP)		(962	)		(1,170	)
Retained earnings		28,017			27,482
Accumulated other comprehensive loss		(790	)		(4,477	)
Total Stockholders’ Equity		63,837			59,163
Total Liabilities and Stockholders’ Equity	$	541,624		$	583,157

See notes to consolidated financial statements

F-3

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2014		2013
	(Dollars in Thousands, Except Per Share Data)
Interest Income
Loans, including fees	$	12,071	$	13,616
Mortgage-backed securities		1,657		1,998
Investment securities:
Taxable		1,617		2,062
Tax-exempt		191		453
Total Interest Income		15,536		18,129
Interest Expense
Deposits		2,634		3,819
Borrowings		17		29
Total Interest Expense		2,651		3,848
Net Interest Income		12,885		14,281
Provision for Loan Losses		33		5,699
Net Interest Income after Provision for Loan Losses		12,852		8,582
Non-Interest Income
Fees and service charges		1,139		1,211
Net gain on sales and calls of investment securities		704		1,064
Earnings on bank-owned life insurance		424		439
Other		59		41
Total Non-Interest Income		2,326		2,755
Non-Interest Expenses
Compensation and benefits		5,701		6,887
Occupancy and equipment		1,618		1,650
Data processing		1,054		968
FDIC insurance premiums		718		733
Office supplies		101		154
Professional fees		1,099		1,271
Advertising		55		131
Real estate owned, net		1,243		1,475
Merger-related		1,083		-
Other		1,299		1,530
Total Non-Interest Expenses		13,971		14,799
Income (Loss) before Income Tax Expense (Benefit)		1,207		(3,462	)
INCOME TAX EXPENSE (BENEFIT)		672		(1,637	)
Net Income (Loss)	$	535	$	(1,825	)

Per Share Data (Note 3):
Income (Loss) per share – basic	$	0.14	$	(0.49	)
Income (Loss) per share – diluted	$	0.14	$	(0.49	)

See notes to consolidated financial statements

F-4

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Year Ended December 31,
	2014			2013

	(Dollars in thousands)

Net income (loss)	$	535		$	(1,825	)

Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities net of tax expense (benefit) – 2014, $1,918; 2013, $(3,613)		3,648			(6,752	)
Unrealized gain on securities transferred from the held-to-maturity category into the available-for-sale category net of tax expense – 2014, $306; 2013, $0		461			-
Less reclassification adjustment for realized gain on sale of securities (net) included in net income (loss) net of tax expense – 2014, $282; 2013, $425(1)		(422	)		(639	)
Total Other Comprehensive Income (Loss)		3,687			(7,391	)

Comprehensive Income (Loss)	$	4,222		$	(9,216	)

(1) Gross amounts are included in Net gain on sales and calls of investment securities in the Consolidated Statements of Operations as a separate element within Total Non-Interest Income. Tax expense amounts are included in Income Tax Expense (Benefit) in the Consolidated Statements of Operations.

See notes to consolidated financial statements

F-5

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock		Additional Paid-in Capital			Unearned Shares Held by ESOP			Retained Earnings			Accumu- lated Other Compre- hensive Income (Loss)			Total Stock- holders’ Equity
(Dollars in thousands)

Balance, January 1, 2013	$	39	$	37,155		$	(1,378	)	$	29,307		$	2,914		$	68,037

Net loss		-		-			-			(1,825	)		-			(1,825	)

Other comprehensive loss		-		-			-			-			(7,391	)		(7,391	)

Common stock repurchased and cancelled (10,000 shares)		-		(134	)		-			-			-			(134	)
ESOP shares committed to be released (20,085 shares)		-		68			208			-			-			276
Stock-based compensation expense (restricted stock awards)		-		81			-			-			-			81
Stock-based compensation expense (stock options)		-		119			-			-			-			119

Balance, December 31, 2013	$	39	$	37,289		$	(1,170	)	$	27,482		$	(4,477	)	$	59,163

Net income		-		-			-			535			-			535

Other comprehensive income		-		-			-			-			3,687			3,687

ESOP shares committed to be released (20,085 shares)		-		42			208			-			-			250
Stock-based compensation expense (restricted stock awards)		-		81			-			-			-			81
Stock-based compensation expense (stock options)		-		121			-			-			-			121
Balance, December 31, 2014	$	39	$	37,533		$	(962	)	$	28,017		$	(790	)	$	63,837

See notes to consolidated financial statements

F-6

COLONIAL FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2014			2013
Cash Flows from Operating Activities:	(Dollars In thousands)
Net income (loss)	$	535		$	(1,825	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		33			5,699
Depreciation expense		536			565
ESOP expense		250			276
Stock-based compensation expense		202			200
Deferred income taxes		619			(529	)
Net earnings on bank-owned life insurance		(424	)		(439	)
Net gain on sales and calls of investment securities		(704	)		(1,064	)
(Gain) on sale of real estate owned		(165	)		(449	)
Write-down on real estate owned		644			1,366
Net amortization of loan fees		(740	)		233
Accretion of premium and discount on investment securities, net		(703	)		(207	)
Decrease in accrued interest receivable		185			120
Decrease (increase) in other assets		294			(58	)
Increase in other liabilities		276			328
Net cash provided by operating activities		838			4,216
Cash Flows from Investing Activities:
Proceeds from sales of investment securities available for sale		56,320			11,968
Proceeds from sales of mortgage-backed securities and collateralized mortgage obligations available for sale		1,309			13,075
Proceeds from calls and maturities of investment securities available for sale		17,901			39,049
Proceeds from calls and maturities of investment securities held to maturity		7,299			28,217
Purchase of investment securities available for sale		(20,266	)		(62,787	)
Purchase of investment securities held to maturity		-			(15,625	)
Purchase of mortgage-backed securities and collateralized mortgage obligations available for sale		(55,569	)		(36,609	)
Purchase of office properties and equipment		(121	)		(195	)
Principal repayments from investment securities		2,179			3,310
Principal repayments from mortgage-backed securities and collateralized mortgage obligations		20,045			28,070
Net decrease in Federal Home Loan Bank stock		199			56
Proceeds from the sale of real estate owned		1,954			2,485
Net decrease in loans receivable		7,677			13,783
Net cash provided by investing activities		38,927			24,797
Cash Flows from Financing Activities:
Net (decrease) in deposits		(46,647	)		(32,063	)
Increase in advances from borrowers for taxes and insurance		164			170
Repurchase of common stock		-			(134	)
Net cash used for financing activities		(46,483	)		(32,027	)
(Decrease) in cash and cash equivalents		(6,718	)		(3,014	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		23,404			26,418
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	16,686		$	23,404
Supplemental Cash Flow Disclosures:
Cash paid: Interest	$	2,653		$	3,856
Cash paid: Income taxes	$	-		$	-
Supplemental Schedule of Noncash Investing and Financing Activities:
Other real estate acquired in settlement of loans	$	1,395		$	1,313
Transfer of held-to-maturity securities to available-for-sale	$	9,989		$	-

See notes to consolidated financial statements

F-7

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

Colonial Financial Services, Inc. (the “Company”), a Maryland corporation, was formed in March 2010, to serve as the stock holding company for Colonial Bank, FSB (the “Bank”) as part of the mutual-to-stock conversion of Colonial Bankshares, MHC. On July 13, 2010, Colonial Financial Services, Inc. completed its second-step conversion and related public stock offering. Colonial Bank, FSB is now 100% owned by Colonial Financial Services, Inc. and Colonial Financial Services, Inc. is 100% owned by public stockholders. Colonial Financial Services, Inc. sold a total of 2,295,000 shares of common stock in the subscription, community and syndicated community offerings, including 91,800 shares to the Colonial Bank FSB employee stock ownership plan. All shares were sold at a purchase price of $10.00 per share. Concurrent with the completion of the offering, shares of common stock of Colonial Bankshares, Inc., a federal corporation, owned by public stockholders were converted into the right to receive 0.9399 shares of Colonial Financial Services, Inc. common stock. Cash in lieu of fractional shares was paid at a rate of $10.00 per share. As a result of the offering and the exchange, Colonial Financial Services, Inc. sold or exchanged 4,173,444 shares.

The same directors and officers who manage Colonial Bank, FSB manage Colonial Financial Services, Inc. The Company, as a savings and loan holding company, is subject to regulation by the Board of Governors of the Federal Reserve System. The Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency (“OCC”).

The Bank has established a New Jersey corporation, Cohansey Bridge, LLC, whose purpose is to invest in and manage real estate including foreclosed real estate. The Bank had previously established a Delaware corporation, COBK Investments, LLC; subsequently liquidated in August, 2014, whose purpose was to invest in and manage securities.

The Bank maintains its executive office and main branch in Vineland, New Jersey. The Bank also maintains branch offices in Bridgeton, Cedarville, Mantua, Millville, Upper Deerfield, Vineland and Sewell, New Jersey. The Bank’s principal business consists of attracting customer deposits and investing these deposits primarily in single-family residential, commercial, and consumer loans and investments.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Colonial Financial Services, Inc., its wholly-owned subsidiary, Colonial Bank, FSB and the Bank’s wholly-owned subsidiary, Cohansey Bridge, LLC. All material intercompany transactions and balances have been eliminated in the consolidated financial statements.

F-8

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the evaluation of other than temporary impairment of investment securities and the valuation of real estate owned and deferred tax assets.

Significant Group Concentrations of Credit Risk

Most of the Bank’s activities are with customers located within Southern New Jersey. Note 4 discusses the types of investment securities that the Bank invests in. Note 5 discuss the types of lending that the Bank engages in. The Bank does not have any significant concentrations to any one industry or customer. Although the Bank has a diversified portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks.

The Company and the Bank maintain cash deposits in other depository institutions that occasionally exceed the amount of deposit insurance available. Management periodically assesses the financial condition of these institutions and believes that the risk of any possible credit loss is minimal.

The Bank is required to maintain average reserve balances in vault cash and with the Federal Home Loan Bank based upon outstanding balances of deposit transaction accounts. No reserve balance was required at December 31, 2014 and 2013.

Investment Securities

Securities that management has the positive intent and ability to hold until maturity are classified as held to maturity and are carried at their remaining unpaid principal balance, net of unamortized premiums, or unaccreted discounts. Premiums are amortized and discounts are accreted using a method which produces results which approximate the interest method over the estimated remaining term of the underlying security.

Securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity and changes in the availability of and the yield of alternative investments are classified as available for sale. These securities are carried at estimated fair value, which is determined using published quotes where available. If published quotes are not available, fair values are based on quoted market prices of comparable instruments. Unrealized gains and losses are excluded from earnings and are reported net of tax in other comprehensive income (loss). Realized gains and losses are included in the statements of operations and are determined based on the adjusted cost of the specific security sold.

Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each statement of financial condition date.

F-9

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns 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 or not the Company intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery in fair value. Once a decline in value for a debt security is determined to be other-than-temporary, the other-than-temporary impairment is separated in (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss). For equity securities, the full amount of the other-than-temporary impairment is recognized in earnings.

Loans Receivable

The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the counties of Cumberland and Gloucester of New Jersey. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: multi-family, commercial real estate, construction and land and commercial non-real estate. Consumer loans consist of the following classes: 1-4 family, home equity loans and credit lines and other consumer loans.

For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

F-10

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential real estate consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

●

Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

●

National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.

●

Nature and volume of the portfolio and terms of loans.

●

Experience, ability, and depth of lending management and staff.

●

Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

●

Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of Directors.

●

Existence and effect of any concentrations of credit and changes in the level of such concentrations.

●

Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

F-11

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

One-to four-family real estate loans involve certain risks such as interest rate risk and risk of non repayment. Adjustable-rate single family real estate loans pose 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 of default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. Repayment risk can be affected by job loss, divorce, illness, personal bankruptcy of the borrower and regional or local economic conditions.

Multi-family and commercial real estate lending entails significant risks. Such loans typically involve large loan balances to single borrowers or group of 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 multi-family and commercial real estate as well as economic conditions.

Construction lending is generally considered higher risk. 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) in the project.

Commercial business lending is generally considered higher risk than commercial real estate lending. Commercial business loans are primarily secured by inventories and non-real estate assets. In most cases, any repossessed collateral for a defaulted commercial business loan will not provide an adequate source of repayment of the outstanding loan balance.

Consumer loans generally have shorter terms and higher interest rates than other lending but generally involve more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. 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 most likely not provide an adequate source of repayment of the outstanding loan.

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

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial non-real estate loans, commercial real estate loans and construction and land loans. The fair value of impaired collateral dependent loans is estimated using an appraisal of the collateral less estimated liquidation expenses or discounted cash flows for non-collateral dependent loans. Those impaired loans not requiring a write-down represent loans for which the fair value of the collateral or expected repayments exceeds the recorded investment in such loans. Impaired loans are charged-off or an allowance is established to the estimated fair value if its carrying value exceeds its estimated fair value.

F-12

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loan classified as watch exhibit some of the following traits: policy exceptions, documentation concerns, lack of financial statements or declining financial ratios, or pay slowly but never delinquent more than 30 days. At the time of the classification no loss is expected. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

F-13

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Federal Home Loan Bank Stock

Federal Home Loan Bank of New York (“FHLB”) Stock, which represents required investment in the common stock of a correspondent bank, is carried at cost.

The Company evaluates the FHLB stock for impairment. Management’s determination of whether this investment is impaired is based on its assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time the decline has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB stock at December 31, 2014 and 2013.

Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in non-interest expense on the consolidated statement of operations. Also included in real estate owned are properties originally acquired by the Bank for future expansion.

Office Properties and Equipment

Office properties and equipment are recorded at cost. Depreciation is computed using the straight-line method over the expected useful lives of the related assets.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Bank-Owned Life Insurance

The Bank invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees and directors. The Bank is the owner of the policies and shares proceeds of the policies in a split dollar arrangement with the beneficiary of the insured employee or director. The amount of the split dollar arrangement is equal to three times the annual base salary of the insured at the time of his or her death less $50,000 for employees and $250,000 for directors. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies is included in non-interest income on the consolidated statements of operations.

F-14

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

The Bank follows the policy of charging the costs of advertising to expense as incurred.

Stock Compensation Plans

Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. For performance based awards, compensation cost is recognized on a straight-line basis over the requisite service period if the goal is attained. A black-sholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Income Taxes

Income tax accounting guidance results in two components of income tax expense (benefit): current and deferred. Current income tax expense (benefit) reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense (benefit) results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

The Company recognizes interest and penalties on income taxes, if any, as a component of the provision for income taxes. In general, the Company remains open to examination for tax years 2011 and after for federal and for tax years after 2012 for state.

F-15

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as unvested restricted stock awards and outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares on common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the statements of financial condition when they are funded.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU, 2014-14, “Receivables-Troubled Debt Restructurings by Creditors, Classification of Certain Government-guaranteed Mortgage Loans upon Foreclosure.” The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

In June 2014, the FASB issued ASU, 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

F-16

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In May 2014, the FASB issued ASU, 2014-09, “Revenue from Contracts with Customers.” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04 “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40.” The amendments in this update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for annual period and interim periods within those annual periods beginning after December 15, 2014. The Company does not expect the adoption of this FASB ASU to have a material impact on the consolidated financial statements.

F-17

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – EARNINGS PER SHARE

There are no preferred securities which would affect the net income (loss) (numerator) in calculating basic and diluted earnings per share. Basic and diluted earnings per share data are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share are further adjusted for potential common shares that were dilutive and outstanding during the period. Potential common shares consist of stock options outstanding and non-vested stock grants under the stock-based incentive plans. The dilutive effect of potential common shares is computed using the treasury stock method. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation. At December 31, 2014 and 2013, respectively, there were 115,283 and 344,175 anti-dilutive non-vested awards and options excluded from the computation of earnings per share.

