Ocean Shore Holding 10Q 2006 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2006

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

For the transition period from to

Commission file number: 0-51000

OCEAN SHORE HOLDING CO.

(Exact name of registrant as specified in its charter)

United States

22-3584037

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)


1001 Asbury Avenue, Ocean City, New Jersey		08226
(Address of principal executive offices)		(Zip Code)

(609) 399-0012

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At September 30, 2006, the registrant had 8,620,949 shares of $0.01 par value common stock outstanding.

OCEAN SHORE HOLDING CO.

FORM 10-Q

INDEX


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Unaudited Condensed Consolidated Statements of Financial Condition at September 30, 2006 and December 31, 2005	1

	Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2006 and 2005	2

	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2006 and 2005	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults upon Senior Securities	28

Item 4.	Submission of Matters to a Vote of Security Holders	28

Item 5.	Other Information	29

Item 6.	Exhibits	29

SIGNATURES		30

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	September 30, 2006			December 31, 2005
ASSETS
Cash and amounts due from depository institutions	$	15,938,044		$	13,400,085
Federal funds sold		15,000,000			—

Cash and cash equivalents		30,938,044			13,400,085
Investment securities held to maturity
(estimated fair value — September 2006, $0; December 2005, $4,293,635)		—			4,292,600
Investment securities available for sale
(amortized cost — September 2006, $36,594,602; December 2005, $47,368,441)		36,663,709			47,285,875
Mortgage-backed securities held to maturity
(estimated fair value — September 2006, $5,272,247; December 2005, $5,320,700)		5,401,057			5,435,913
Mortgage-backed securities available for sale
(amortized cost — September 2006, $31,451,423; December 2005, $37,710,146)		30,919,204			37,175,682
Loans receivable - net		433,698,425			412,005,109
Accrued interest receivable:
Loans		1,760,476			1,592,328
Mortgage-backed securities		157,209			176,217
Investment securities		353,604			443,789
Federal Home Loan Bank stock — at cost		3,030,900			2,622,800
Office properties and equipment — net		8,320,067			8,399,552
Prepaid expenses and other assets		2,599,710			3,112,147
Cash surrender value of life insurance		7,534,739			7,339,094
Deferred tax asset		1,277,753			564,683

TOTAL ASSETS	$	562,654,897		$	543,845,874

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Non-interest bearing deposits	$	34,833,648		$	34,223,473
Interest bearing deposits		392,064,480			382,690,429
Advances from Federal Home Loan Bank		44,000,000			27,000,000
Junior subordinated debenture		15,464,000			15,464,000
Securities sold under agreements to repurchase		8,190,000			18,460,000
Advances from borrowers for taxes and insurance		2,423,269			2,200,325
Accrued interest payable		530,983			835,122
Other liabilities		3,060,992			2,404,243

Total liabilities		500,567,372			483,277,592

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued		—			—
Common stock, $.01 par value, 25,000,000 shares authorized, 8,762,742 shares issued; 8,620,949 and 8,762,742 shares outstanding at September 2006 and December 2005, respectively		87,627			87,627
Additional paid-in capital		37,125,700			38,392,348
Retained earnings — partially restricted		30,205,694			27,633,345
Treasury stock — at cost: 141,793 shares at September 2006		(1,835,613	)		—
Common stock acquired for employee benefit plans		(2,805,240	)		(4,798,480	)
Deferred compensation plans trust		(405,649	)		(373,607	)
Accumulated other comprehensive loss		(284,994	)		(372,951	)

Total stockholders’ equity		62,087,525			60,568,282

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	562,654,897		$	543,845,874

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
INTEREST AND DIVIDEND INCOME:
Taxable interest and fees on loans	$	6,465,687	$	5,490,539	$	18,746,528	$	15,286,954
Taxable interest on mortgage-backed securities		438,534		515,131		1,354,041		1,669,473
Non-taxable interest on municipal securities		37,056		92,257		166,890		295,271
Taxable interest and dividends on investments		693,720		658,802		1,865,524		2,007,436

Total interest and dividend income		7,634,997		6,756,729		22,132,983		19,259,134

INTEREST EXPENSE:
Deposits		2,841,877		2,103,366		7,973,665		5,796,171
Advances from Federal Home Loan Bank, securities sold under agreements to repurchase and other borrowed money		916,312		732,186		2,697,166		2,137,271

Total interest expense		3,758,189		2,835,552		10,670,831		7,933,442

NET INTEREST INCOME		3,876,808		3,921,177		11,462,152		11,325,692

PROVISION FOR LOAN LOSSES		75,000		75,000		225,000		225,000


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,801,808		3,846,177		11,237,152		11,100,692

OTHER INCOME:
Service charges		388,124		410,480		1,165,945		1,145,583
Cash surrender value of life insurance		65,500		63,000		195,645		199,000
Other		138,135		148,114		384,034		416,792

Total other income		591,759		621,594		1,745,624		1,761,375

OTHER EXPENSES:
Salaries and employee benefits		1,920,933		1,810,411		5,670,183		5,268,720
Occupancy and equipment		691,896		664,255		2,013,448		1,829,658
Federal insurance premiums		13,067		13,653		40,688		43,163
Advertising		93,040		114,550		295,764		315,529
Professional services		167,016		227,901		464,506		590,518
Other operating expenses		333,276		352,527		1,018,493		1,013,616