	December 31,
	2014			2013
Net Income (Loss)	$	535,000		$	(1,825,000	)

Weighted average common shares issued		3,860,104			3,853,167
Average unearned ESOP shares		(113,275	)		(133,360	)
Weighted average common shares outstanding – basic		3,746,829			3,719,807
Effect of dilutive non-vested shares and stock options outstanding		6,495			-
Weighted average common shares outstanding – diluted		3,753,324			3,719,807
Income (Loss) per share-basic	$	.14		$	(0.49	)
Income (Loss) per share-diluted	$	.14		$	(0.49	)

F-18

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENT SECURITIES

Investment securities are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for Sale:
December 31, 2014
U. S. Government obligations	$	88,315	$	18	$	(1,389	)	$	86,944
Mutual funds		850		42		-			892
Municipal debt obligations		4,038		6		(32	)		4,012
SBA pools		17,255		62		(62	)		17,255
Government-sponsored enterprise (“GSE”) mortgage-backed securities		54,519		835		(48	)		55,306
GSE collateralized mortgage obligations		58,574		194		(942	)		57,826
	$	223,551	$	1,157	$	(2,473	)	$	222,235

December 31, 2013
U. S. Government obligations	$	141,836	$	16	$	(5,069	)	$	136,783
Corporate debt obligations		4,493		12		(4	)		4,501
Mutual funds		903		42		-			945
Municipal debt obligations		6, 828		35		(144	)		6,719
SBA pools		1,097		-		(4	)		1,093
GSE mortgage-backed securities		14,794		752		(83	)		15,463
GSE collateralized mortgage obligations		64,120		190		(2,688	)		61,622
	$	234,071	$	1,047	$	(7,992	)	$	227,126

Held to Maturity:
December 31, 2013
Corporate debt obligations	$	1,193	$	203	$	-		$	1,396
Municipal debt obligations		15,910		368		-			16,278
GSE mortgage-backed securities		188		20		-			208
	$	17,291	$	591	$	-		$	17,882

The Company had no investment securities classified as held-to-maturity at December 31, 2014.

On March 31, 2014, the Company reclassified its $10.0 million held-to-maturity portfolio as available for sale. The Company made this reclassification to ease the facilitation of security replacement to mitigate interest rate risk and to shift to mortgage related securities. The securities reclassified included: $8.6 million in municipal debt securities with an unrealized gain of $522,000, $1.2 million in corporate debt securities with an unrealized gain of $228,000 and $155,000 in GSE mortgage-backed securities with an unrealized gain of $17,000. In accordance with regulatory and accounting requirements, the Company is prohibited from classifying security purchases as held-to-maturity for a period of two years.

All of the Company’s mortgage-backed securities and collateralized mortgage obligations at December 31, 2014 and 2013 have been issued by government agencies or government sponsored enterprises.

F-19

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENT SECURITIES (CONTINUED)

The amortized cost and estimated fair value of investment securities at December 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	1,156	$	1,198
Due after one year through five years		60,711		59,904
Due after five year through ten years		31,521		30,930
Due thereafter		17,070		17,071
		110,458		109,103
GSE mortgage-backed securities and GSE collateralized mortgage obligations		113,093		113,132
Total	$	223,551	$	222,235

At December 31, 2014 and 2013, $123.6 million and $139.0 million, respectively, of securities were pledged as collateral to secure certain deposits and FHLB advances.

Gross gains and losses of $921,000 and $217,000, respectively, for the year ended December 31, 2014, and $1,082,000 and $18,000 respectively, for the year ended December 31, 2013, were realized on sales and calls of available-for-sale investment securities.

The following table shows the Company’s available for sale investments’ gross unrealized losses and fair value, and length of time that individual securities have been in a continuous unrealized loss position:


At December 31, 2014	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. Government obligations	$	41,466	$	490	$	43,460	$	899	$	84,926	$	1,389
Municipal debt obligations		871		10		834		22		1,705		32
SBA pools		4,445		62		-		-		4,445		62
GSE mortgage-backed securities		15,902		48		-		-		15,902		48
GSE collateralized mortgage obligations		3,428		81		31,281		861		34,709		942
Total	$	66,112	$	691	$	75,575	$	1,782	$	141,687	$	2,473

F-20

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – INVESTMENT SECURITIES (CONTINUED)


At December 31, 2013	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U. S. Government obligations	$	126,055	$	4,590	$	8,006	$	479	$	134,061	$	5,069
Corporate debt obligations		1,497		4		-		-		1,497		4
Municipal debt obligations		3,319		123		565		21		3,884		144
SBA pools		1,093		4		-		-		1,093		4
GSE mortgage-backed securities		1,629		82		33		1		1,662		83
GSE collateralized mortgage obligations		46,346		2,628		781		60		47,127		2,688
Total	$	179,939	$	7,431	$	9,385	$	561	$	189,324	$	7,992

At December 31, 2013, there were no held to maturity investments in an unrealized loss position.

At December 31, 2014, there were 42 securities in the less-than-twelve-months category and 45 securities in the twelve-months-or-more category for the available-for-sale portfolio. Included in the 42 securities in the less-than-twelve months category for available-for-sale securities are (a) 21 U. S. government securities; (b) four municipal debt obligations, of which three have been in a loss position for one month and one of which has been in a loss position for two months; (c) four SBA pools, three of which have been in a loss position for 6 months and one has been in a loss position for one month; (d) ten mortgage-backed securities, five of which have been in a loss position for one month, four of which have been in a loss position for 6 months and one of which has been in a loss position for 4 months and (e) 3 collateralized mortgage obligations. Included in the 45 securities in the twelve-months-or-more category are (a) 23 U. S. government securities; (b) three municipal debt obligations and (c) 19 collateralized mortgage obligations.

At December 31, 2013, there were 120 securities in the less-than-twelve-months category and eight securities in the twelve-months-or-more category for the available-for-sale portfolio. Included in the 120 securities in the less-than-twelve months category for available-for-sale securities are (a) 68 U. S. government securities; (b) two corporate debt obligations of which one has been in a loss position for two months and one has been in a loss position for one month; (c) twelve municipal debt obligations, of which five have been in a loss position for 8 months, five have been in a loss position for 7 months and two of which had been in a loss position for two months; (d) three SBA pools, two of which have been in a loss position for 10 months and one has been in a loss position for one month; (e) two mortgage-backed securities, one of which has been in a loss position for 8 months and one which has been in a loss position for 5 months and (f) 33 collateralized mortgage obligations. Included in the eight securities in the twelve-months-or-more category are (a) four U. S. government securities; (b) two municipal debt obligations; (c) one mortgage-backed security and (b) one collateralized mortgage obligation.

As of December 31, 2014, management believes that the estimated fair values of the securities noted above are primarily dependent on the movement in market interest rates. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service, pools of loans from the Small Business Administration and pools of loans from a government sponsored enterprise. Management believes that these fair values will recover as the underlying portfolios mature. The Company does not intend to sell and expects that it is not more likely than not that it will be required to sell the investment securities prior to an anticipated recovery in fair value. Management does not believe any individual unrealized loss as of December 31, 2014 represents an other-than-temporary impairment.

F-21

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable at December 31, 2014 and 2013 consist of the following:


	2014			2013
	(In thousands)
Real estate loans:
One-to-four family	$	150,502		$	149,726
Multi-family		4,618			284
Commercial		65,644			79,601
Construction and land		8,106			8,665
Home equity loans and credit lines		24,324			26,442
Commercial		18,223			17,302
Consumer		773			834
		272,190			282,854
Deferred loan fees		(107	)		(847	)
Allowance for loan losses		(4,294	)		(5,853	)
	$	267,789		$	276,154

Our loans are originated and administered through our loan policies. We originate one- to four-family residential real estate loans, home equity loans and lines of credit, commercial real estate loans, commercial business loans, construction and land loans, consumer loans and multi-family loans. Our one- to four-family residential loans also include loans to businesses for commercial purposes which are secured by liens on the borrower’s residence. We offer fixed-rate, adjustable-rate and balloon loans that amortize with monthly loan payments. We have not originated or purchased any sub-prime or Alt-A loans. We have not originated or purchased payment-option ARMs or negative amortizing loans.

In the normal course of business, the Bank has extended loans to executive officers, directors and principal stockholders, their immediate families and affiliated companies (commonly referred to as related parties) on the same terms including interest rates and collateral as those prevailing at the time for comparable transactions with others. A summary of loan activity to related parties is as follows (in thousands):

	Balance January 1, 2014		Transfers				Additions				Amounts Collected				Balance December 31, 2014
$	846		$	-			$	141			($	491	)		$	496

F-22

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following tables set forth the activity in the allowance for loan losses by portfolio class for the years ended December 31, 2014 and 2013 and the composition of the allowance for loan losses at December 31, 2014 and 2013:


	At or for the year ended December 31, 2014
	Real Estate
(In thousands)	One-to- four family			Multi- family		Comm- ercial			Con- struc- tion and land			Home equity and credit lines			Comm- ercial			Con- sumer			Unallo -cated		Total
Balance at beginning of period	$	1,650		$	3	$	1,222		$	90		$	275		$	1,843		$	20		$	750	$	5,853
Charge-offs		(526	)		-		(234	)		(76	)		(102	)		(2,389	)		-			-		(3,327	)
Recoveries		70			-		909			-			30			671			55			-		1,735
Provision		(554	)		47		(1,270	)		162			36			1,104			(67	)		575		33
Balance at end of period	$	640		$	50	$	627		$	176		$	239		$	1,229		$	8		$	1,325	$	4,294

Allowance ending balance
Related to loans individually evaluated for impairment	$	80		$	-	$	343		$	89		$	53		$	-		$	-		$	-	$	565
Related to loans collectively evaluated for impairment		560			50		284			87			186			1,229			8			1,325		3,729
Total allowance	$	640		$	50	$	627		$	176		$	239		$	1,229		$	8		$	1,325	$	4,294

	At or for the year ended December 31, 2013
	Real Estate
(In thousands)	One- to- four family			Multi- family			Comm- ercial			Con- struc- tion and land			Home equity and credit lines			Comm- ercial			Con- sumer			Unallo -cated			Total
Balance at beginning of period	$	692		$	6		$	1,107		$	138		$	277		$	405		$	21		$	1,500		$	4,146
Charge-offs		(217	)		-			(1,826	)		(37	)		(258	)		(1,965	)		(14	)		-			(4,317	)
Recoveries		58			-			-			54			-			203			10			-			325
Provision		1,117			(3	)		1,941			(65	)		256			3,200			3			(750	)		5,699
Balance at end of period	$	1,650		$	3		$	1,222		$	90		$	275		$	1,843		$	20		$	750		$	5,853

Allowance ending balance
Related to loans individually evaluated for impairment	$	210		$	-		$	9		$	-		$	8		$	1,550		$	-		$	-		$	1,777
Related to loans collectively evaluated for impairment		1,440			3			1,213			90			267			293			20			750			4,076
Total allowance	$	1,650		$	3		$	1,222		$	90		$	275		$	1,843		$	20		$	750		$	5,853

F-23

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table sets forth the related recorded investment in loans receivable by portfolio class individually and collectively evaluated for impairment at December 31, 2014:


(In thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Total

Real estate loans:
One-to-four family	$	8,605	$	141,897	$	150,502
Multi-family		-		4,618		4,618
Commercial		2,714		62,930		65,644
Construction and land		3,073		5,033		8,106
Home equity and credit lines		709		23,615		24,324
Commercial		-		18,223		18,223
Consumer		-		773		773
Total	$	15,101	$	257,089	$	272,190

The following table sets forth the related recorded investment in loans receivable by portfolio class individually and collectively evaluated for impairment at December 31, 2013:


(In thousands)	Individually evaluated for Impairment		Collectively evaluated for impairment		Total

Real estate loans:
One-to-four family	$	8,933	$	140,793	$	149,726
Multi-family		-		284		284
Commercial		9,452		70,149		79,601
Construction and land		3,323		5,342		8,665
Home equity and credit lines		778		25,664		26,442
Commercial		2,784		14,518		17,302
Consumer		-		834		834
Total	$	25,270	$	257,584	$	282,854

F-24

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table presents the classes of the loan portfolio summarized by the classification rating within the Company’s internal risk rating system as of December 31, 2014:


(In thousands)	Pass		Watch		Special Mention		Substandard		Doubtful		Total

Real estate loans:
One-to-four family	$	133,495	$	10,665	$	207	$	6,135	$	-	$	150,502
Multi-family		4,435		183		-		-		-		4,618
Commercial		49,323		10,487		2,676		3,158		-		65,644
Construction and land		3,306		3,624		-		1,176		-		8,106
Home equity and credit lines		22,374		1,206		-		744		-		24,324
Commercial		15,476		2,747		-		-		-		18,223
Consumer		686		42		45		-		-		773
Total	$	229,095	$	28,954	$	2,928	$	11,213	$	-	$	272,190

The following table presents the classes of the loan portfolio summarized by the classification rating within the Company’s internal risk rating system as of December 31, 2013:


(In thousands)	Pass		Watch		Special Mention		Substandard		Doubtful		Total

Real estate loans:
One-to-four family	$	130,862	$	7,712	$	1,783	$	9,369	$	-	$	149,726
Multi-family		-		284		-		-		-		284
Commercial		45,181		22,851		3,739		7,830		-		79,601
Construction and land		4,060		1,140		-		3,465		-		8,665
Home equity and credit lines		24,891		597		108		846		-		26,442
Commercial		9,325		1,519		3,674		340		2,444		17,302
Consumer		731		83		20		-		-		834
Total	$	215,050	$	34,186	$	9,324	$	21,850	$	2,444	$	282,854

A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or shortfall in the amount of payments does not necessarily result in the loan being identified as impaired. For this purpose, delays less than 90 days are generally considered to be insignificant.

F-25

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table summarizes information in regards to impaired loans by loan portfolio class as of and for the year ended December 31, 2014:


(In thousands)	Recorded investment		Unpaid Principal Balance		Related Allowance		Average recorded investment		Interest income recognized

With an allowance recorded:
Real estate loans:
One-to-four family	$	2,197	$	2,365	$	80	$	2,255	$	64
Multi-family		-		-		-		-		-
Commercial		1,964		1,964		343		1,997		28
Construction and land		2,028		2,028		89		2,058		12
Home equity and credit lines		249		277		53		252		1
Commercial		-		-		-		-		46
Consumer		-		-		-		-		-
Total	$	6,438	$	6,634	$	565	$	6,562	$	151

With no related allowance recorded:
Real estate loans:
One-to-four family	$	6,408	$	7,889	$	-	$	6,893	$	131
Multi-family		-		-		-		-		-
Commercial		750		837		-		819		111
Construction and land		1,045		1,123		-		1,080		36
Home equity and credit lines		460		644		-		493		7
Commercial		-		-		-		-		19
Consumer		-		-		-		-		-
Total	$	8,663	$	10,493	$	-	$	9,285	$	304

Total
Real estate loans:
One-to-four family	$	8,605	$	10,254	$	80	$	9,148	$	195
Multi-family		-		-		-		-		-
Commercial		2,714		2,801		343		2,816		139
Construction and land		3,073		3,151		89		3,138		48
Home equity and credit lines		709		921		53		745		8
Commercial		-		-		-		-		65
Consumer		-		-		-		-		-
Total	$	15,101	$	17,127	$	565	$	15,847	$	455

F-26

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table summarizes information in regards to impaired loans by loan portfolio class as of and for the year ended December 31, 2013:


(In thousands)	Recorded investment		Unpaid Principal Balance		Related Allowance		Average recorded investment		Interest income recognized

With an allowance recorded:
Real estate loans:
One-to-four family	$	2,728	$	2,870	$	210	$	2,774	$	59
Multi-family		-		-		-		-		-
Commercial		66		66		9		66		2
Construction and land		-		-		-		-		-
Home equity and credit lines		60		61		8		60		-
Commercial		2,784		3,178		1,550		2,967		17
Consumer				-		-		-		-
Total	$	5,638	$	6,175	$	1,777	$	5,867	$	78

With no related allowance recorded:
Real estate loans:
One-to-four family	$	6,205	$	7,297	$	-	$	6,475	$	199
Multi-family		-		-		-		-		-
Commercial		9,386		12,709		-		10,190		448
Construction and land		3,323		3,325		-		4,071		29
Home equity and credit lines		718		946		-		758		25
Commercial		-		-		-		-		28
Consumer		-		3		-		2		-
Total	$	19,632	$	24,280	$	-	$	21,496	$	729

Total
Real estate loans:
One-to-four family	$	8,933	$	10,167	$	210	$	9,249	$	258
Multi-family		-		-		-		-		-
Commercial		9,452		12,775		9		10,256		450
Construction and land		3,323		3,325		-		4,071		29
Home equity and credit lines		778		1,007		8		818		25
Commercial		2,784		3,178		1,550		2,967		45
Consumer		-		3		-		2		-
Total	$	25,270	$	30,455	$	1,777	$	27,363	$	807

Loans are charged off when the loan is deemed uncollectible. Loans that are not charged off are placed on non-accrual status when collection of principal or interest is considered doubtful. Loans are typically placed on non-accrual at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection.

F-27

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Non-performing assets and performing troubled debt restructurings (“TDR”) at December 31, 2014 and 2013 were as follows:


	2014			2013
	(In thousands)
Non-accrual loans:
Real estate loans:
One- to four-family	$	5,126		$	5,162
Multi-family		-			-
Commercial		593			5,215
Construction and land		1,046			1,233
Home equity loans and lines of credit		620			715
Commercial		-			1,235
Consumer		-			-
Total non-accrual loans		7,385			13,560

Accruing loans 90 days or more past due:
All loans		-			-

Total non-performing loans		7,385			13,560

Real estate owned		2,220			3,258

Total non-performing assets	$	9,605		$	16,818

Performing troubled debt restructurings:
Real estate loans:
One- to four-family	$	3,430		$	3,464
Multi-family		-			-
Commercial		2,121			4,186
Construction and land		2,028			2,091
Home equity loans and lines of credit		45			45
Commercial		-			-
Consumer		-			-

Total performing troubled debt restructurings		7,624			9,786

Total non-performing assets and performing troubled debt restructurings	$	17,229		$	26,604

Ratios:
Total non-performing loans to total loans		2.71	%		4.79	%
Total non-performing loans to total assets		1.36	%		2.33	%
Total non-performing assets to total assets		1.77	%		2.88	%

At December 31, 2014, non-accrual loans amounted to $7.4 million consisting of 47 one-to four-family real estate loans, four commercial real estate loans, two construction and land loans and twelve home equity loans. Included in the December 31, 2014 non-accrual amounts are 16 TDRs in the amount of $2.8 million. They consist of 15 one-to four-family real estate loans, one construction and land loan. At December 31, 2013, non-accrual loans amounted to $13.6 million consisting of 43 one-to four-family real estate loans, ten commercial real estate loans, three construction and land loans, 15 home equity loans, three non-real estate commercial loans and one consumer loan. Included in the December 31, 2013 non-accrual amounts are 22 TDRs in the amount of $8.4 million. They consist of twelve one-to four-family real estate loans, five commercial real estate loans, two construction and land loans and three non-real estate commercial loans. At December 31, 2014 and 2013, all non-accrual loans were individually evaluated for impairment.

At December 31, 2014, the Bank had nine properties in real estate owned totaling $2.2 million, which is net of an allowance for losses of $1.2 million, consisting of three one- to four-family dwelling units, one commercial property, and five vacant lots. At December 31, 2013, the Bank had 16 properties in real estate owned totaling $3.3 million, which is net of an allowance for losses of $942,000, consisting of seven one- to four-family dwelling units, two commercial properties, six vacant lots and one dockiminium. Included in real estate owned at December 31, 2014 and December 31, 2013 is improved land for future branch expansion that was transferred from office properties and equipment during 2012 in the amount of $2.4 million.

F-28

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

At December 31, 2014, in addition to the troubled debt restructurings included in the non-accrual loan totals, the Bank had 26 loans totaling $7.6 million that were considered troubled debt restructurings and classified as impaired. Three of the loans are commercial real estate and construction and land with a recorded investment of $4.1 million, 22 are one-to four-family loans with a recorded investment of $3.4 million and one is a home equity loan with a recorded investment of $45,000.

At December 31, 2013, in addition to the troubled debt restructurings included in the non-accrual loan totals, the Bank had 29 loans totaling $9.8 million that were considered troubled debt restructurings and classified as impaired. Six of the loans are commercial real estate, construction and land and multi-family loans with a recorded investment of $6.3 million, 22 are one-to four-family loans with a recorded investment of $3.5 million and one is a home equity loan with a recorded investment of $45,000.

The following table summarizes information in regards to troubled debt restructurings for the year ended December 31, 2014, three of which were interest rate modifications and one of which was a deferment of interest payments; with no debt forgiven:


	Number of Contracts	Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
	(Dollars in thousands)
Real estate loans:
One- to four-family	4	$	567	$	567

Total	4	$	567	$	567

The following table summarizes information in regards to troubled debt restructurings for the year ended December 31, 2013, all of which were interest rate modifications and no debt was forgiven:


	Number of Contracts	Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
	(Dollars in thousands)
Real estate loans:
One- to four-family	3	$	458	$	458

Total	3	$	458	$	458

The following table presents troubled debt restructurings with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the year ended December 31, 2014 (of which there were none) and December 31, 2013:

	Number of Contracts	Recorded Investment
	(Dollars in thousands)
Real estate loans:
One- to four-family	1	$	111
Commercial	2		2,982

Total	3	$	3,093

F-29

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The performance and credit quality of the loan portfolio is monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The follow tables present the classes of the loan portfolio summarized by the past due status at December 31, 2014 and 2013:


At December 31, 2014 (In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days and More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More and Accruing

Mortgage loans:
One- to four-family residential	$	1,597	$	724	$	1,621	$	3,942	$	146,560	$	150,502	$	-
Multi-family		-		-		-		-		4,618		4,618		-
Commercial		125		-		119		244		65,400		65,644		-
Construction and land		-		-		-		-		8,106		8,106		-
Home equity loans and credit lines		224		124		446		794		23,530		24,324		-
Commercial		-		-		-		-		18,223		18,223		-
Consumer and other		10		-		-		10		763		773		-
Total	$	1,956	$	848	$	2,186	$	4,990	$	267,200	$	272,190	$	-


At December 31, 2013 (In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days and More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More and Accruing

Mortgage loans:
One- to four-family residential	$	3,393	$	2,422	$	3,399	$	9,214	$	140,512	$	149,726	$	-
Multi-family		-		-		-		-		284		284		-
Commercial		62		403		1,054		1,519		78,082		79,601		-
Construction and land		-		-		-		-		8,665		8,665		-
Home equity loans and credit lines		356		15		464		835		25,607		26,442		-
Commercial		-		340		-		340		16,962		17,302		-
Consumer and other		-		-		-		-		834		834		-
Total	$	3,811	$	3,180	$	4,917	$	11,908	$	270,946	$	282,854	$	-

F-30

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – OFFICE PROPERTIES AND EQUIPMENT

Office properties and equipment at December 31, 2014 and 2013 are summarized by major classification as follows:


	Estimated Useful Life in Years	2014			2013
		(In thousands)

Land	Indefinite	$	1,705		$	1,705
Buildings	25		8,694			8,694
Furniture, fixtures and equipment	3 – 7		3,326			3,245
			13,725			13,644
Accumulated depreciation			(6,315	)		(5,819	)
		$	7,410		$	7,825

NOTE 7 - DEPOSITS

Deposits at December 31, 2014 and 2013 consist of the following major classifications (dollars in thousands):


	2014					2013
	Amount		Average Rate			Amount		Average Rate

Certificates of deposit:
0.00% - 2.00%	$	64,735		0.68	%	$	70,676		0.66	%
2.01% - 4.00%		31,288		2.81			35,688		2.83
4.01% - 6.00%		677		4.57			1,875		4.87
Total certificates of deposit		96,700		1.40			108,239		1.45

Non interest-bearing demand		48,341		-			42,739		-
NOW		150,415		0.41			152,279		0.42
Super NOW		37,466		0.26			43,740		0.35
Savings		85,913		0.33			111,219		0.56
Money market deposit		56,545		0.31			63,811		0.40
	$	475,380		0.53	%	$	522,027		0.62	%

F-31

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DEPOSITS (CONTINUED)

A summary of certificates of deposit by maturity at December 31, 2014 is as follows (in thousands):


2015	$	46,069
2016		24,929
2017		13,808
2018		4,273
2019		6,411
Thereafter		1,210
	$	96,700

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $36.8 million and $39.2 million at December 31, 2014 and 2013, respectively.

A summary of interest expense on deposits for the years ended December 31, 2014 and 2013 is as follows:


	2014		2013
	(In thousands)
NOW and Super NOW	$	735	$	1,185
Savings		284		632
Money market demand		164		287
Certificates of deposit		1,451		1,715
	$	2,634	$	3,819

At December 31, 2014 and 2013, the Company held deposits for related parties of approximately $453,000 and $588,000, respectively.

NOTE 8 – FEDERAL HOME LOAN BANK BORROWINGS

There were no Federal Home Loan Bank borrowings outstanding at December 31, 2014 and 2013.

At December 31, 2014, the Bank had a borrowing capacity of 30% of assets or $162.5 million available from the FHLB, of which nothing was outstanding.

F-32

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – INCOME TAXES

Retained earnings include $1.5 million at December 31, 2014 and 2013, for which no provision for federal income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Internal Revenue Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from the “applicable excess reserve” defined as the total amount of reserve over the base year reserve.

The income tax provision (benefit) consists of the following for the years ended December 31:


	2014		2013
	(In thousands)
Current:
Federal	$	47	$	(1,110	)
State		6		2
Total current	$	53	$	(1,108	)

Deferred		619		(529	)
Total	$	672	$	(1,637	)

A reconciliation of the statutory federal income tax at a rate of 34% to the income tax provision (benefit) included in the consolidated statements of operations for the years ended December 31 is as follows (dollars in thousands):


	2014						2013
	Amount			% of Pretax Income			Amount			% of Pretax Income
Federal income tax at statutory rate	$	410			34.0	%	$	(1,177	)		(34.0	)%
State tax, net of federal benefit		184			15.2	%		(297	)		(8.6	)%
Tax-exempt income		(61	)		(5.1	)%		(154	)		(4.4	)%
Life insurance income		(144	)		(11.9	)%		(149	)		(4.3	)%
Non-deductible expense		271			22.5	%		-			-	%
Other		12			1.0	%		140			4.0	%
Total	$	672			55.7	%	$	(1,637	)		(47.3	)%

F-33

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – INCOME TAXES (CONTINUED)

The components of the net deferred tax asset are as follows:


	December 31,
	2014			2013
	(In thousands)
Deferred tax assets:
Deferred loan fees	$	15		$	338
Allowance for loan losses		1,715			2,338
Securities impairment		125			125
State net operating loss carryforwards		1,218			1,202
Capital loss carryforwards		67			73
Deferred compensation		96			141
Nonaccrual interest adjustment		216			207
Allowance for REO losses		476			376
Depreciation		427			180
Net unrealized loss on securities available for sale		526			2,468
AMT Credit		48			-
Other		122			140
Total deferred tax assets		5,051			7,588

Valuation allowance		(336	)		(312	)

Total deferred tax liabilities		-			-
Net Deferred Tax Asset	$	4,715		$	7,276

The Company has considered future market growth, forecasted earnings, future taxable income and prudent, feasible and permissible tax planning strategies in determining the realizability of deferred tax assets. If the Company were to determine that it would not be able to realize a portion of its net deferred tax assets in the future, an adjustment to the net deferred tax assets would be charged to earnings in the period such determination was made.

The Company has New Jersey state net operating loss carryforwards of approximately $19.2 million of which $5.5 million expires from 2014 through 2015 and the balance expires from 2029 through 2032. New Jersey state net operating losses incurred prior to January 1, 2009 may be carried forward for seven succeeding years, and losses incurred in periods after January 1, 2009 may be carried forward for 20 years. At December 31, 2014, the Company recorded a valuation allowance of approximately $324,000 against the deferred tax asset attributable to the New Jersey state net operating loss carryover.

The Company has federal capital loss carryforwards of approximately $195,000 expiring in 2015. Capital losses may be carried back three years and carried forward five succeeding years. The Company expects to fully realize the benefit of such carryforwards through tax planning strategies. The Company has state capital loss carryforwards of $115,000. At December 31, 2014, the Company has recorded a full valuation allowance of $12,000 for the state capital loss carryforwards.

F-34

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – BENEFIT PLANS

The Bank has a 401(k) Savings Plan (the “Plan”). All employees are eligible to participate after completing three months of eligible service. The employees may contribute up to fifteen percent of their compensation to the Plan. After one year of service the Bank will match one hundred percent of the first one percent and fifty percent of the next five percent or a maximum of three and one-half percent of total salary. Full vesting in the Plan is prorated equally over a five-year period. The Bank’s contributions to the Plan for the years ended December 31, 2014 and 2013 were $88 thousand and $107 thousand, respectively.

The Bank has an Employee Stock Ownership Plan (“ESOP”) for the benefit of employees who meet the eligibility requirements as defined in the plan. In 2005, the ESOP trust acquired 156,399 shares of common stock in the initial public offering using proceeds of a loan from the Company. The Bank will make cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 6.00% with principal and interest payable annually in equal installments over fifteen years. The loan is secured by the shares of the stock purchased.

In 2010, the ESOP acquired an additional 91,800 shares of the Company’s common stock with a loan from the Company in the amount of $918,000, at a price of $10.00 per share. The Bank will make cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 4.25% with principal and interest payable annually in equal installments over 10 years. The loan is secured by the shares of the stock purchased.

As the debt is repaid, shares are released from the collateral account and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As the shares are released from collateral, the Company reports compensation expense equal to the average market price of the shares, and the shares become outstanding for earnings per share computations. The Company’s compensation expense for the ESOP was $250 thousand and $276 thousand for the years ended December 31, 2014 and 2013, respectively. The following table presents the components of the ESOP shares:

	December 31,
	2014		2013
Shares released for allocation		132,156		134,869
Unreleased shares		93,245		113,330
Total ESOP shares		225,401		248,199
Fair value of unreleased shares	$	1,249,483	$	1,507,289

F-35

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – STOCK-BASED COMPENSATION

In 2006, Board of Directors of Colonial Bankshares, Inc. approved the Colonial Bankshares, Inc. 2006 Stock-based Incentive Plan (the “2006 Plan”). In 2011, the Board of Directors of Colonial Financial Services, Inc. approved the Colonial Financial Services, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). Under the 2006 Plan, the Company may grant options to purchase 208,247 shares of Company stock and may grant 83,300 shares of common stock as restricted stock awards. Under the 2011 Plan, the Company may grant options to purchase 229,500 shares of Company stock and may grant 91,800 shares of common stock as restricted stock awards.

Both plans enable the Board of Directors to grant stock options to executives, other key employees and nonemployee directors. The options granted under both plans may be either non-qualified stock options (NQOs) or incentive stock options (ISOs). Only NQOs may be granted to nonemployee directors under this plan and ISOs may be granted to employees. No grants may be made more than ten years after adoption of the respective plans. Options may not be granted with an exercise price that is less than 100% of the fair market value of the Company’s common stock on the date of grant. Options may not be granted with a term longer than 10 years. Stock options granted under the plans are subject to limitations under Section 422 of the Internal Revenue Code. The number of shares available under the plans, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event generally affecting the number of the Company’s outstanding shares.

On October 19, 2006, 83,300 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants awarded had a grant date fair value of $13.27 per share. The restricted time-based stock grants awarded vest 20% annually beginning October 19, 2007. On January 20, 2011, 3,268 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants awarded had a grant date fair value of $12.00 per share and vest 33% annually beginning January 20, 2012. On January 2, 2012, 45,895 shares of restricted time-based stock grants were awarded. The restricted time-based stock grants had a grant date fair value of $12.46 per shares and vest 20% annually beginning January 2, 2013. Also, on January 2, 2012, 45,895 shares of restricted performance-based stock grants were awarded. The restricted performance-based stock grants had a grant date fair value of $12.46 and vest 20% annually with the attainment of the performance goal. If the goal is not attained for the year, the stock grants are forfeited. During the years ended December 31, 2014 and 2013, $81 thousand and $81 thousand in compensation expense was recognized in regard to these restricted stock awards, respectively. During the years ended December 31, 2014 and 2013, there was no expense recognized in regard to the performance-based stock grants. The tax benefit recognized related to such stock-based compensation was $ 28 thousand and $28 thousand for the years ended December 31, 2014 and 2013. At December 31, 2014, all of the compensation expense related to the restricted stock awards granted on October 19, 2006 and January 20, 2011 was recognized. At December 31, 2014, there was $407,000 of unrecognized compensation expense related to the restricted stock awards granted on January 2, 2012 which is expected to be recognized over a period of 2.00 years. At December 31, 2014, there were 5 restricted time-based stock grants and 5 performance-based stock grants unawarded.