Total other expenses		3,219,228		3,183,297		9,503,082		9,061,204

INCOME BEFORE INCOME TAXES		1,174,339		1,284,474		3,479,694		3,800,863

INCOME TAX EXPENSE		4,860		506,029		907,346		1,490,257

NET INCOME	$	1,169,479	$	778,445	$	2,572,348	$	2,310,606

Basic earnings per share:	$	0.14	$	0.09	$	0.31	$	0.27
Diluted earnings per share:	$	0.14	$	0.09	$	0.30	$	0.27

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


	Common Stock		Additional Paid-In Capital			Retained Earnings - Partially Restricted		Treasury Stock			Unallocated ESOP Shares			Deferred Compensation Plans Trust			Accumulated Other Comprehensive Income (Loss)			Total Equity
BALANCE — January 1, 2006	$	87,627	$	38,392,348		$	27,633,346	$	—		$	(4,798,480	)	$	(373,607	)	$	(372,951	)	$	60,568,282

Comprehensive income:
Net income							2,572,348														2,572,348
Net change in unrealized loss on securities available for sale, net of taxes of $65,961																		87,957			87,957

Comprehensive income																					2,660,305
Reclassification upon adoption of SFAS 123(R)				(1,821,490	)							1,821,490									—
Excess of fair market value above cost of ESOP shares committed to be released				39,503																	39,503
Unallocated ESOP shares committed to employees												171,750									171,750
Purchase of treasury stock									(1,835,613	)											(1,835,613	)
Restricted stock shares				298,069																	298,069
Stock options				217,271																	217,271
Purchase of shares by deferred compensation plans trust															(32,042	)					(32,042	)

BALANCE - September 30, 2006	$	87,627	$	37,125,700		$	30,205,694	$	(1,835,613	)	$	(2,805,240	)	$	(405,649	)	$	(284,994	)	$	62,087,525

BALANCE - January 1, 2005	$	87,627	$	38,387,523		$	24,557,370	$	—		$	(3,205,990	)	$	(321,260	)	$	289,966		$	59,795,236
Comprehensive income:
Net income							2,310,606														2,310,606
Net change in unrealized loss on securities available for sale, net of taxes of $(336,283)																		(545,805	)		(545,805	)

Comprehensive income																					1,764,801
Excess of fair market value above cost of ESOP shares				3,222																	3,222
Purchase of shares for restricted stock plan												(1,987,080	)								(1,987,080	)
Restricted stock shares												66,236									66,236
Unallocated ESOP shares committed to employees												171,750									171,750
Purchase of shares by deferred compensation plans trust															(40,681	)					(40,681	)

BALANCE — September 30, 2005	$	87,627	$	38,390,745		$	26,867,976	$	—		$	(4,955,084	)	$	(361,941	)	$	(255,839	)	$	59,773,484

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2006			2005
OPERATING ACTIVITIES:
Net income	$	2,572,348		$	2,310,606
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		863,711			1,020,419
Provision for loan losses		225,000			225,000
Deferred income taxes		(779,030	)		306,353
ESOP and restricted stock plans		469,819			237,986
Incentive stock option plan		217,271			—
Loss on sale of office properties and equipment		229			—
Increase in cash surrender value of life insurance		(195,645	)		(199,000	)
Excess of fair market value above cost of ESOP shares		39,503			3,222
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(58,955	)		(71,020	)
Prepaid expenses and other assets		512,436			(443,048	)
Accrued interest payable		(304,139	)		(332,244	)
Other liabilities		656,749			254,141

Net cash provided by operating activities		4,219,297			3,312,415

INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities held to maturity		552,652			456,299
Mortgage-backed securities available for sale		6,197,956			11,243,520
Loans originated, net of repayments		(22,133,327	)		(57,082,898	)
Purchases of:
Mortgage-backed securities held to maturity		(523,429	)		(3,993,750	)
Investment securities held to maturity		(788,431	)		(5,742,600	)
Investment securities available for sale		—			(5,509,375	)
Federal Home Loan Bank Stock		(1,250,800	)		(289,500	)
Office properties and equipment		(504,560	)		(1,032,555	)
Proceeds from redemption of:
Federal Home Loan Bank stock		842,700			—
Proceeds from maturities of:
Investment securities held to maturity		5,081,031			8,931,851
Investment securities available for sale		10,775,355			9,187,979
Purchase of life insurance contracts		—			(85,100	)

Net cash used in investing activities		(1,750,853	)		(43,916,129	)

FINANCING ACTIVITIES:
Increase in deposits		9,984,226			34,429,946
Increase (decrease) in securities sold under agreements to repurchase		(10,270,000	)		2,240,000
Increase in advances from the Federal Home Loan Bank		17,000,000			—
Purchase of treasury stock		(1,835,613	)		—
Purchase of shares by deferred compensation plans trust		(32,042	)		(40,681	)
Increase in advances from borrowers for taxes and insurance		222,944			239,078

Net cash provided by financing activities		15,069,515			34,881,263

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		17,537,959			(5,722,451	)

CASH AND CASH EQUIVALENTS—Beginning of period		13,400,085			47,395,819

CASH AND CASH EQUIVALENTS—End of period	$	30,938,044		$	41,673,368

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION — Cash paid during the period for:
Interest	$	10,971,970		$	8,265,686

Income taxes	$	1,120,140		$	1,375,813

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Financial Statement Presentation -The unaudited condensed consolidated financial statements include the accounts of Ocean Shore Holding Co. (the “Company”) and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions to Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2005. The results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006 or any other period.