	Number of shares		Weighted Average Grant Date Fair Value
Restricted stock, January 1, 2014		52,832	$	12.46
Granted		-		-
Forfeited		6,536		12.46
Vested		7,082		12.43
Restricted stock, December 31, 2014		39,214	$	12.46

	Number of shares		Weighted Average Grant Date Fair Value
Restricted stock, January 1, 2013		93,970	$	12.46
Granted		-		-
Forfeited		30,871		12.45
Vested		10,267		12.41
Restricted stock, December 31, 2013		52,832	$	12.46

F-36

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – STOCK-BASED COMPENSATION (CONTINUED)

On October 19, 2006, options to purchase 184,660 shares of common stock at $13.27 per share were awarded. The options awarded vest 20% annually beginning October 19, 2007 and expire in 2016. On January 20, 2011, options to purchase 8,328 shares of common stock at $12.00 per share were awarded. The options awarded vest 33% annually beginning January 20, 2012 and expire in 2021. On January 2, 2012, options to purchase 194,600 shares of common stock at $12.46 per share were awarded. The options awarded vest 20% annually beginning January 2, 2013 and expire in 2022. The following is a summary of the Company’s stock option activity for the years ended December 31, 2014 and 2013:

	Options		Weighted Average Exercise Price
Outstanding at January 1, 2014		291,343	$	12.87
Granted		-		-
Exercised		2,295		12.46
Forfeitures		30,451		12.95
Outstanding at December 31, 2014		258,597	$	12.86
Exercisable at December 31, 2014		175,107	$	13.01

	Options		Weighted Average Exercise Price
Outstanding at January 1, 2013		379,260	$	12.85
Granted		-		-
Exercised		-		-
Forfeitures		87,917		12.79
Outstanding at December 31, 2013		291,343	$	12.87
Exercisable at December 31, 2013		184,318	$	13.12

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2006: dividend yield of 0%, risk-free interest rate of 4.79%, expected life of 6.5 years, and expected volatility of 15.00%. The weighted average fair value of options granted in 2006 was $4.03 per option. Weighted average contractual term of options outstanding and exercisable was 1.75 years at December 31, 2014. The following weighted average assumptions were used for pricing the options granted in 2011: dividend yield of 0%, risk-free interest rate of 3.47%, expected life of 6.5 years and expected volatility of 33.00%. The calculated fair value of options granted in 2011 was $4.84 per option. The weighted average contractual term of options outstanding and exercisable was 6.00 years at December 31, 2014. The following weighted average assumptions were used for pricing the options granted in 2012: dividend yield of 0%, risk-free interest rate of 1.41%, expected life of 6.5 years and expected volatility of 32.00%. The calculated fair value of options granted in 2012 was $4.34 per option. The weighted average contractual term of options outstanding and exercisable was 7.00 years at December 31, 2014. The options outstanding and exercisable had no aggregate intrinsic value at December 31, 2014 and 2013, respectively.

Stock-based compensation expense related to stock options granted for the years ended December 31, 2014 and 2013 was $121 thousand and $119 thousand, respectively, with a related tax benefit of $ thousand and $40 thousand, respectively. At December 31, 2014, all of the compensation cost related to stock options granted on October 19, 2006 and January 20, 2011 was recognized and there was $242,000 of unrecognized compensation cost related to stock options granted on January 2, 2012 which will be recognized over 2.0 years.

F-37

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Financial Instruments With Off-Balance Sheet Risk

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Such commitments involve, to varying degrees, elements of credit, and interest rate risk in excess of the amount recognized in the statements of financial condition.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At December 31, 2014 and 2013, the following financial instruments were outstanding whose contract amounts represent credit risk:

	2014		2013
	(In thousands)
Commitments to grant loans	$	9,115	$	7,079
Unfunded commitments under lines of credit		24,769		19,526
Commitments to purchase SBA/USDA Loans		3,437		-
Standby letters of credit		3,189		3,040
	$	40,510	$	29,645

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but generally includes residential or commercial real estate.

Unfunded commitments under lines of credit are collateralized except for the overdraft protection lines of credit and commercial unsecured lines of credit. The amount of collateral obtained is based on management’s credit evaluation, and generally includes residential or commercial real estate. The overdraft protection lines and the commercial unsecured lines of credit total approximately $4.0 million and usually do not contain specified maturity dates and may not be drawn upon to the extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability at December 31, 2014 and 2013 for guarantees under letters of credit is not material.

Litigation

The Company and its subsidiaries periodically become defendants in certain claims and legal actions arising in the ordinary course of business.

F-38

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

As of December 31, 2014, the Company is currently involved in a lawsuit by former employee. On March 4, 2013, Denise Davis filed a civil action against Colonial Federal Savings Bank and John Does 1-5 and 6-10 in Superior Court of New Jersey Cumberland County pursuant to the New Jersey Law Against Discrimination requesting compensatory damages, punitive damages, interest, cost of the suit, attorneys’ fees, enhanced attorney’s fees, equitable reinstatement, equitable back pay and equitable front pay. Ms. Davis claims to have suffered both non-economic losses for pain, embarrassment, upset and humiliation, as well as economic losses related to unemployment due to her termination. As of December 31, 2014, the Company is unable to predict an outcome, favorable or unfavorable, or to estimate the amount of any potential loss.

F-39

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s 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 classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted assets (as defined) and of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). Management believes, as of December 31, 2014, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2014, the most recent notification from the regulators categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum tangible, core and risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

In May 2013, the Bank entered into a Formal Agreement (“Agreement”) with the Office of the Comptroller of the Currency that required compliance with certain items within specified timeframes as outlined in the Agreement. Also, in May 2013, the Bank was notified by the OCC that it established minimum capital ratios for the Bank requiring it to maintain a Tier I capital to adjusted total assets ratio of 9.50%, a Tier I capital to risk-weighted assets ratio of 11.00%, and a Total risk-based capital to risk-based weighted assets ratio of 13.00%. As of December 31, 2014, Colonial Bank FSB ratios for these items were 11.06%, 23.57% and 24.83%, respectively.

The Bank’s actual capital amounts and ratios are presented in the table.

Actual

For Capital Adequacy
Purposes

To be Well Capitalized
under Prompt Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(In thousands)

As of December 31, 2014:

Tangible Capital (to Adjusted Tangible Assets)

59,651

11.06

>$8,089

>1.50%

N/A

Core Capital (to Adjusted Total Assets)

59,651

11.06

>21,571

>4.00%

>$26,963

>5.00%

Tier 1 Capital (to Risk-Weighted Assets)

59,651

23.57

N/A

>15,184

>6.00%

Total Capital (to Risk-Weighted Assets)

62,847

24.83

>20,246

>8.00%

>25,307

>10.00%

As of December 31, 2013:

Tangible Capital (to Adjusted Tangible Assets)

56,820

9.74

>$8,751

>1.50%

N/A

Core Capital (to Adjusted Total Assets)

56,820

9.74

>23,335

>4.00%

>$29,169

>5.00%

Tier 1 Capital (to Risk-Weighted Assets)

56,820

19.19

N/A

>17,769

>6.00%

Total Capital (to Risk-Weighted Assets)

60,568

20.45

>23,693

>8.00%

>29,616

>10.00%

F-40

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – REGULATORY CAPITAL REQUIREMENTS (CONTINUED)

OCC regulations impose limitations upon all capital distributions by savings institutions, like the Bank, such as dividends and payments to repurchase or otherwise acquire shares. The Company may not declare or pay cash dividends on or repurchase any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements, or if such declaration and payments would otherwise violate regulatory requirements.

The following table reconciles the Bank’s GAAP capital to its regulatory capital as of the dates indicated:

	December 31,
	2014			2013
	(In thousands)
Total equity capital	$	62,048		$	56,197
Add: Net unrealized loss (gain) on available-for-sale securities		790			4,477
Less: Disallowed deferred tax asset		(3,187	)		(3,854	)
Tier I Capital	$	59,651		$	56,820

Add: Allowance for loan losses includable in Tier 2 capital		3,177			3,729
Add: Unrealized gains on available-for-sale mutual funds (equity securities)		19			19
Total risk-based capital	$	62,847		$	60,568

In accordance with OTS regulations, at the time of the mutual-to-stock conversion, the Company substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The Bank established a parallel liquidation account to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank or the Company, each account holder will be entitled to receive a distribution in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company’s assets and liabilities; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these assets and liabilities subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

F-41

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

FASB ASC Topic 820 “Fair Value Measurement” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2014 and 2013 are as follows (dollars in thousands):

	December 31, 2014		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
U. S. government obligations	$	86,944	$	-	$	86,944	$	-
Mutual funds		892		892		-		-
Municipal debt obligations		4,012		-		4,012		-
SBA pools		17,255		-		17,255		-
GSE mortgage-backed securities		55,306		-		55,306		-
GSE collateralized mortgage obligations		57,826		-		57,826		-
Securities available-for-sale	$	222,235	$	892	$	221,343	$	-

	December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
U. S. government obligations	$	136,783	$	-	$	136,783	$	-
Corporate debt obligations		4,501		-		4,501		-
Mutual funds		945		945		-		-
Municipal debt obligations		6,719		-		6,719		-
SBA pools		1,093		-		1,093		-
GSE mortgage-backed securities		15,463		-		15,463		-
GSE collateralized mortgage obligations		61,622		-		61,622		-
Securities available-for-sale	$	227,126	$	945	$	226,181	$	-

F-42

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2014 and 2013 are as follows (dollars in thousands):

	December 31, 2014		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	11,574	$	-	$	-	$	11,574
Real estate owned	$	1,884	$	-	$	-	$	1,884

	December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Observable Other Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	13,531	$	-	$	-	$	13,531
Real estate owned	$	2,600	$	-	$	-	$	2,600

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value at December 31, 2014 and 2013:

	Quantitative Information About Level 3 Fair Value Measurements at December 31, 2014
Description	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
	(In thousands)

Impaired loans	$	11,574	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -25.0% (-15.0%)

Real estate owned	$	1,884	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -25.0% (-15.0%)

	Quantitative Information About Level 3 Fair Value Measurements at December 31, 2013
Description	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
	(In thousands)

Impaired loans	$	13,531	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -25.0% (-15.0%)

Real estate owned	$	2,600	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -25.0% (-15.0%)

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include level 3 inputs which are not identifiable.

(2)	Appraisals may be adjusted by management for qualitative factors including estimated liquidation expenses, which are presented above as a percent of the appraisal.

F-43

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of certain Company assets and liabilities at December 31, 2014 and 2013:

Cash and Amounts Due From Banks (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and amounts due from banks approximate those assets’ fair values.

Investment Securities

The fair value of investment securities available-for-sale (carried at fair value) and held-to-maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Receivable (Carried at Cost)

The fair values 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.

Impaired Loans (Generally Carried at Fair Value)

Impaired loans are those loans for which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. At December 31, 2014 and 2013, the fair value consists of loan balances of $6.4 million and $5.6 million, respectively, net of valuation allowances of $565,000 and $1.8 million, respectively, and loan balances of $7.1 million and $14.0 million, respectively, net of partial charge-offs of $1.4 million and $4.3 million, respectively.

Real Estate Owned

Real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned. Subsequently, real estate owned assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. These assets are included as Level 3 fair values.

F-44

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Federal Home Loan Bank Stock (Carried at Cost)

The carrying amount of FHLB of New York stock approximates fair value, and considers the limited marketability of such security.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest receivable and accrued interest payable approximates their fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest 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.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Borrowings (Carried at Cost)

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters 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 instruments is not material.

The carrying amount estimated fair value of the Company’s assets and liabilities at December 31, 2014 and 2013 are as follows:

	December 31, 2014
	Carrying amount		Level 1		Level 2		Level 3		Estimated Fair Value
	(Amounts in thousands)
Financial assets:
Cash and amounts due from banks	$	16,686	$	16,686	$	-	$	-	$	16,686
Investment securities available-for-sale		222,235		892		221,343		-		222,235
Federal Home Loan Bank stock		503		503		-		-		503
Loans receivable, net		267,789		-		-		268,391		268,391
Accrued interest receivable		1,345		-		1,345		-		1,345

Financial liabilities:
Deposits		475,380		-		476,678		-		476,678
Accrued interest payable		14		-		14		-		14

Off-balance sheet financial instruments:
Commitments to extend credit and letters of credit		-		-		-		-		-

F-45

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

	December 31, 2013
	Carrying amount		Level 1		Level 2		Level 3		Estimated Fair Value
	(Amounts in thousands)
Financial assets:
Cash and amounts due from banks	$	23,404	$	23,404	$	-	$	-	$	23,404
Investment securities available-for-sale		227,126		945		226,181		-		227,126
Corporate debt obligations held-to-maturity		1,193		-		1,396		-		1,396
Municipal debt obligations held-to-maturity		15,910		-		16,278		-		16,278
GSE mortgage-backed securities held-to-maturity		188		-		208				208
Federal Home Loan Bank stock		702		702		-		-		702
Loans receivable, net		276,154		-		-		276,861		276,861
Accrued interest receivable		1,530		-		1,530		-		1,530

Financial liabilities:
Deposits		522,027		-		524,104		-		524,104
Accrued interest payable		16		-		16		-		16

Off-balance sheet financial instruments:
Commitments to extend credit and letters of credit		-		-		-		-		-

F-46

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – PARENT COMPANY ONLY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2014		2013
ASSETS	(In thousands)

Cash and cash equivalents	$	1,019	$	1,227
Equity investment in Colonial Bank, FSB		62,048		56,196
Loan receivable – ESOP		1,133		1,346
Other assets		119		394

Total Assets	$	64,319	$	59,163

LIABILITIES AND STOCKHOLDERS’ EQUITY
Other liabilities	$	482	$	-
Total Stockholders’ Equity		63,837		59,163

Total Liabilities and Stockholders’ Equity	$	64,319	$	59,163

CONDENSED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2014		2013
	(In thousands)
Interest income	$	71	$	81
Equity in income (loss) of Colonial Bank, FSB		1,915		(1,625	)
Total income (loss)		1,986		(1,544	)

General, administrative and other expenses		1,451		281

Net income (loss)	$	535	$	(1,825	)

CONDENSED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2014			2013
	(In thousands)

Cash flows from operating activities:
Net income (loss)	$	535		$	(1,825	)
Share-based compensation expense		202			200
Equity in undistributed (income) loss Colonial Bank, FSB		(1,915	)		1,625
Increase in cash from ESOP loan repayment		213			204
Decrease (increase) in other assets		275			(14	)
Increase in other liabilities		482			-

Net cash (used in) provided by operating activities		(208	)		190

Cash flows from financing activities:
Repurchase and retirement of common stock		-			(134	)

Net cash used in financing activities		-			(134	)

Net (decrease) increase in cash and cash equivalents		(208	)		56

Cash and cash equivalents at beginning of period		1,227			1,171

Cash and cash equivalents at end of period	$	1,019		$	1,227

F-47

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents summarized consolidated quarterly data for each of the last two years. Certain balances may not cross foot due to rounding.

Three Months Ended:	December 31,			September 30,			June 30,		March 31,
	(Dollars in thousands, except per share data)
2014
Total interest income	$	3,762		$	3,782		$	3,882	$	4,110
Total interest expense		642			654			668		687
Net interest income		3,120			3,128			3,214		3,423
Provision for loan losses		(257	)		(258	)		-		548
Net interest income after provision for loan losses		3,377			3,386			3,214		2,875
Total non-interest income		621			407			900		398
Total non-interest expense		3,754			3,679			3,235		3,303
Income (loss) before income tax (benefit)		244			114			879		(30	)
Income tax (benefit)		124			285			326		(63	)
Net income (loss)	$	120		$	(171	)	$	553	$	33
Basic earnings (loss) per share	$	0.03		$	(0.05	)	$	0.15	$	0.01
Diluted earnings (loss) per share	$	0.03		$	(0.05	)	$	0.15	$	0.01

Three Months Ended:	December 31,			September 30,			June 30,			March 31,
	(Dollars in thousands, except per share data)
2013
Total interest income	$	4,329		$	4,487		$	4,600		$	4,713
Total interest expense		818			907			1,045			1,078
Net interest income		3,511			3,580			3,555			3,635
Provision for loan losses		159			2,831			2,667			42
Net interest income after provision for loan losses		3,352			749			888			3,593
Total non-interest income		425			429			1,386			515
Total non-interest expense		3,694			3,823			3,850			3,432
Income (loss) before income tax (benefit)		83			(2,645	)		(1,576	)		676
Income tax (benefit)		(523	)		(697	)		(596	)		179
Net income (loss)	$	606		$	(1,948	)	$	(980	)	$	497
Basic earnings (loss) per share	$	0.16		$	(0.52	)	$	(0.26	)	$	0.13
Diluted earnings (loss) per share	$	0.16		$	(0.52	)	$	(0.26	)	$	0.13

F-48

COLONIAL FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 – PENDING ACQUISITION

On September 10, 2014, the Company, entered into an Agreement and Plan of Merger (the “Agreement”) with Cape Bancorp (NASDAQ: “CBNJ”). The Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Cape Bancorp, with Cape Bancorp continuing as the surviving entity. Upon consummation of the transaction, the Bank will merge with and into Cape Bank, a wholly-owned subsidiary of Cape Bancorp, with Cape Bank continuing as the surviving Bank. Under the Agreement, each shareholder of Colonial, subject to potential adjustments at closing, will be entitled to elect to receive either $14.50 per share in cash or 1.412 shares of Cape Bancorp’s common stock, subject to 50% of the shares being exchanged for stock and 50% for cash. Based on Cape Bancorp’s stock price of $10.06, as of September 9, 2014, the transaction is valued at approximately $55.0 million. On January 26, 2015, Cape Bancorp announced that the acquisition of the Company received approval from the Federal Deposit Insurance Corporation, the Federal Reserve Bank of Philadelphia, and the New Jersey Department of Banking and Insurance. The transaction is subject to receipt of Colonial shareholder approval and Cape Bancorp shareholder approval. The Company expects the transaction to close early in the second quarter of 2015. At closing, two current members of the Colonial Board of Directors, Mr. Gregory J. Facemyer and Hugh J. McCaffrey will be added to the Boards of Directors of Cape and Cape Bank.

F-49

ITEM 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

(a)

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. There has been no change in the Company’s internal control over financial reporting during the Company’s fourth quarter of fiscal year 2014, other than the implementation of additional controls and procedures related to the calculation of the Bank’s regulatory capital ratios, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

(b)

Management’s annual report on internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including the principal executive officer and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework (1992).” Based on such assessment, management believes that, as of December 31, 2014, the Company’s internal control over financial reporting is effective, based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to provisions of the Dodd-Frank Act that permit the Company to provide only management’s report in this annual report.

ITEM 9B.

Other Information

None.

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

Board of Directors is comprised of six members, a majority of whom are “independent” under the Nasdaq listing standards. Our Bylaws provide that directors are divided into three classes, with one class of directors elected annually. Our directors are generally elected to serve for a three-year period and until their respective successors shall have been elected and shall qualify. The table below sets forth certain information regarding our directors, and executive officers who are not directors, including the terms of office of board members.


Name	Position(s) Held With Colonial Financial Services, Inc.	Age (1)	Director Since (2)	Current Term Expires	Shares Beneficially Owned (3)		Percent of Class

DIRECTORS

Corissa J. Briglia	Director	27	2014	2017		—	—
John Fitzpatrick, CPA	Vice Chairman of the Board	50	2005	2017	26,044	(4)	*
John J. Bailey	Director	59	2011	2015	9,262	(5)	*
Gregory J. Facemyer, CPA	Chairman of the Board	58	1994	2015	66,128	(6)	1.7%
Edward J. Geletka	President, Chief Executive Officer and Director	52	2001	2016	124,840	(7)	3.2%
Hugh J. McCaffrey	Director	56	2010	2016	20,999	(8)	*

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

L. Joseph Stella, III	Executive Vice President and Chief Financial Officer	56	N/A	N/A	73,414	(9)	1.9%
William F. Whelan	Executive Vice President and Chief Operations Officer	61	N/A	N/A	26,473	(10)	*

All Nominees, Directors and Executive Officers as a Group (8 persons)					347,160		9.0%

*	Less than 1%.

(1)	As of December 31, 2014.

(2)	Includes service with Colonial Bank, FSB, Colonial Bankshares, Inc. and Colonial Financial Services, Inc.

(3)	As of the voting record date.

(4)

Includes 2,754 unvested shares awarded under our 2011 Stock-based Incentive Plan as to which Mr. Fitzpatrick has voting but not dispositive power and exercisable options to purchase 10,412 and 4,590 shares awarded under our 2006 Stock-based Incentive Plan and 2011 Stock-based Incentive Plan, respectively.

(5)	Includes 2,754 unvested shares awarded under our 2011 Stock-based Incentive Plan as to which Mr. Bailey has voting but not dispositive power and exercisable options to purchase 4,590 shares.

(6)

Includes 9,399 shares held in Mr. Facemyer’s profit sharing plan, 2,754 unvested shares awarded under our 2011 Stock-based Incentive Plan as to which he has voting but not dispositive power and exercisable options to purchase 10,412 and 4,590 shares awarded under our 2006 Stock-based Incentive Plan and 2011 Stock-based Incentive Plan, respectively.

(7)

Includes 20,437 shares held in Mr. Geletka’s account in Colonial Bank, FSB’s 401(k) Plan, 9,492 shares allocated to Mr. Geletka under Colonial Bank, FSB’s employee stock ownership plan as of December 31, 2014, 3,002 shares held by Mr. Geletka’s spouse, 9,000 unvested shares awarded under our 2011 Stock-based Incentive Plan as to which he has voting but not dispositive power and exercisable options to purchase 41,825 and 13,600 shares awarded under our 2006 Stock-based Incentive Plan and 2011 Stock-based Incentive Plan, respectively.

(8)

Includes 2,754 unvested shares awarded under our 2011 Stock-based Incentive Plans, respectively, as to which Mr. McCaffrey has voting but not dispositive power and exercisable options to purchase 1,388 and 4,590 shares awarded under our 2006 Stock-based Incentive Plan and 2011 Stock-based incentive Plan, respectively.

(9)

Includes 23,601 shares held in Mr. Stella’s account in Colonial Bank, FSB’s 401(k) plan, 6,702 shares allocated to Mr. Stella under Colonial Bank, FSB’s employee stock ownership plan as of December 31, 2013, 845 shares held jointly with Mr. Stella’s spouse, 5,100 unvested shares awarded under our 2011 Stock-based Incentive Plan as to which he has voting but not dispositive power and exercisable options to purchase 20,676 and 6,800 shares awarded under our 2006 Stock-based Incentive Plan and 2011 Stock-based Incentive Plan, respectively.

(10)

Includes 5,324 shares allocated to Mr. Whelan under Colonial Bank, FSB’s employee stock ownership plan as of December 31, 2013, 3,450 unvested shares awarded under our 2011 Stock-based Incentive Plan as to which he has voting but not dispositive power and exercisable options to purchase 11,278 and 6,000 shares awarded under our 2006 Stock-based Incentive Plan and 2011 Stock-based Incentive Plan, respectively.

As described in a prior filing by Colonial Financial Services, Inc. with the Securities and Exchange Commission, on May 19, 2011, Colonial Financial Services, Inc. and Colonial Bank, FSB entered into an agreement (the “Bailey Agreement”) with John J. Bailey, Lawrence B. Seidman, 2514 Multi-Strategy Fund, LP, a Florida limited partnership, Broad Park Investors, LLC, a Delaware limited liability company, CBPS, LLC, a New York limited liability company, LSBK06-08, LLC, a New Jersey limited liability company, Seidman and Associates, LLC, a New Jersey limited liability company, Seidman Investment Partnership, LP, a New Jersey limited partnership, and Seidman Investment Partnership II, LP, a New Jersey limited partnership (such entities, together with Mr. Seidman, the “Seidman Entities”), pursuant to which Mr. Bailey was appointed to the Boards of Directors of Colonial Financial Services, Inc. and Colonial Bank, FSB for an initial term ending at the 2012 annual meetings of stockholders of Colonial Financial Services, Inc. and Colonial Bank, FSB, respectively.

As described in a prior filing by Colonial Financial Services, Inc. with the Securities and Exchange Commission, on December 18, 2013, Colonial Financial Services, Inc. and Colonial Bank, FSB entered into an agreement (the “Briglia Agreement”) with Stilwell Value Partners II, L.P., Stilwell Value Partners V, L.P., Stilwell Value Partners VII, L.P., Stilwell Activist Fund, L.P., Stilwell Activist Investments, L.P., Stilwell Partners, L.P., Stilwell Value LLC, and Joseph Stilwell, an individual (collectively, “The Stilwell Group”), pursuant to which, among other things, Colonial Financial Services, Inc. agreed to appoint a representative of The Stilwell Group to the Boards of Directors of Colonial Financial Services, Inc. and Colonial Bank, FSB. In fulfillment of its requirements under the Briglia Agreement, Colonial Financial Services, Inc. appointed Ms. Briglia to serve on the Board of Directors and nominated Corissa J. Briglia to serve as a director of Colonial Financial Services, Inc. for a three-year term to expire at Colonial Financial Services, Inc.’s 2017 annual meeting of stockholders.

Except for the Bailey Agreement, the Briglia Agreement or otherwise as indicated herein, there are no arrangements or understandings between any of the nominees or continuing directors and any other person pursuant to which such nominees or continuing directors were selected.

Directors and Executive Officers

The biographies of each of the board members and executive officers are set forth below. With respect to directors, the biographies also contain information regarding the person’s business experience and the experiences, qualifications, attributes or skills that caused the Nominating Committee and the Board of Directors to determine that the person should serve as a director. Each director is also a director of Colonial Bank, FSB.

Directors

John J. Bailey is Senior Vice President – Commercial Lending of Millington Savings Bank, a position he has held since February 2015. From December 2012 through September 2014, he was Senior Vice President – Credit Administration of Union Center National Bank. He was the 100% owner and managing member of Bailey Financial Consulting, LLC, a multi-dimensional business management consulting company formed in 1993. Bailey Financial Consulting, LLC provided traditional management consulting services and negotiated significant debt restructurings with banks, banking regulators (FDIC, OTS, OCC and RTC) and the corporate purchasers of distress debt from these regulators. Prior to 1993, Mr. Bailey worked for financial institutions in the commercial lending departments responsible for new commercial business efforts and shared responsibility for non-performing loans and underperforming assets. Mr. Bailey’s experience as a consultant to businesses and his experience in banking as a commercial lender provide the board of directors with in-depth knowledge of business risks and commercial loan workouts.

Corissa J. Briglia is with The Stilwell Group, an organization comprised of limited partnerships that invest primarily in community banks. Ms. Briglia has performed financial due diligence on hundreds of community banks to assess which institutions are operating in a safe and sound manner while effectively generating value for their shareholders. She graduated from the University of Pennsylvania and is a CFA charterholder. She currently serves on the board of Fraternity Community Bancorp, Inc. Ms. Briglia’s specialized professional experience analyzing banks assist the board of directors in addressing the challenges faced by Colonial Bank, FSB.

Gregory J. Facemyer, CPA, has been a self-employed certified public accountant since 1980. Mr. Facemyer is a Township Committeeman in Hopewell Township, and has lived in the community in which Colonial Bank, FSB operates for over 50 years. He currently serves on the Board of Directors and Secretary-Treasurer of Inspira Health Network and the Board of Directors of Cumberland Insurance Group. Mr. Facemyer’s experience as a certified public accountant qualifies him as an “audit committee financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission.

Edward J. Geletka has served as the President and Chief Executive Officer of Colonial Bank, FSB since 2000, and has been employed by Colonial Bank, FSB in a variety of positions since 1987. Mr. Geletka has over 30 years of banking experience. During his tenure as President and Chief Executive Officer, Colonial Bank, FSB has grown in assets from $125 million at December 31, 1999, to over $541 million at December 31, 2014. Mr. Geletka’s direct experience in managing the operations and employees of Colonial Bank, FSB provides the board of directors with insight into our operations, and his position on the board of directors provides a clear and direct channel of communication from senior management to the full Board and alignment on corporate strategy. Mr. Geletka has lived in the community in which Colonial Bank, FSB operates for over 45 years.

John Fitzpatrick, CPA, is the President of Premier Accounting Services, of Pitman, New Jersey, formerly called Fitzpatrick & McIlvaine, CPAs PC, which he founded in 1992. Mr. Fitzpatrick’s experience as a certified public accountant qualifies him as an “audit committee financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission. Mr. Fitzpatrick has lived in the community in which Colonial Bank, FSB operates for over 40 years.

Hugh J. McCaffrey is the sole owner of Southern New Jersey Steel Company, a steel contracting company serving New Jersey, Pennsylvania and Delaware. Mr. McCaffrey has held a principal position in Southern New Jersey Steel Company since 1992. Mr. McCaffrey is a system board member of Inspira Health Network as well as a board member of other community non-profits. Mr. McCaffrey’s current position provides the board of directors with insight into construction trends and economic developments affecting the State of New Jersey and the communities in which we operate, as well as in-depth knowledge related to labor and compensation issues.

Executive Officers Who are Not Directors

L. Joseph Stella, III, CPA has served as Executive Vice President and Chief Financial Officer of Colonial Bank, FSB since March 1999.

William F. Whelan was appointed Executive Vice President and Operations Officer in January 2007. He was appointed Senior Vice President of Colonial Bank, FSB in July 2005. Mr. Whelan was previously the Chief Executive Officer of St. Joseph’s Carpenter Society, a charitable organization that constructs housing units, and worked for that organization from 2001 until 2005. From 1974 until 2001, Mr. Whelan worked for financial institutions in numerous positions.

Code of Ethics

Colonial Financial Services, Inc. has adopted a Code of Ethics that is applicable to its senior financial officers, including the principal executive officer, principal financial officer, principal accounting officer and all officers performing similar functions. The Code of Ethics has been filed with the Securities and Exchange Commission as Exhibit 14 to the Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-34817). This Code of Ethics is also available at www.colonialbankfsb.com, and amendments to and waivers from the code of ethics will be posted on this website.

Meetings and Committees of the Board of Directors

The business of Colonial Financial Services, Inc. is conducted at regular and special meetings of the Board and its committees. In addition, the “independent” members of the Board of Directors (as defined in the listing standards of the Nasdaq Stock Market) meet in executive sessions. The standing committees of the Board of Directors of Colonial Financial Services, Inc. are the Audit, Compensation and Nominating Committees. The entire Board of Directors acts with respect to compensation decisions upon recommendations from the Compensation Committee, although the President and Chief Executive Officer does not participate with respect to decisions on his compensation.

During the year ended December 31, 2014, the Board of Directors met at 13 regular meetings and no special meetings. No member of the Board or any committee thereof attended fewer than 75% of the aggregate of: (i) the total number of meetings of the Board of Directors (held during the period for which he has been a director); and (ii) the total number of meetings held by all committees of the board on which he served (during the periods that he served).

Audit Committee. The Audit Committee is comprised of Directors Fitzpatrick (who serves as Chairman), Facemyer and Bailey. The Board of Directors has determined that each of Messrs. Fitzpatrick and Facemyer qualifies as an “audit committee financial expert.” Information with respect to the experience of Messrs. Fitzpatrick and Facemyer is included in — “Directors and Executive Officers.” Each member of the Audit Committee is “independent” in accordance with the listing standards of the Nasdaq Stock Market.

Our Board of Directors has adopted a written charter for the Audit Committee, which is available at www.colonialbankfsb.com. As more fully described in the Audit Committee Charter, the Audit Committee reviews the financial records and affairs of Colonial Financial Services, Inc. and monitors adherence in accounting and financial reporting to accounting principles generally accepted in the United States of America. The Audit Committee met 6 times during the year ended December 31, 2014.

Nominating Committee. The Nominating Committee consists of Directors Facemyer, McCaffrey and Bailey, each of whom is independent, in accordance with the listing standards of the Nasdaq Stock Market. The Nominating Committee operates under a written charter, which is available at www.colonialbankfsb.com. The Nominating Committee did not meet during the year ended December 31, 2014.

The Board of Directors and the nominating committee do not have a formal policy or specific guidelines regarding diversity among board members. However, the nominating committee and the Board of Directors seek members who represent a mix of backgrounds and experiences that will enhance the quality of the board of directors’ deliberations and decisions. As the holding company for a community bank, the Board of Directors also seeks directors who can continue to strengthen Colonial Bank, FSB’s position in its community and can assist Colonial Bank, FSB with business development through business and other community contacts. The Board of Directors believes it should be comprised of persons with skills in areas such as:

●

finance, insurance and accounting;

●

sales and marketing;

●

strategic planning;

●

organization leadership;

●

legal; and

●

government and governmental relationships.