Use of Estimates in the Preparation of Financial Statements - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. The most significant estimates relate to the allowance for loan losses and deferred income taxes. Actual results could differ from those estimates.

New Accounting Pronouncements-In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 154 –“Accounting Changes and Error Corrections.” SFAS No. 154, a replacement of Accounting Principals Board (“APB”) Opinion No. 20 –“Accounting Changes” and FASB Statement No. 3 –“Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application for voluntary changes in accounting principles unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005. Early application is permitted for accounting changes and corrections of errors during fiscal years beginning after June 1, 2005. The adoption of SFAS No. 154 did not have a material effect on our financial condition or results of operations.

On December 19, 2005, the FASB issued FASB Staff Position (“FSP”) 94-6-1, “Terms of Loan Products That May Give Rise to a Concentration of Credit Risk.” FSP 94-6-1 addresses whether, under existing guidance, non-traditional loan products represent a concentration of credit risk and what disclosures are required for entities that originate, hold, guarantee, service or invest in loan products whose terms may give rise to a concentration of credit risk. Non-traditional loan products expose the originator, holder, investor, guarantor or servicer to higher credit risk than traditional loan products. Typical features of non-traditional loan products may include high loan-to-value ratios and interest or principal repayments that are less than the repayments for fully amortizing loans of an equivalent term. FSP 94-6-1 was effective upon its issuance and did not have a material impact on the Company’s financial position or disclosures.

In February 2006, the FASB issued SFAS No. 155,“Accounting for Certain Hybrid Financial Instruments.” This statement amends FASB Statements No. 133,“Accounting for Derivative Instruments and Hedging Activities,”and No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This statement resolves issues addressed in Statement 133 Implementation Issue No. D1,“Application of Statement 133 to Beneficial Interest in Securitized Financial Assets.” This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not expect that the guidance will have a material effect on the Company’s financial position or results of operations.

In March 2006, the FASB issued SFAS No. 156,“Accounting for Servicing of Financial Assets” – an amendment of FASB Statement No. 140. This statement addresses the recognition and measurement of separately recognized servicing rights. The statement clarifies when a servicing right should be separately recognized, requires servicing rights to be initially measured at fair value, and allows an entity to choose to subsequently measure its servicing rights at fair value. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company is evaluating the impact of this pronouncement and does not expect that the guidance will have a material effect on the Company’s financial position or results of operations.

In June 2006, the FASB issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of this pronouncement.

In September 2006, the FASB issued Statement No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 (i) defines fair value, (ii) establishes a framework for measuring fair value in GAAP and (iii) expands disclosure requirements about fair value measurements. SFAS No. 157 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. The Company currently is considering the impact from the adoption of SFAS No. 157.

In September 2006, the FASB issued SFAS No. 158,“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This standard requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur as a component of comprehensive income. The standard also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The requirement to recognize the funded status of a defined benefit postretirement plan is effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for the fiscal years ending after December 15, 2008. The Company is continuing to evaluate the impact of this pronouncement and does not expect that the guidance will have an effect on the Company’s financial position or results of operations.

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin (“SAB”) No. 108. This release expresses the staff’s views regarding the process of quantifying financial statement misstatements and addresses diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company has reviewed SAB No. 18 in connection with our condensed consolidated financial statements for the current and prior periods, and has determined that its adoption will not have an impact on any of these financial statements.

2. INVESTMENT SECURITIES

Investment securities are summarized as follows:


	September 30, 2006
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Available for Sale
Debt securities -
U.S. Government and Federal Agencies	$	13,660,798	$	—	$	77,398	$	13,583,400
Municipal securities		2,954,544		59,304		—		3,013,848
Corporate		11,967,088		248,630		126,459		12,089,259
Mutual funds		8,012,172		187,795		222,765		7,977,202

	$	36,594,602	$	495,729	$	426,622	$	36,663,709


	December 31, 2005
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Held to Maturity
Debt securities -
Municipal securities	$	4,292,600	$	1,035	$	—	$	4,293,635

Available for Sale
Debt securities -
U.S. Government and Federal Agencies	$	22,433,195	$	5,230	$	303,427	$	22,134,998
Municipal securities		4,949,764		79,699		—		5,029,463
Corporate		11,973,310		274,114		93,018		12,154,406
Mutual funds		8,012,172		186,931		232,095		7,967,008

	$	47,368,441	$	545,974	$	628,540	$	47,285,875

The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2006 and December 31, 2005:


	September 30, 2006
	Less Than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss
Debt securities -
U.S. Government and
Federal Agencies	$	—	$	—	$	13,583,400	$	77,398	$	13,583,400	$	77,398
Corporate		2,126,668		13,521		3,006,046		112,938		5,132,714		126,459
Mutual funds		—		—		7,786,811		222,765		7,786,811		222,765