The Nominating Committee identifies nominees by first evaluating the current members of the board of directors willing to continue in service. Current members of the board of directors with skills and experience that are relevant to Colonial Financial Services, Inc.’s business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the board with that of obtaining a new perspective. If there were a vacancy on the board of directors because any member of the board of directors does not wish to continue in service or if the Nominating Committee decides not to re-nominate a member for re-election, the Nominating Committee would determine the desired skills and experience of a new nominee (including a review of the skills set forth above), solicit suggestions for director candidates from all board members and may engage in other search activities. In addition to the skills noted above, candidates should possess certain attributes, including integrity and a devotion to ethical behavior, a primary interest in the well-being of Colonial Financial Services, Inc., a capacity for independent judgment, good business acumen, the capacity to protect confidential information, an ability to work as a member of a team and a willingness to evaluate other points of view. In addition to examining a candidate’s qualifications in light of the above attributes, the Nominating Committee would consider the following: the overall character of the candidate and any existing or potential conflict of interest; the candidate’s willingness to serve and ability to devote the time and effort required; the candidate’s record of leadership; and the ability to develop business for Colonial Financial Services, Inc.

In accordance with our Bylaws, a person is not qualified to serve as director if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, (2) is a person against whom a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit, or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency. In addition, no person may serve on the board of directors and at the same time be a director or officer of another co-operative bank, credit union, savings bank, savings and loan association, trust company, bank holding company or banking association (in each case whether chartered by a state, the federal government or any other jurisdiction) that has an office in any county in which we or any of our subsidiaries has an office, or in any county contiguous to any county in which we or any of our subsidiaries has an office. During the year ended December 31, 2014, we did not pay a fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees for director.

The Nominating Committee may consider qualified candidates for director suggested by our stockholders. Stockholders can suggest qualified candidates for director by writing to our Corporate Secretary at 2745 S. Delsea Drive, Vineland, New Jersey 08360. The Corporate Secretary must receive a submission not less than 150 days prior to the anniversary date of our proxy materials for the preceding year’s annual meeting. The submission must include the following:

●

A statement that the writer is a stockholder and is proposing a candidate for consideration by the Nominating Committee;

●

The name and address of the stockholder as such information appears on Colonial Financial Services, Inc.’s books, and the number of shares of Colonial Financial Services, Inc.’s common stock that are owned beneficially by such stockholder. If the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership will be required;

●

The name, address and contact information for the candidate, and the number of shares of common stock of Colonial Financial Services, Inc. that are owned by the candidate. If the candidate is not a holder of record, appropriate evidence of the stockholder’s ownership will be required;

●

A statement of the candidate’s business and educational experience;

●

Such other information regarding the candidate as would be required to be included in Colonial Financial Services, Inc.’s proxy statement pursuant to Securities and Exchange Commission Regulation 14A;

●

A statement detailing any relationship between the candidate and any customer, supplier or competitor of Colonial Financial Services, Inc. or its affiliates;

●

Detailed information about any relationship or understanding between the proposing stockholder and the candidate; and

●

A statement that the candidate is willing to be considered and willing to serve as a director if nominated and elected.

There have been no material changes to these procedures since they were previously disclosed in the proxy statement for our 2013 annual meeting of stockholders. Submissions that are received and that satisfy the above requirements are forwarded to the Chairman of the Nominating Committee for further review and consideration. A nomination submitted by a stockholder for presentation by the stockholder at an annual meeting of stockholders must comply with the procedural and informational requirements described in “Advance Notice Of Business To Be Conducted At An Annual Meeting.”

Compensation Committee. The Compensation Committee of the board of directors of Colonial Financial Services, Inc. is responsible for developing compensation guidelines and for recommending the compensation for the Chief Executive Officer, the Chief Financial Officer and other senior executive officers. The Compensation Committee consists of Ms. Briglia (who serves as Chairperson), Facemyer, Fitzpatrick, McCaffrey and Bailey. No member of the Compensation Committee is a current or former officer or employee of Colonial Financial Services, Inc., Colonial Bank, FSB or any subsidiary. Each of the members is independent as defined in the listing standards of the Nasdaq Stock Market. For the year ended December 31, 2014, the Compensation Committee did not meet as there were no compensation issues to be decided.

The Compensation Committee operates under a charter, which can be found at our website, www.colonialbankfsb.com. This charter sets forth the responsibilities of the Compensation Committee and reflects the Compensation Committee’s commitment to create a compensation structure that not only compensates senior management but also aligns the interests of senior management with those of our stockholders.

Our goal is to determine appropriate compensation levels that will enable us to meet the following objectives:

●

To attract, retain and motivate an experienced, competent executive management team;

●

To reward the executive management team for the enhancement of stockholder value based on our annual earnings performance and the market price of our stock;

●

To provide compensation rewards that are adequately balanced between short-term and long-term performance goals;

●

To encourage ownership of our common stock through stock-based compensation to all levels of management; and

●

To maintain compensation levels that are competitive with other financial institutions, particularly those in our peer group based on asset size and market area.

The Compensation Committee considers a number of factors in their decisions regarding executive compensation, including, but not limited to, the level of responsibility and performance of the individual executive officers, the overall performance of Colonial Financial Services, Inc. and a peer group analysis of compensation paid at institutions of comparable size and complexity. The Compensation Committee also considers the recommendations of the Chief Executive Officer with respect to the compensation of executive officers other than the Chief Executive Officer.

The base salary levels for our executive officers are set to reflect the duties and levels of responsibilities inherent in the position and to reflect competitive conditions in the banking business in Colonial Financial Services, Inc.’s market area. Comparative salaries paid by other financial institutions are considered in establishing the salary for our executive officers. The Compensation Committee has utilized bank compensation surveys compiled by the America Bankers Association and the New Jersey Bankers Association as well as other surveys prepared by trade groups and independent benefit consultants. In setting the base salaries, the Compensation Committee also considers a number of factors relating to the executive officers, including individual performance, job responsibilities, experience level, ability and the knowledge of the position. These factors are considered subjectively and none of the factors are accorded a specific weight.

Compensation Committee Interlocks and Insider Participation

There are no compensation committee “interlocks,” which generally means that no executive officer of Colonial Financial Services, Inc. or Colonial Bank, FSB served as a director or member of the compensation committee of another entity, one of whose executive officers serves as a director or member of the Compensation Committee.

Audit Committee Report

The Audit Committee has issued a report that states as follows:

●

We have reviewed and discussed with management our audited consolidated financial statements for the year ended December 31, 2014;

●

We have received from, and discussed with, the independent registered public accounting firm the matters required to be discussed by PCAOB Auditing Standards No. 16, (Communications With Audit Committees); and

●

We have received the written disclosures and the letter from the independent registered public accounting firm required by PCAOB Rule 3526, “Communication with Audit Committees Concerning Independence,” and have discussed with the independent registered public accounting firm their independence.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2014 for filing with the Securities and Exchange Commission.

This report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Colonial Financial Services, Inc. specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

This report has been provided by the Audit Committee:

John Fitzpatrick, CPA

Gregory J. Facemyer, CPA

John J. Bailey

Section 16(a) Beneficial Ownership Reporting Compliance

Our executive officers and directors and beneficial owners of greater than 10% of the outstanding shares of common stock are required to file reports with the Securities and Exchange Commission disclosing beneficial ownership and changes in beneficial ownership of our common stock. Securities and Exchange Commission rules require disclosure if an executive officer, director or 10% beneficial owner fails to file these reports on a timely basis. Based on our review of ownership reports required to be filed for the year ended December 31, 2014, we believe that no executive officer, director or 10% beneficial owner of our shares of common stock failed to file ownership reports on a timely basis.

ITEM 11.

Executive Compensation

The following table sets forth for the years ended December 31, 2014 and 2013 certain information as to the total remuneration paid by us to Mr. Geletka, who serves as President and Chief Executive Officer, and the two most highly compensated executive officers of Colonial Bank, FSB other than Mr. Geletka (“Named Executive Officers”). The “Non-equity Incentive Plan Compensation” and “Nonqualified Deferred Compensation Earnings” columns have been omitted because no listed individual received any compensation during the listed years of a type required to be disclosed in these columns.

SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary ($)		Bonus ($)	Stock Awards ($) (1)	Option Awards ($) (2)	All other compensation ($) (3)	Total ($)
Edward J. Geletka President, Chief Executive Officer and Director	2014		183,518	—	—	—	6,975	190,493
	2013		216,587	—	—	—	35,485	252,072

L. Joseph Stella, III Executive Vice President and Chief Financial Officer	2014		150,091	—	—	—	11,717	161,808
	2013		153,034	—	—	—	24,217	177,251

William F. Whelan Executive Vice President and Chief Operations Officer	2014		132,980	—	—	—	5,480	138,460
	2013		132,980	—	—	—	21,382	154,362

(1)

Reflects the aggregate grant date fair value of restricted stock awards granted during the applicable year. For a discussion of the assumptions used to establish the valuation of the restricted stock awards, reference is made to “Note 11 – Stock-Based Compensation” included in the Audited Financial Statements filed as part of this Form 10-K for the Year Ended December 31, 2014.

(2)

Reflects the aggregate grant date fair value of option awards granted during the applicable year. For a discussion of the assumptions used to establish the valuation of the stock option awards, reference is made to “Note 11 – Stock-Based Compensation” included in the Audited Financial Statements filed as part of this Form 10-K for the Year Ended December 31, 2014.

(3)

For 2014, includes: employer matching contributions of $6,442, $5,253 and $4,683 allocated to the accounts of Messrs. Geletka, Stella and Whelan, respectively, under the Colonial Bank, FSB 401(k) plan; unused sick pay in the amount of $0, $5,886 and $0 paid to Messrs. Geletka, Stella and Whelan, respectively; and life insurance premiums in the amount of $533, $578 and $797 paid on behalf of Messrs. Geletka, Stella and Whelan, respectively.

Salary for the Named Executive Officers is paid pursuant to Employment Agreements, which are discussed below under “—Employment Agreements.” Amounts included in the “Bonus” column are discretionary bonuses, which are discussed below under “—Bonuses.”

Amounts included in the “Stock Awards” and “Option Awards” columns for the year ended December 31, 2012 represent grants under our 2011 Equity Incentive Plan. Amounts related to stock awards and option awards are reported in the table above pursuant to applicable Securities and Exchange Commission regulations that require that we report the full grant-date fair value of grants in the year in which such grants are made.

Employment Agreements. In December 2008, Colonial Bank, FSB entered into amended and restated employment agreements with Edward J. Geletka, L. Joseph Stella, III, and William F. Whelan. The agreement for Mr. Geletka has an initial term of three years and the agreements for Messrs. Stella and Whelan each have an initial term of two years. Unless notice of non-renewal is provided, the agreements renew annually. On November 18, 2013, the Board notified each of the executives that their agreements were not being renewed. Accordingly, the agreements for Messrs. Stella and Whelan will continue for the remaining term, which is one year following the December 2013 anniversary date. Mr. Geletka entered into a new agreement with Colonial Bank, FSB, on December 31, 2013, which superseded and replaced his 2008 employment agreement.

The agreements for Messrs. Stella and Whelan provide for the payment of a base salary, which will be reviewed at least annually, and which may be increased, but not decreased. Under the agreements, the current base salaries for Messrs. Stella and Whelan are $150,091 and $132,980, respectively. In addition to the base salary, each agreement provides for, among other things, participation in bonus programs, participation in other employee pension benefit and fringe benefit plans applicable to executive employees that may not be adversely changed without approval of the executive, and reimbursement of business expenses, including fees for memberships in clubs and organizations. Each executive’s employment may be terminated for just cause at any time, in which event the executive would have no right to receive compensation or other benefits for any period after termination.

Under the terms of Messrs. Stella’s and Whelan’s employment agreements, the executives are entitled to severance payments and benefits in the event of termination of employment under specified circumstances, including in the event the executive’s employment is terminated for reasons other than for cause, disability or retirement, or in the event the executive resigns during the term of the agreement following:

(1)

the failure to elect or reelect or to appoint or reappoint the executive to his executive position;

(2)

a material change in the executive’s functions, duties, or responsibilities, which change would cause the executive’s position to become one of lesser responsibility, importance or scope;

(3)

the liquidation or dissolution of Colonial Financial Services, Inc. or Colonial Bank, FSB;

(4)

a material reduction in the executive’s base salary or a relocation of the executive’s principal place of employment by more than 25 miles from its location as of the date of the employment agreement; or

(5) a material breach of the employment agreement by Colonial Bank, FSB.

Under the terms of the employment agreements for Messrs. Stella and Whelan, each executive will also be entitled to severance payments and benefits in the event of the executive’s involuntary termination following a change in control of Colonial Financial Services, Inc. or Colonial Bank, FSB or the executive’s resignation from employment following a change in control. These severance payments will be equal to two times the sum of the base salary and highest rate of bonus awarded during the prior three years, payable in a lump sum. However, Colonial Bank, FSB has been designated as being “in troubled condition” by its primary federal regulator. The golden parachute rules of the Federal Deposit Insurance Corporation and each executive’s employment agreement prohibit the payment of any severance payments during the period that an institution is designated in troubled condition, except in limited circumstances. If Colonial Bank, FSB, continues to be designated in troubled condition through the remaining term of the employment agreements, Colonial Bank, FSB, will be prohibited from making any severance payments under the agreements, whether or not in connection with a change in control, unless approval is received from the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Colonial Bank, FSB will continue to provide life, medical, dental and disability coverage 24 months after termination of the agreement for Messrs. Stella and Whelan.

Upon termination of the executive’s employment for which severance payments are paid, other than in connection with a change in control, Messrs. Stella and Whelan agree not to compete with Colonial Financial Services, Inc. or Colonial Bank, FSB, for one year following termination of employment, within 25 miles of any existing branch of Colonial Bank, FSB or within 25 miles of any office for which Colonial Bank, FSB or a subsidiary has filed an application for regulatory approval. Should the executive become disabled, the executive would be entitled to benefits provided under any disability program sponsored by Colonial Financial Services, Inc. or Colonial Bank, FSB. To the extent such benefits are less than the executive’s base salary, Colonial Bank, FSB would continue to pay the difference between the benefits provided under any disability program sponsored by Colonial Bank, FSB or Colonial Financial Services, Inc. and the executive’s base salary for a period of one year, and would continue to provide life, medical and dental coverage for the remaining term of the agreement or one year, whichever is longer. In the event Messrs. Stella or Whelan dies while employed by Colonial Bank, FSB, the executive’s beneficiary, personal representatives or estate will be paid the executive’s base salary for one year and the executive’s family will be entitled to continuation of medical and dental benefits for one year.

On December 31, 2013, Colonial Bank, FSB entered into a new employment agreement with Edward J. Geletka, which supersedes and replaces the agreement between Colonial Bank, FSB and Mr. Geletka dated December 18, 2008. The term of the employment agreement will begin on December 31, 2013 and end on April 15, 2015, subject to the Board of Directors conducting an interim review of Mr. Geletka’s performance within 45 days following the end of the second calendar quarter of 2014. A less than satisfactory performance evaluation would be grounds for immediate termination. Within 30 days following the end of the term of the agreement, the Compensation Committee of the Board of Directors will conduct a performance evaluation and review of Mr. Geletka for purposes of determining whether to renew the agreement. The agreement provides for a base salary of $216,587.28, which will be reviewed at least annually. In addition, Mr. Geletka will be entitled to participate in any employee benefit plans made available to Colonial Bank, FSB’s management employees, and will be entitled to incentive compensation and bonuses as provided in any plan of Colonial Bank, FSB in which Mr. Geletka is eligible to participate. Mr. Geletka will be reimbursed for business expenses pursuant to Colonial Bank, FSB’s expense policy. In the event of termination of Mr. Geletka upon retirement, Mr. Geletka will be entitled to earned but unpaid benefits, vested benefits under any tax-qualified retirement plan and bona fide deferred compensation plan or arrangement. In the event Mr. Geletka suffers a disability while employed, he may receive benefits provided under any Colonial Bank, FSB disability program and in the event of his death while employed, his beneficiaries will be entitled to any life insurance proceeds available under any Colonial Bank, FSB sponsored group term or other life insurance plan or program. In the event of termination for cause, Mr. Geletka will not be entitled to any compensation or other benefits for any period after the termination for cause; any stock option will not be exercisable after termination for cause and any unvested stock awards will be forfeited. The agreement entered into in December 31, 2013, would not provide a severance benefit to Mr. Geletka in the event of his involuntary termination without cause or in the event of Mr. Geletka’s resignation for any reason.

Bonuses. We did not pay bonuses to our Named Executive Officers for the years ended December 31, 2014 or 2013.