	$	2,126,668	$	13,521	$	24,376,257	$	413,101	$	26,502,925	$	426,622


	December 31, 2005
	Less Than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss
Debt securities -
U.S. Government and
Federal Agencies	$	3,531,734	$	42,653	$	17,982,383	$	260,774	$	21,514,117	$	303,427
Corporate		1,490,405		20,648		1,537,204		72,370		3,027,609		93,018
Mutual funds		—		—		7,777,482		232,095		7,777,482		232,095

	$	5,022,139	$	63,301	$	27,297,069	$	565,239	$	32,319,208	$	628,540

Management believes that the estimated fair value of the securities is dependent upon the movement in market interest rates and that the unrealized losses are temporary. The determination of whether a decline in market value is other than temporary is necessarily a matter of subjective judgment. The timing and amount of any realized losses reported in the Company’s financial statements could vary if conclusions other than those made by management were to determine whether an other than temporary impairment exists.

At September 30, 2006, 11 debt securities had aggregate depreciation of 1.13% from the Company’s amortized cost basis for 12 months or longer. The unrealized loss on debt securities relates principally to the changes in market interest rates. U.S. Government and federal agencies securities represent U.S. treasury and federal agency issues and are currently rated AAA by at least one bond credit rating agency. The corporate securities have no identified credit issues and have a current average credit rating of A. As management has the ability and intent to hold these debt securities until a forecasted recovery, which may be maturity, no decline is deemed to be other than temporary.

At September 30, 2006, 2 mutual fund holdings had aggregate depreciation of 2.78% from the Company’s amortized cost basis for 12 months or longer. Although the mutual fund holdings have unrealized losses, no credit issues have been identified that cause management to believe that declines in market value are other than temporary as the securities in the portfolios of the mutual fund holdings are AAA rated government or agencies bonds. Although the fair value of the mutual fund holdings will fluctuate as the market interest rates move, management believes that the fair value will recover as the securities held in the mutual fund portfolios mature and are reinvested at market rate yielding investments. Management has the ability and intent to hold these mutual funds until such time that the values recover.

The amortized cost and estimated fair value of debt securities available for sale at September 30, 2006 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.


	September 30, 2006
	Available for Sale Securities
	Amortized Cost		Estimated Fair Value
Due within 1 year	$	12,853,022	$	12,814,765
Due after 1 year through 5 years		1,416,004		1,374,848
Due after 5 years through 10 years		1,000,000		908,620
Due after 10 years		13,313,404		13,588,274

Total	$	28,582,430	$	28,686,507

3. MORTGAGE-BACKED SECURITIES

Mortgage-backed securities are summarized as follows:


	September 30, 2006
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Held to Maturity

GNMA pass-through certificates	$	131,785	$	3,195	$	—	$	134,980
FHLMC pass-through certificates		525,446		4,709		—		530,155
FNMA pass-through certificates		4,743,826		1,247		137,961		4,607,112

Total	$	5,401,057	$	9,151	$	137,961	$	5,272,247

Available for Sale

FHLMC pass-through certificates	$	10,223,113	$	8,438	$	223,538	$	10,008,013
GNMA pass-through certificates		3,840,465		30,320		15,300		3,855,485
FNMA pass-through certificates		17,375,637		37,371		369,414		17,043,594
Small Business Administration certificates		12,208		—		96		12,112

Total	$	31,451,423	$	76,129	$	608,348	$	30,919,204


	December 31, 2005
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
Held to Maturity

GNMA pass-through certificates	$	153,602	$	5,225	$	—	$	158,827
FHLMC pass-through certificates		4,013		347		—		4,360
FNMA pass-through certificates		5,278,298		2,050		122,835		5,157,513

Total	$	5,435,913	$	7,622	$	122,835	$	5,320,700

Available for Sale

FHLMC pass-through certificates	$	11,789,191	$	17,544	$	275,214	$	11,531,521
GNMA pass-through certificates		4,602,712		72,341		19,678		4,655,375
FNMA pass-through certificates		21,288,309		55,204		384,493		20,959,020
Small Business Administration certificates		29,934		—		168		29,766

Total	$	37,710,146	$	145,089	$	679,553	$	37,175,682


	September 30, 2006
	Less Than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss
FNMA pass-through certificates-held-to-maturity	$	—	$	—	$	4,467,457	$	137,961	$	4,467,457	$	137,961
SBA pass-through certificates		—		—		12,112		96		12,112		96
FHLMC pass-through certificates		330,503		1,005		9,172,043		222,533		9,502,546		223,538
GNMA pass-through certificates		—		—		1,101,712		15,300		1,101,712		15,300
FNMA pass-through certificates		831,496		1,933		13,804,186		367,481		14,635,682		369,414

Total	$	1,161,999	$	2,938	$	28,557,510	$	743,371	$	29,719,509	$	746,309


	December 31, 2005
	Less Than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss
FNMA pass-through certificates-held-to-maturity	$	3,651,184	$	77,532	$	1,339,509	$	45,303	$	4,990,693	$	122,835
SBA pass-through certificates		—		—		29,766		168		29,766		168
FHLMC pass-through certificates		4,763,766		99,930		5,718,543		175,284		10,482,309		275,214
GNMA pass-through certificates		206,343		195		1,111,778		19,483		1,318,121		19,678
FNMA pass-through certificates		8,492,438		169,824		9,938,447		214,669		18,430,885		384,493

Total	$	17,113,731	$	347,481	$	18,138,043	$	454,907	$	35,251,774	$	802,388

Management believes that the estimated fair value of the securities is dependent upon the movement in market interest rates and that the unrealized losses are temporary. At September 30, 2006, 27 mortgage-backed securities had aggregate depreciation of 2.54% from the Company’s amortized cost basis for 12 months or longer. The unrealized losses relate principally to the changes in market interest rates. These securities represent asset backed federal agency issues and are currently rated AAA by at least one bond credit rating agency. As management has the ability and intent to hold these debt securities until a forecasted recovery, which may be maturity, no declines are deemed to be other than temporary.

4. LOANS RECEIVABLE

Loans receivable consist of the following:


	September 30,			December 31,
	2006			2005
Real estate - mortgage:
One-to four-family residential	$	315,502,311		$	294,295,873
Commercial and multi-family		32,298,049			28,725,017

Total real estate-mortgage		347,800,360			323,020,890

Real estate - construction:
Residential		8,221,574			12,230,271
Commercial		7,501,910			11,018,586

Total real estate - construction		15,723,484			23,248,857

Commercial		15,047,546			16,582,359

Consumer:
Home equity		54,953,569			48,536,606
Other consumer loans		730,442			1,135,459

Total consumer loans		55,684,011			49,672,065

Total loans		434,255,401			412,524,170
Net deferred loan cost		1,416,902			1,233,606
Allowance for loan losses		(1,973,878	)		(1,752,667	)

Net total loans	$	433,698,425		$	412,005,109

Changes in the allowance for loan losses are as follows:


	Nine Months Ended September 30,
	2006			2005
Balance at January 1	$	1,752,667		$	1,466,295
Provision for loan loss		225,000			225,000
Charge-offs		(8,640	)		(8,930	)
Recoveries		4,852			2,982

Balance at September 30	$	1,973,878		$	1,685,347

5. DEPOSITS

Deposits consist of the following major classifications:


	September 30, 2006				December 31, 2005
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
NOW and other demand deposit accounts	$	213,658,561	2.06	%	$	207,015,598	1.56	%
Passbook savings and club accounts		65,644,833	1.14	%		79,437,866	1.16	%

Subtotal		279,303,394				286,453,464

Certificates with original maturities:
Within one year		70,734,513	4.41	%		46,783,779	3.32	%
One to three years		36,188,508	4.03	%		41,164,569	3.41	%
Three years and beyond		40,671,713	4.87	%		42,512,090	4.81	%

Total certificates		147,594,734				130,460,438

Total	$	426,898,128			$	416,913,902

The aggregate amount of certificate accounts in denominations of $100,000 or more at September 30, 2006 and December 31, 2005 amounted to $48,961,076 and $42,241,555, respectively.

Municipal demand deposit accounts in denominations of $100,000 or more at September 30, 2006 and December 31, 2005 amounted to $73,861,761 and $60,129,245, respectively.

6. EARNINGS PER SHARE

Basic net income per share is based upon the weighted average number of common shares outstanding, while diluted net income per share is based upon the weighted average number of common shares outstanding and common share equivalents that would arise from the exercise of dilutive securities.

The difference between the common shares issued and the common shares outstanding, for the purposes of calculating basic earnings per share (“EPS”) is a result of the unallocated ESOP shares and treasury stock purchases.

The calculated basic and diluted EPS are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Numerator	$	1,169,479	$	778,445	$	2,572,348	$	2,310,606
Denominators:
Basic shares outstanding		8,255,269		8,437,655		8,280,798		8,444,395
Effect of diluted securities		138,187		18,801		163,824		6,336

Diluted shares outstanding		8,393,456		8,456,456		8,444,622		8,450,731

Earnings per share:
Basic	$	0.14	$	0.09	$	0.31	$	0.27
Diluted	$	0.14	$	0.09	$	0.30	$	0.27

At September 30, 2006, there were 373,500 outstanding options that were anti-dilutive.

7. STOCK-BASED COMPENSATION

In August 2005, the shareholders of the Company approved the adoption of the 2005 Equity Based Incentive Plan (the “Equity Plan”). The Equity Plan provides for the grant of shares of common stock of the Company to certain officers, directors and employees of the Company. In order to fund the grant of shares under the Equity Plan, the Equity Plan Trust (the “Trust”) purchased 171,300 shares of the Company’s common stock in the open market for approximately $2.0 million, at an average price of $11.70 per share. The Company made sufficient contributions to the Trust to fund these purchases. No additional purchases are expected to be made by the Trust under this plan. Pursuant to the terms of the Equity Plan, all 171,300 shares acquired by the Trust were granted to certain officers and directors of the Company in August 2005. The Equity Plan shares will generally vest at the rate of 20% per year over five years. As of September 30, 2006, 34,260 shares were fully vested and none forfeited.