2011 Executive Retirement Incentive Plan. On December 15, 2010, the Board of Directors of Colonial Bank, FSB adopted the Colonial Bank, FSB 2011 Executive Retirement Incentive Plan, effective as of January 1, 2011 to provide supplemental retirement income to eligible participants. Twelve persons, including the Named Executive Officers participate in the plan. Under the plan, participants receive annual incentive awards of deferred compensation based on the satisfaction of certain pre-determined goals set by the Board of Directors of Colonial Bank, FSB. Eligibility to participate in the plan is limited to executive officers who are selected by the Board of Directors and who complete a participation agreement indicating the manner in which any benefit payable under the plan will be paid. An executive must have 20 years of service with Colonial Bank, FSB in order to receive the normal retirement benefit which is equal to 100% of the executive’s account under the plan. An executive who has received incentive awards will be vested in each separate award at the rate of 20% per year. In the event an executive has a separation from service before attaining 20 years of service, his or her benefit will be determined in accordance with the vesting schedule set forth above. If the executive has a separation from service after attainment of early retirement age (age 60) or normal retirement age (age 65) and 20 years of service, he or she will be entitled to the normal retirement benefit. In the event of the executive’s death or disability during employment, or in the event of a change in control, the executive will become 100% vested in his or her incentive awards account. However, if the payment of the benefit under the plan, when aggregated with the other payments to which the executive would be entitled that are contingent on the change in control, would cause the executive to have an “excess parachute payment,” the benefit payable under the plan will be reduced to avoid such excess parachute payment. In the event of an executive’s termination for cause, any benefit to which the executive is entitled under the plan will be forfeited. Benefits on separation from service will be paid in annual installments over a 15-year period to executives who separate from service at age 60 or later and over a five-year period to executives who separate from service prior to age 60. At the discretion of the executive, in lieu of installment payments, the executive may elect a lump sum distribution if such election is made at the time of initial participation. Benefits paid due to death or disability will be paid in annual installments over a 15-year period or in a lump sum, at the discretion of the executive, commencing within 60 days of death or the determination of disability. Benefits paid upon the occurrence of a change in control will be paid to the executive in a lump sum on the effective date of the change in control, regardless of whether the executive has a separation from service. If an executive has separated from service prior to a change in control and a change in control occurs while the executive is receiving benefits under the plan, the remaining benefit due to the executive will be paid in a lump sum on the effective date of the change in control. For the 2014 plan year, Messrs. Geletka, Stella and Whelan received no grants under the 2011 Executive Retirement Incentive Plan.

Group Term Replacement Plan. On December 15, 2010, the Board of Directors of Colonial Bank, FSB adopted the Colonial Bank, FSB Group Term Replacement Plan for the benefit of certain executives selected by the Compensation Committee. Twelve persons, including the Named Executive officers participate in the plan. Colonial Bank, FSB will divide the death proceeds of certain life insurance policies which are owned by Colonial Bank, FSB on the lives of the participating executives with the designated beneficiary of each insured participating executive. Colonial Bank, FSB will pay the life insurance premiums from its general assets. An eligible executive may participate in the plan by executing an election to participate and a split dollar endorsement for each policy or policies and by waiving any group term life insurance offered by Colonial Bank, FSB in excess of $50,000 of coverage. A participant’s rights under the plan will terminate in the event the participant’s employment with Colonial Bank, FSB terminates for reasons other than death or the plan is terminated. In the event the participant was employed by Colonial Bank, FSB at the time of death, the death benefit will be the lesser of three times the base annual salary in effect at the date of death, less $50,000, or the net death benefit, which is the difference between the cash surrender value of the policy and the total proceeds payable under the policy upon the death of the insured. Colonial Bank, FSB, which is the sole owner of the policies, will be the beneficiary of the policies to the extent of each policy’s cash surrender value plus any death benefits remaining after applying those amounts assigned to each participant’s beneficiary.

Outstanding Equity Awards at Year End. The following table sets forth information with respect to outstanding equity awards as of December 31, 2014 for the Named Executive Officers. Information has been adjusted to reflect the 0.9399-to-one stock split in connection with the mutual-to-stock conversion of Colonial Bankshares, MHC.

	OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2014
	Option awards											Stock awards
Name	Number of securities underlying unexercised options (#) exercisable			Number of securities underlying unexercised options (#) unexercisable			Equity incentive plan awards: number of securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date	Number of shares or units of stock that have not vested (#)			Market value of shares or units of stock that have not vested ($) (1)		Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)			Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) (1)
Edward J. Geletka		13,600	(2)		20,400	(2)		—		12.46	1/2/2022		9,000	(2)		120,600		9,000	(2)		120,600
		41,825	(3)		—			—		13.27	10/19/2016


L. Joseph Stella, III		6,800	(2)		10,200	(2)		—		12.46	1/2/2022		5,100	(2)		68,340		5,100	(2)		68,340
		20,675	(3)		—			—		13.27	10/19/2016


William F. Whelan		6,000	(2)		9,000	(2)		—		12.46	1/2/2022		3,450	(2)		46,230		3,450	(2)		46,230
		11,275	(3)		—			—		13.27	10/19/2016

(1)	Based upon the $13.40 closing price of our common stock on December 31, 2014.

(2)

Reflects stock options or shares of restricted stock granted pursuant to the Colonial Financial Services, Inc. 2011 Equity Incentive Plan, which was approved by stockholders on August 11, 2011. On December 15, 2011, the Named Executive Officers were granted stock options and shares of restricted stock, with effective grant dates of January 2, 2012. Stock options have an exercise price of $12.46 (as adjusted), the closing price on the effective date of grant, vest 20% per year beginning one year from the effective date of grant and expire ten years from the effective date of grant. Shares of restricted stock were split evenly between time-based vesting and performance shares. Time-based shares vest 20% per year beginning one year from the effective date of grant, while performance-based shares vest 20% per year beginning one year from the effective date of grant based upon reaching the performance target of a $0.50 annual increase in tangible book value per share, as calculated in the grant agreements

(3)

Reflects stock options pursuant to the Colonial Bankshares, Inc. 2006 Stock-based Incentive Plan, which was approved by stockholders on July 19, 2006. On October 19, 2006, the Named Executive Officers were granted shares of restricted stock and stock options, all of which have vested. Stock options have an exercise price of $13.27 (as adjusted), the closing price on the date of grant, and expire ten years from the date of grant.

2006 Stock-Based Incentive Plan. Our stockholders approved the Colonial Bankshares, Inc. 2006 Stock-Based Incentive Plan (the “Incentive Plan”) at our 2006 Annual Meeting of Stockholders. The purpose of the Incentive Plan is to provide our officers, employees and directors with additional incentives to promote our growth and performance. In connection with our second step conversion, Colonial Financial Services, Inc. succeeded to and became the sponsor of the Incentive Plan.

The Incentive Plan authorizes the issuance of up to 291,545 shares (split adjusted) of our common stock pursuant to grants of incentive and non-statutory stock options, stock appreciation rights, and restricted stock awards. No more than 83,300 shares (split adjusted) may be issued as restricted stock awards, and no more than 208,247 shares (split adjusted) may be issued pursuant to the exercise of stock options. Employees and outside directors or its subsidiaries are eligible to receive awards under the Incentive Plan. As of December 31, 2014, there were 25,095 shares reserved for the issuance of stock options and no shares reserved for the issuance of restricted stock awards remaining under the Incentive Plan.

2011 Equity Incentive Plan. In 2011, our stockholders approved the Colonial Financial Services, Inc. 2011 Equity Incentive Plan (the “Equity Incentive Plan”) to provide offices, employees and directors of Colonial Financial Services, Inc. and Colonial Bank, FSB with additional incentives to promote the growth and performance of Colonial Financial Services, Inc. The Equity Incentive Plan authorizes the issuance of up to 321,300 shares of Colonial Financial Services, Inc. common stock pursuant to grants of restricted stock awards, incentive stock options and non-qualified stock options; provided, however, that the maximum number of shares of stock that may be delivered pursuant to the exercise of stock options is 229,500 and the maximum number of shares of stock that may be issued as restricted stock awards is 91,800. As of December 31, 2014, there were 34,900 shares reserved for the issuance of stock options and 5 shares reserved for the issuance of restricted stock awards remaining under the Equity Incentive Plan.

Other Equity Compensation Plans. Other than our employee stock ownership plan, we do not have any equity compensation plans that were not approved by stockholders. The following table sets forth information with respect to all of our equity compensation plans as of December 31, 2014 (with share amounts split adjusted to reflect the mutual-to-stock conversion of Colonial Bankshares, MHC).

	Number of securities to be issued upon exercise of outstanding options and rights		Weighted average exercise price			Number of securities remaining available for issuance under plan

Stock options		258,597	$	12.86			146,303
Restricted stock		39,214		—			10

Total		297,811	$	12.87	(1)		146,313

(1) Represents exercise price of stock options only.

Directors’ Compensation

The following table sets forth for the year ended December 31, 2014 certain information as to the total remuneration we paid to our directors other than Mr. Geletka. Mr. Geletka does not receive fees for his services as a director.

DIRECTOR COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 2014
Name	Fees earned or paid in cash ($)(2)		All other compensation ($) (1)		Total ($)
John J. Bailey		-		-		-
Corissa Briglia		-		-		-
Gregory J. Facemyer		-		490		490
John Fitzpatrick		-		287		287
Hugh J. McCaffrey		-		399		399

(1) Reflects life insurance premiums.
(2) As of September 30, 2013, all directors suspended payments of their director fees.

As of December 31, 2014, Messrs. Bailey, Facemyer, Fitzpatrick and McCaffrey each held 2,754 unvested shares of restricted stock (including performance-based shares), respectively. As of December 31, 2014, Messrs. Bailey, Facemyer, Fitzpatrick and McCaffrey each had 4,590, 15,002, 15,002 and 7,366 vested but unexercised stock options, respectively, and 6,885, 6,885, 6,885 and 6,885 unvested stock options, respectively.

Each of the individuals who currently serve as a director of Colonial Financial Services, Inc. also serves as a director of Colonial Bank, FSB and earns director fees in that capacity, although directors who are also employees of Colonial Bank, FSB do not receive director fees. Each non-employee director of Colonial Bank, FSB is paid an annual retainer fee of $9,500. The Chairman of the Board is paid a fee of $2,112 per board meeting, the Vice Chairman of the Board is paid a fee of $1,742.67 per board meeting and all other non-employee directors are paid a fee of $1,463.84 per board meeting. As of September 30, 2013, all directors suspended payment of their director fees.

Directors are eligible to participate in our Incentive Plan, described above in “—Stock-Based Incentive Plan.”

Director Retirement Plan. On December 15, 2010, the Board of Directors of Colonial Bank, FSB, adopted the Colonial Bank, FSB Director Retirement Plan, effective January 1, 2011, to provide supplemental funds for retirement or death for eligible directors of the Colonial Bank, FSB. Directors Gregory J. Facemyer, John Fitzpatrick, Hugh J. McCaffrey and John J. Bailey are participants in the plan. A director who has attained normal retirement age (generally age 72) and has 20 years of service with Colonial Bank, FSB will be entitled to a normal retirement benefit equal to 50% of the director’s final three-year average compensation payable in ten annual installments. If a director has less than 10 years of service with Colonial Bank, FSB, the director will not be entitled to any retirement benefit. After 10 years of service, the director will vest in a retirement benefit at the rate of 10% per year. If the director separates from service upon attainment of normal retirement age with less than 20 years of service, he will be entitled to a benefit equal to the normal retirement benefit reduced by 2% of final average compensation for each year of service less than 20. A director who separates from service prior to normal retirement age with less than 20 years of service will be entitled to his vested accrued benefit, amortized and payable in ten annual installments. A director who becomes disabled prior to separation from service will be entitled to a disability benefit equal to 50% of the director’s final three-year average compensation, payable in ten annual installments. In the event of the director’s death prior to separation from service, the director’s beneficiary or estate will be entitled to the director’s normal retirement benefit payable in ten annual installments. In the event of a change in control prior to a director’s separation from service, the director will be entitled to the normal retirement benefit, irrespective of the director’s years of service; the present value of the benefit will be paid in a lump sum on the date of the change in control. If the payment of the retirement benefit, when aggregated with the other payments to which the director would be entitled that are contingent on a change in control, would cause a director to have an “excess parachute payment,” the retirement benefit will be reduced to avoid such excess parachute payment. In the event a director separates from service prior to a change in control and is receiving benefits under the plan, the present value of the remaining retirement benefit payable to the director will be paid in a lump sum on the date of the change in control.

2011 Director Deferred Fee Plan. On December 15, 2010, the Board of Directors of Colonial Bank, FSB adopted the Colonial Bank, FSB 2011 Director Deferred Fee Plan, effective January 1, 2011, to provide current tax planning opportunities as well as supplemental funds for retirement or death for eligible directors of Colonial Bank, FSB. Members of the board of directors of Colonial Bank, FSB are eligible to participate in the plan. A director may elect to participate in the plan by submitting a deferral agreement by December 15 of the calendar year immediately preceding the deferral period for which it will be effective. A new deferral agreement or notice of adjustment of deferral may be submitted by a director for any subsequent year. In the first year an individual becomes a director, a deferral agreement must be submitted to the committee under the plan no later than 30 days following the date the individual becomes a director, and such deferral agreement will be effective only with regard to compensation earned following the submission of the deferral agreement. A director may elect to defer up to 100% of his compensation for the calendar year. Each director’s account will be credited with earnings at the prime rate (provided that such rate is never less than 5% nor greater than 10%) as determined from time to time. A director will be 100% vested at all times in the amount of compensation elected to be deferred under the plan and earnings thereon. In the event a director separates from service for any reason other than death, Colonial Bank, FSB will pay a benefit equal to the director’s vested account in accordance with the director’s distribution election, generally made at the time of initial participation. In the event of the director’s death after separation from service with Colonial Bank, FSB, the remaining unpaid balance of the director’s account will be paid to the director’s beneficiary in the same form that payments were being made prior to the director’s death. In the event the director dies prior to separation from service, the amount payable will be paid over the period designated by the director. In the event of an unforeseeable emergency, the plan committee may make distributions from the director’s account prior to the time specified for payment of benefits under the plan. All plan benefits other than hardship distributions or otherwise provided in the plan will be paid in the form selected by the director in the deferral agreement or notice of adjustment of deferral at the time of the deferral commitment. A director’s account will be distributed in cash or cash equivalents. Unless otherwise set forth in the plan, payment under the plan will commence no later than 60 days after the event triggering the distribution requirement, in accordance with the director’s elections under the director’s deferral agreement and notice of adjustment of deferral. The plan provides for early distributions in specified circumstances. No directors elected to participate in the Plan for the fiscal year ended December 31, 2014.

Director Supplemental Life Insurance Plan. On December 15, 2010, the Board of Directors of Colonial Bank, FSB adopted the Colonial Bank, FSB Director Supplemental Life Insurance Plan for the purpose of dividing the death proceeds of certain life insurance policies owned by Colonial Bank, FSB on the lives of the participating directors with the designated beneficiary of each insured participating director. Directors Gregory J. Facemyer, John Fitzpatrick, Hugh J. McCaffrey and John J. Bailey are participants in the plan. Colonial Bank, FSB will pay the life insurance premiums from its general assets. Non-employee directors are eligible to participate in the plan by executing an election to participate and a split dollar endorsement for each individual insurance policy adopted by the Compensation Committee of the Board of Directors of Colonial Bank, FSB for purposes of insuring a participant’s life under the plan. A participant’s participation in the plan will terminate if the participant’s service with Colonial Bank, FSB is terminated for reasons other than death or if the plan is terminated. In the event Colonial Bank decides to maintain the policy or policies after the participant’s termination of participation in the plan, Colonial Bank, FSB will be the direct beneficiary of the entire death proceeds of the policy or policies. Unless the participant’s rights under the plan terminate, the participant has the right to designate the beneficiary of a death benefit equal to the lesser of $250,000 or the net death benefit (which is the difference between the cash surrender value of the policy and the total proceeds payable under the policy upon the death of the insured). Colonial Bank, FSB is the sole owner of the policies and is the beneficiary of the policies to the extent of each policy’s cash surrender value plus any death benefits remaining after applying those amounts explicitly assigned to the participant’s beneficiary. In addition, Colonial Bank, FSB may replace each policy with a comparable insurance policy to cover the benefit provided under the plan and Colonial Bank, FSB and the participant will execute a new split dollar endorsement for each new policy. Colonial Bank will pay all premiums due on all policies as long as it maintains the policies in force.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Set forth below is information as of December 31, 2014 with respect to compensation plans (other than our employee stock ownership plan) under which equity securities of the Registrant are authorized for issuance.