Compensation expense related to the shares granted is recognized ratably over the five-year vesting period in an amount which totals the market price of the Company’s stock at the date of grant. During the three months and nine months ended September 30, 2006, approximately $99,000 and $298,000 was recognized in compensation expense for the Equity Plan, respectively.

The Equity Plan also authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price equal to the fair market value of the common stock on the grant date. Options will generally become vested and exercisable at the rate of 20% per year over five years. A total of 429,374 shares of common stock have been reserved for future issuance pursuant to the Equity Plan, of which 396,000 were awarded on August 10, 2005. As of September 30, 2006, 373,500 options were outstanding. During the three and nine months ended September 30, 2006, approximately $64,000 and $217,000, respectively, was recognized in compensation expense for the Equity Plan.

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123(R) using a modified prospective application. Accordingly, prior period amounts have not been restated. The adoption required a reclassification to additional paid-in capital of $(1,821,000) from common stock acquired by employee benefit plan trusts. In the third quarter of 2006, the adoption of SFAS 123(R) resulted in incremental stock-based compensation expense of $64,000. The incremental stock-based compensation expense caused income before taxes to decrease by $64,000, net income to decrease by $52,000 and diluted earnings per share to decrease by $0.01 per share. In the first nine months of 2006, the adoption of SFAS 123(R) resulted in incremental stock-based compensation expense of $217,000. The incremental stock-based compensation expense caused income before taxes to decrease by $217,000, net income to decrease by $176,000 and diluted earnings per share to decrease by $0.02 per share. As of September 30, 2006, expenses totaling $486,000 remain to be recognized over the next 3.9 years.

Share-based compensation costs prior to January 1, 2006 were recognized using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25,“Accounting for Stock Issued to Employees.” For disclosure purposes, pro forma net income and net income per share data were provided in accordance with SFAS No. 123,“Accounting for Stock-Based Compensation,” as if the fair value method had been applied. Under SFAS No. 123, compensation cost related to stock options granted to employees was computed based on the fair value of the stock option at the date of grant using the Black-Scholes option pricing model. Prior to the adoption of SFAS 123(R), had compensation costs been determined based on the fair market value of the stock options consistent with the provisions of SFAS No. 123, the Company’s net income and earnings per share would have been unchanged for the three months ended September 30, 2005, as the Company had not entered into any share-based compensation arrangements at that time.

The estimated fair value of options granted during 2005 was $2.31 per share. The fair value was estimated on the date of grant using the Black-Scholes Single Option Pricing Model with the following weighted average assumptions used:


	Year Ended December 31, 2005
Dividend yield	0.00	%
Expected volatility	21.54	%
Risk-free interest rate	4.07	%
Expected life of options	5.0

A summary of the status of the Company’s stock options under the Equity Plan as of September 30, 2006 and changes during the nine months ended September 30, 2006 are presented below:


	Nine Months Ended September 30, 2006
	Number of Shares	Weighted average Exercise price
Outstanding at the beginning of the period	388,500	$	11.60
Granted	—		—
Exercised	—		—
Forfeited	15,000	$	11.60

Outstanding at the end of the period	373,500	$	11.60

Exercisable at the end of the period	74,700	$	11.60

The following table summarizes all stock options outstanding under the Equity Plan as of September 30, 2006:


	Options Outstanding
Exercise Price	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
				(in Years)
$11.60	373,500	$	11.60	8.9

8. STOCK REPURCHASE PLAN

On March 29, 2006, the Company’s Board of Directors approved the repurchase of 200,087 shares of the Company’s common stock in the open market. As of September 30, 2006, 128,800 shares had been purchased. The Company is still purchasing shares in the open market to complete the remaining 71,287 shares approved for purchase.

9. INCOME TAXES

Income taxes decreased $501,000 to $5,000 for an effective tax rate of 0.4% for the three months ended September 30, 2006 compared to $506,000 for an effective tax rate of 39.4% from the same period in 2005. Prior to September of 2003, the Company’s investment strategy for bank owned life insurance was to frequently purchase and surrender policies prior to term. The surrender of a policy prior to term triggers a taxable event and results in a tax liability. As a result, the Company provided a deferred tax liability for the estimated amount that would be incurred upon the termination of such policies. During the third quarter of 2006, the Company changed its investment policy to purchase and hold the insurance policies for the duration of the term. This policy does not require the build up of a deferred tax liability. As a result, the Company reversed $600,000 of previously recorded deferred tax liability. Partially offsetting the impact of the change in investment policy was a $100,000 tax valuation allowance relating to the deferred tax asset established in connection with the Company’s contribution to the charitable foundation established in connection with its public offering in December of 2004. The Company determined that, based on its assessment of future taxable income and expectations of charitable contributions, it is probable that the tax benefit of the contribution may not be fully realized.

Income taxes decreased $580,000 to $900,000 for an effective tax rate of 26.1% for the nine months ended September 30, 2006 compared to $1.5 million for an effective tax rate of 39.2% from the same period in 2005. The decrease in income taxes for the nine months ended September 30, 2006 compared to September 30, 2005 is due to the Company’s change in policy regarding the tax treatment on bank owned life insurance and the offset of the $100,000 tax valuation allowance affecting the Company’s contribution to the charitable foundation, both of which are discussed above. An additional decrease of $80,000 was a result of lower net income before taxes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

This Quarterly Report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather are statements based on Ocean Shore Holding Co.’s (“Ocean Shore Holding” or the “Company”) current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. These factors include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Company’s loan or investment portfolios. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2005 under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Ocean Shore Holding assumes no obligation to update any forward-looking statements.

GENERAL

Ocean Shore Holding is a federally chartered savings and loan holding company established in 1998 to be the holding company for Ocean City Home Bank (the “Bank”). Ocean Shore Holding’s business activity is the ownership of the outstanding capital stock of the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related financial data, relates primarily to the Bank.

The Bank is a federally chartered savings bank. We operate as a community-oriented financial institution offering a wide range of financial services to consumers and businesses in our market area. We attract deposits from the general public, small businesses and municipalities and use those funds to originate real estate loans, small commercial loans and consumer loans, which we hold primarily for investment.

On December 21, 2004, the Company completed its initial public offering, issuing a total of 8,762,742 shares of the Company’s common stock, of which 4,761,000 shares, or 54.3%, were issued to OC Financial MHC, 343,499 shares, or 3.9%, were issued to the Bank’s Employee Stock Ownership Plan, 166,492 shares, or 1.9%, were issued to the Ocean City Home Charitable Foundation, and 3,491,751 shares, or 39.8%, were issued to eligible depositors. Net proceeds of the offering were $36.8 million.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2006 AND DECEMBER 31, 2005

Total assets of the Company increased by $18.8 million to $562.7 million at September 30, 2006 from $543.8 million at December 31, 2005. Total loans receivable and cash and cash equivalents increased $21.7 million and $17.5 million, respectively, offset by decreases of $14.9 million in investments and $6.3 million in mortgage-backed securities.

Investments

Investments decreased $14.9 million to $36.7 million at September 30, 2006 from $51.6 million at December 31, 2005. Maturities of agency notes and municipal securities totaling $15.1 million were partially offset by purchases of $800,000. Mortgage-backed securities decreased by $6.3 million to $36.3 million as payments received and fluctuations in market value of investments totaling $6.8 million were partially offset by purchases of $500,000. The decrease in investments and mortgage-backed securities was attributable to management’s decision to use the proceeds from maturities and repayments to fund loan demand.

Loans

Loans receivable increased $21.7 million to $433.7 million at September 30, 2006 from $412.0 million at December 31, 2005. Loan originations totaled $84.6 million for the nine months ended September 30, 2006 including real estate mortgage loan originations of $44.2 million, real estate construction originations of $10.4 million, consumer loan originations of $23.5 million and commercial loan originations of $6.5 million. Originations were offset by $62.5 million in normal loan payments and payoffs. The decrease in real estate construction was primarily the result of borrowers completing the construction phase of their project and paying off the construction loan.

The following table summarizes changes in the loan portfolio in the nine months ended September 30, 2006.


	September 30, 2006			December 31, 2005			$ change			% change
	(Dollars in thousands)
Real estate - mortgage:
One-to four-family residential	$	315,502		$	294,296		$	21,206		7.2	%
Commercial and multi-family		32,298			28,725			3,573		12.4

Total real estate-mortgage		347,800			323,021			24,779		7.7

Real estate - construction:
Residential		8,221			12,230			(4,009	)	(32.8	)
Commercial		7,504			11,019			(3,517	)	(31.9	)

Total real estate - construction		15,723			23,249			(7,525	)	(32.4	)

Commercial		15,048			16,582			(1,535	)	(9.3	)

Consumer
Home equity		54,954			48,537			6,417		13.2
Other consumer loans		730			1,135			(405	)	(35.7	)

Total consumer loans		55,684			49,672			6,012		12.1

Total loans		434,255			412,524			21,731		5.3

Net deferred loan cost		1,417			1,234			183		14.9
Allowance for loan losses		(1,974	)		(1,753	)		(221	)	12.6

Net total loans	$	433,698		$	412,005		$	21,693		5.3

Non-Performing Assets

Non-performing assets totaled $248,000 at September 30, 2006. Net charge-offs were $4,000 in the nine months ended September 30, 2006, compared to $6,000 in the same period last year. The allowance for loan losses was 0.46% of total loans at September 30, 2006 compared to 0.42% of total loans at September 30, 2005.


	Nine Months Ended September 30,
	2006			2005
	(In thousands)
Allowance for loan losses:
Allowance at beginning of period	$	1,753		$	1,466
Provision for loan losses		225			225

Recoveries		5			3
Charge-offs		(9	)		(9	)

Net charge-offs		(4	)		(6	)

Allowance at end of period	$	1,974		$	1,685

Allowance for loan losses as a percent of total loans		0.46	%		0.42	%
Allowance for loan losses as a percent of nonperforming loans		N/M			N/M

N/M – Not meaningful


	September 30, 2006			December 31, 2005
	(In thousands)
Non-performing Assets
Non-accrual loans:
Mortgage loans	$	248		$	91
Consumer loans		0			7

Total nonperforming assets	$	248		$	98

Non-performing loans as a percent of total loans		0.06	%		0.02	%
Non-performing assets as a percent of total assets		0.01	%		0.02	%

Deposits

Deposits increased by $10.0 million, or 2.4%, to $426.9 million at September 30, 2006 from $416.9 million at December 31, 2005. An increase in demand deposits of $6.6 million and time deposits of $17.1 million were offset by a decrease in savings accounts of $13.8 million.