Equity Compensation Plan Information
	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under stock-based compensation plans (excluding securities reflected in first column)
Equity compensation plans approved by security holders		297,811	$	12.81		58,495
Equity compensation plans not approved by security holders		N/A				N/A

Total		297,811	$	12.81		58,495

(b)

Security Ownership of Certain Beneficial Owners

Persons and groups who beneficially own in excess of 5% of the shares of common stock are required to file certain reports with Colonial Financial Services, Inc. and the Securities and Exchange Commission regarding such ownership. The following table sets forth, as of February 6, 2015, the shares of common stock beneficially owned by each person who was known to us as the beneficial owner of more than 5% of the outstanding shares of common stock.

	Amount of Shares
	Owned and Nature		Percent of Shares
Name and Address of	of Beneficial		of Common Stock
Beneficial Owners	Ownership (1)		Outstanding

Joseph Stilwell	359,596	(2)	9.30	%
111 Broadway, 12th Floor
New York, NY 10006

Grace and White, Inc.	315,836	(3)	8.17	%
515 Madison Ave., Suite 1700
New York, New York 10022

Context BH Capital Management	286,579	(4)	7.41	%
401 City Avenue, Suite 815
Bala Cynwyd, PA 19004

Colonial Bank FSB Employee Stock Ownership Plan	225,401	(5)	5.82	%
2745 S. Delsea Drive
Vineland, New Jersey 08360

(1)

Under regulations promulgated pursuant to the Securities Exchange Act of 1934, shares of common stock are deemed to be beneficially owned by a person if he or she directly or indirectly has or shares (i) voting power, which includes the power to vote or to direct the voting of the shares, or (ii) investment power, which includes the power to dispose or to direct the disposition of the shares. Unless otherwise indicated, the named beneficial owner has sole voting and dispositive power with respect to the shares.

(2)	Based on information contained in a Schedule 13D/A filed on March 24, 2014.

(3)	Based on information contained in a Schedule 13G/A filed on February 2, 2015.

(4)	Based on information contained in a Schedule 13G filed on January 30, 2015.

(5)	Based on information contained in a Schedule 13 G/A filed on January 29, 2015.

(c)

Security Ownership of Management

The information required by this item is set forth above in Item 10.

(d)

Changes in Control

On September 10, 2014, Colonial Financial Services, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and between the Company and Cape Bancorp, Inc. (“Cape Bancorp”). Pursuant to the Merger Agreement, the Company will merge with and into the Cape Bancorp, with the Cape Bancorp as the surviving entity. Immediately thereafter, Colonial Bank, FSB, a federal thrift and the Company’s wholly owned subsidiary, will merge with and into Cape Bank, a New Jersey chartered savings bank, with Cape Bank as the surviving entity. As noted in Exhibit A to the Merger Agreement, each director and senior executive officer of Colonial Financial Services, Inc. and Cape Bancorp, Inc. has entered into a Voting Agreement pursuant to which he or she will agree to vote all of his or her shares of Colonial Financial Services, Inc. common stock in favor of the Merger. Certain stockholders of Colonial Financial Services, Inc. also entered into voting agreements, with one such stockholder retaining the ability to sell his shares of Colonial Financial Services, Inc. during the pendency of the Merger.

Management of the Company knows of no other arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

Transactions With Certain Related Persons

In the ordinary course of business, Colonial Bank, FSB makes loans available to its directors, officers and employees. These loans are made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to Colonial Bank, FSB. Management believes that these loans neither involve more than the normal risk of collectability nor present other unfavorable features.

Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an issuer from: (1) extending or maintaining credit; (2) arranging for the extension of credit; or (3) renewing an extension of credit in the form of a personal loan for an officer or director. There are several exceptions to this general prohibition, one of which is applicable to Colonial Financial Services, Inc. This does not apply to loans made by a depository institution that is insured by the Federal Deposit Insurance Corporation and that is subject to the insider lending restrictions of the Federal Reserve Act. All loans to Colonial Financial Services, Inc.’s directors and officers are made in conformity with the Federal Reserve Act and applicable regulations.

In accordance with the listing standards of the NASDAQ Stock Market, any transactions that would be required to be reported under this section of this proxy statement must be approved by our audit committee or another independent body of the board of directors. In addition, any transaction with a director is reviewed by and subject to approval of the members of the board of directors who are not directly involved in the proposed transaction to confirm that the transaction is on terms that are no less favorable as those that would be available to us from an unrelated party through an arms-length transaction.

See the information set forth in Item 10 regarding director independence required by Item 407(a) of Regulation S-K.

ITEM 14.

Principal Accountant Fees and Services

The Audit Committee of Colonial Financial Services, Inc. approved the engagement of BDO USA, LLP to its independent registered public accounting firm for the year ending December 31, 2014.

On July 18, 2013, Colonial Financial Services, Inc. appointed BDO USA, LLP as its new independent registered public accounting firm for and with respect to the year ended December 31, 2013, and dismissed ParenteBeard LLC (“ParenteBeard”) as its independent registered public accounting firm. Colonial Financial Services, Inc.’s principal audit personnel at ParenteBeard resigned from ParenteBeard and joined BDO USA, LLP. Each of the appointment of BDO USA, LLP and the dismissal of ParenteBeard were approved by Colonial Financial Services, Inc.’s Audit Committee.

The reports of ParenteBeard on Colonial Financial Services, Inc.’s financial statements as of and for the years ended December 31, 2012 and 2011 did not contain an adverse opinion or a disclaimer of an opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During Colonial Financial Services, Inc.’s two most recently completed fiscal years and the subsequent interim period preceding ParenteBeard’s dismissal, there were: (i) no disagreements with ParenteBeard on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of ParenteBeard, would have caused it to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements of Colonial Financial Services, Inc.; and (ii) no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Securities and Exchange Commission Regulation S-K).

ParenteBeard has furnished Colonial Financial Services, Inc. a letter addressed to the Securities and Exchange Commission stating that ParenteBeard agrees with the statements made above with respect to ParenteBeard. A copy of ParenteBeard’s letter dated July 19, 2013 was attached as an exhibit to the Current Report on Form 8-K filed by Colonial Financial Services, Inc. with the Securities and Exchange Commission on July 23, 2013.

During the two most recently completed fiscal years and through the date of the appointment of BDO USA, LLP, Colonial Financial Services, Inc. did not consult with BDO USA, LLP regarding (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on Colonial Financial Services, Inc.’s consolidated financial statements, and no written or oral advice was provided by BDO USA, LLP that was an important factor considered by Colonial Financial Services, Inc. in reaching a decision as to accounting, auditing or financial reporting issues, or (ii) any matter that was either the subject of a disagreement or event, as set forth in Item 304(a)(1)(iv) or Item 304(a)(1)(v) of Securities and Exchange Commission Regulation S-K.

Set forth below is certain information concerning aggregate fees billed for professional services rendered by BDO USA, LLP during the year ended December 31, 2014 and the year ended December 31, 2013:

Audit Fees. The aggregate fees billed to us for professional services rendered for the audit of our annual financial statements, review of the financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided in connection with statutory and regulatory filings and engagements for the year ended December 31, 2014 and for the year ended December 31, 2013 for BDO USA, LLP were $184,605 and $131,968, respectively.

Audit Related Fees. There were no fees billed to us for assurance and related services rendered that are reasonably related to the performance of the audit of and review of the financial statements and that are not already reported in “—Audit Fees,” above, during the years ended December 31, 2014 and 2013.

Tax Fees. The aggregate fees billed to us for professional services rendered for tax preparation, tax consultation and tax compliance for the year ended December 31, 2014 were $53,463. There were no aggregate fees billed to us for professional services rendered for tax preparation, tax consultation and tax compliance for the year ended December 31, 2013.

All Other Fees. There were no aggregate other fees billed to us for the year ended December 31, 2014 and the year ended December 31, 2013.

The Audit Committee preapproves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by BDO USA, LLP, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended, which are approved by the Audit Committee prior to the completion of the audit. The Audit Committee pre-approved 100% of the services described above during the years ended December 31, 2014 and 2013.

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

	3.1	Articles of Incorporation (11)
	3.2	Bylaws of Colonial Financial Services, Inc. (11)
	3.3	Articles of Amendment to Articles of Incorporation (11)
	4	Form of Common Stock Certificate (11)
	10.1	[reserved]
	10.2	Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan * (1)
	10.3	Form of Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan Stock Option
		Agreement (Outside Directors) *(2)
	10.4	Form of Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan Stock Option
		Agreement (Employees) *(2)
	10.5	Form of Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan Restricted Stock
		Award Notice (Outside Directors) *(2)
	10.6	Form of Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan Restricted Stock
		Award Notice (Employees) *(2)
	10.7	Employment Agreement By and Between Colonial Bank, FSB and Edward J. Geletka *(3)
	10.8	[intentionally omitted]
	10.9	[intentionally omitted]
	10.10	[intentionally omitted]
	10.11	Amended and Restated Employment Agreement with L. Joseph Stella, III *(7)
	10.12	Amended and Restated Employment Agreement with William F. Whelan *(8)
	10.13	Bonus Plan, including amendments *(9)
	10.14	Colonial Bank, FSB Director Retirement Plan * (13)
	10.15	Colonial Bank, FSB 2011 Director Deferred Fee Plan * (14)
	10.16	Colonial Bank, FSB Group Term Replacement Plan * (15)
	10.17	Colonial Bank, FSB Director Supplemental Life Insurance Plan * (16)
	10.18	Colonial Bank, FSB 2011 Executive Retirement Incentive Plan * (17)
	10.19	Colonial Financial Services, Inc. 2011 Equity Incentive Plan *(12)
	10.20	Form of Colonial Financial Services, Inc. 2011 Stock-Based Incentive Plan Stock Option
		Agreement (Outside Directors) * (18)
	10.21	Form of Colonial Financial Services, Inc. 2011 Stock-Based Incentive Plan Stock Option
		Agreement (Employees) * (19)
	10.22	Form of Colonial Financial Services, Inc. 2011 Stock-Based Incentive Plan Restricted Stock
		Service-Based Award Notice (Outside Directors) * (20)
	10.23	Form of Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan Restricted Stock
		Service-Based Award Notice (Employees) * (21)
	10.24	Form of Colonial Financial Services, Inc. 2011 Stock-Based Incentive Plan Restricted Stock
		Performance-Based Award Notice (Outside Directors) * (22)
	10.25	Form of Colonial Financial Services, Inc. 2006 Stock-Based Incentive Plan Restricted Stock
		Performance-Based Award Notice (Employees) * (23)
	14	Code of Ethics (10)
	21	Subsidiaries of Registrant
	23	Consent of Independent Registered Public Accounting Firm, BDO USA, LLP
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange
		Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
		of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
		1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101	The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements

*	Denotes management contract or compensatory plan or arrangement

(1)	Incorporated by reference to the Definitive Proxy Statement for the Annual Meeting of Stockholders of Colonial Bankshares held July 20, 2006 (File no. 000-51385), filed with the Securities and Exchange Commission on June 15, 2006.

(2)	Incorporated by reference to the Current Report on Form 8-K of Colonial Financial Services, Inc. (File no. 000-51385), filed with the Securities and Exchange Commission on October 23, 2006.

(3)	Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of Colonial Financial Services, Inc. (File no. 001-34817), filed with the Securities and Exchange Commission on January 6, 2014.

(4)	[intentionally omitted]

(5)	[intentionally omitted]

(6)	[intentionally omitted]

(7)	Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K for the year ended December 31, 2008 of Colonial Bankshares (File no. 000-51385), filed with the Securities and Exchange Commission on March 31, 2009.

(8)	Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the year ended December 31, 2008 of Colonial Bankshares (File no. 000-51385), filed with the Securities and Exchange Commission on March 31, 2009.

(9)	Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K for the year ended December 31, 2008 of Colonial Bankshares (File no. 000-51385), filed with the Securities and Exchange Commission on March 31, 2009.

(10)	Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K for the year ended December 31, 2010 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 30, 2011.

(11)	Incorporated by reference to the Registration Statement on Form S-1 (File no. 333-165532), as initially filed March 17, 2010, and as amended on April 28, 2010 and May 7, 2010.

(12)	Incorporated by reference to Appendix A to the proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on July 14, 2011 (File No. 001-34817)

(13)	Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the year ended December 31, 2010 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 30, 2012

(14)	Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the year ended December 31, 2010 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 30, 2012

(15)	Incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K for the year ended December 31, 2010 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 30, 2012

(16)	Incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K for the year ended December 31, 2010 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 30, 2012

(17)	Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the year ended December 31, 2010 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 30, 2012

(18)	Incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(19)	Incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(20)	Incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(21)	Incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(22)	Incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(23)	Incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(24)	Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(25)	Incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

(26)	Incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K for the year ended December 31, 2011 of Colonial Financial Services, Inc. (File no. 001-34817), originally filed with the Securities and Exchange Commission on March 29, 2012

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		COLONIAL FINANCIAL SERVICES, INC.

Date: March 30, 2015	By:	/s/ Edward J. Geletka
		Edward J. Geletka
		President, Chief Executive Officer and Director
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Edward J. Geletka	President, Chief Executive Officer and Director	March 30, 2015
Edward J. Geletka	(Principal Executive Officer)

/s/ L. Joseph Stella, III	Executive Vice President and Chief Financial Officer	March 30, 2015
L. Joseph Stella, III	(Principal Financial and Accounting Officer)

/s/ Gregory J. Facemyer	Chairman of the Board	March 30, 2015
Gregory J. Facemyer

/s/ John J. Bailey	Director	March 30, 2015
John J. Bailey

/s/ John Fitzpatrick	Vice Chairman of the Board	March 30, 2015
John Fitzpatrick

/s/ Hugh J. McCaffrey	Director	March 30, 2015
Hugh J. McCaffrey

/s/ Corissa Briglia	Director	March 30, 2015
Corissa Briglia

Exhibit 21

List of Subsidiaries

Registrant: Colonial Financial Services, Inc.

		Jurisdiction or
Subsidiaries	Percentage Ownership	State of Incorporation

Colonial Bank, FSB	100%	United States

Colonial Bank, FSB

		Jurisdiction or
Subsidiaries	Percentage Ownership	State of Incorporation

Cohansey Bridge, LLC	100%	New Jersey

Exhibit 23

Consent of Independent Registered Public Accounting Firm

Colonial Financial Services, Inc.

Vineland, New Jersey

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-177426 and 333-169843) of Colonial Financial Services, Inc. of our report dated March 30, 2015, relating to the consolidated financial statements, which appears in the Form 10-K.

/s/ BDO USA, LLP

Philadelphia, Pennsylvania

March 30, 2015

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Edward J. Geletka, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Colonial Financial Services, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 30, 2015	/s/ Edward J. Geletka
Date	Edward J. Geletka
	President and Chief Executive Officer

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, L. Joseph Stella, III, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Colonial Financial Services, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 30, 2015		/s/ L. Joseph Stella, III
Date		L. Joseph Stella, III
		Executive Vice President and Chief Financial Officer

Exhibit 32

Certification pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Edward J. Geletka, President and Chief Executive Officer and L. Joseph Stella, III, Executive Vice President and Chief Financial Officer of Colonial Financial Services, Inc. (the “Company”) each certify in their capacity as officers of the Company that they have reviewed the annual report of the Company on Form 10-K for the fiscal year ended December 31, 2014 and that to the best of their knowledge:

1.	the report fully complies with the requirements of Sections 13(a) of the Securities Exchange Act of 1934; and

2.	the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 30, 2015	/s/ Edward J. Geletka
Date	Edward J. Geletka
	President and Chief Executive Officer

March 30, 2015	/s/ L. Joseph Stella, III
Date	L. Joseph Stella, III
	Executive Vice President and Chief Financial Officer

The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002.

A signed original of this written statement required by Section 906 has been provided to Colonial Financial Services, Inc. and will be retained by Colonial Financial Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

(MM) (NASDAQ:COBK)
Historical Stock Chart
From Mar 2024 to Apr 2024

(MM) (NASDAQ:COBK)
Historical Stock Chart
From Apr 2023 to Apr 2024

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

COBK (MM)

Latest COBK Messages

Loading Messages....

Colonial Financial Services, Inc. News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App

Trending Now

Toplists

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

COBK (MM)

Latest COBK Messages

Loading Messages....

Colonial Financial Services, Inc. News

Loading Messages....

Your Recent History

Company

Business

Popular

Get The App