The following table summarizes changes in deposits in the nine months ended September 30, 2006.


	September 30, 2006		December 31, 2005		$ Change			% Change
				(Dollars in thousands)
NOW and other demand deposit accounts	$	213,659	$	207,016	$	6,643		3.2	%
Passbook savings and club accounts		64,645		79,438		(13,793	)	(17.4	)

Subtotal		279,303		286,454		(7,150	)	(2.5	)

Certificates with original maturities:
Within one year		70,735		46,784		23,951		51.2
One to three years		36,189		41,165		(4,976	)	(12.1	)
Three years and beyond		40,672		42,512		(1,840	)	(4.3	)

Total certificates		147,595		130,461		17,134		13.1

Total	$	426,898	$	416,914	$	9,984		2.4

Borrowings

Federal Home Loan Bank advances increased $17.0 million to $44.0 million at September 30, 2006 from $27.0 million at December 31, 2005. Other borrowings decreased $10.3 million from $18.5 million at December 31, 2005 to $8.2 million at September 30, 2006. The additional net borrowings of $6.7 million were used to fund loan demand.

Stockholders’ Equity

Stockholders’ equity increased by $1.5 million to $62.1 million at September 30, 2006 from $60.6 million at December 31, 2005 primarily as a result from current period earnings of $2.6 million partially offset by an increase of treasury stock of $1.8 million.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

Net income was $1.2 million for the three months ended September 30, 2006 as compared to $778,000 for the three months ended September 30, 2005. The $400,000, or 50.2%, increase in 2006 from 2005 was primarily due to a change in tax policy that decreased the provision for income taxes in the September 2006 quarter.

Net income was $2.6 million for the nine months ended September 30, 2006 as compared to $2.3 million for the nine months ended September 30, 2005. The $300,000, or 11.3%, increase in 2006 from 2005 was primarily due to a change in tax policy that decreased the provision for income taxes in the September 2006 quarter.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
	(Dollars in thousands, except share and per share data)
Net income	$	1,169		$	778		$	2,572		$	2,311
Basic earnings per share	$	0.14		$	0.09		$	0.31		$	0.27
Diluted earnings per share	$	0.14		$	0.09		$	0.30		$	0.27
Return on average assets (annualized)		0.84	%		0.56	%		0.61	%		0.57	%
Return on average equity (annualized)		7.55	%		5.04	%		5.56	%		5.06	%

Net Interest Income

The following table summarizes changes in interest income and interest expense for the three-month periods ended September 30, 2006 and 2005.


	Three Months Ended September 30,
	2006		2005		$ Change			% Change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	6,466	$	5,491	$	975		17.8	%
Investment securities		987		1,138		(152	)	(13.3	)
Other interest-earning assets		183		128		55		(43.0	)

Total interest income		7,635		6,757	$	878		13.0

INTEREST EXPENSE:
Deposits		2,842		2,104	$	738		35.1
Borrowings		916		732		184		25.1

Total interest expense		3,758		2,836		922		32.5

Net interest income	$	3,877	$	3,921	$	(44	)	(1.1	)

Interest income increased by $878,000 in the three months ended September 30, 2006 compared to the same period in 2005, reflecting increases in loan income and other interest-earning assets income offset by a decrease in investment income. The increase in loan income resulted from an increase in the average balance of loans of $45.7 million and an increase in the average yield of 30 basis points. The increase in the average balance of loans was a direct result of new loan originations while the higher yield was the result of both new loans that were originated at higher yields and existing loans repricing at higher rates. Investment

income decreased $152,000 as the decrease of the average balance of $30.1 million was offset by an increase in the average yield of 87 basis points. Income in federal funds sold decreased $55,000 as the decrease in the average balance of $1.0 million was offset by an increase in the average yield of 174 basis points. The decreases in the average balances of investments and federal funds were the result of maturities and repayments, while the higher yield was the result of higher short-term interest rates over the prior period.

Interest expense increased by $922,000, reflecting an increase in demand deposit expense of $300,000, an increase in time deposit expense of $500,000 and an increase in interest expense on borrowings of $200,000 offset by a decrease in all other deposit expense of $100,000. Demand deposit expense increased as a result of higher interest rates on accounts tied to market rates compared to the prior period, while time deposit expense increased as a result of deposit growth of $26.0 million and an increase in the average rate paid of 77 basis points. Borrowing expense increased as a result of higher average balance of borrowings of $16.0 million offset by a decrease in the rate paid of 27 basis points.

The interest rate spread and net interest margin were 2.55% and 2.97%, respectively, for the three months ended September 30, 2006 compared to 2.76% and 3.09% for the same period in 2005. The yield on interest earning assets increased 52 basis points as the yield on loans increased 30 basis points and short term investments were reinvested in higher yielding investments due to generally higher market interest rates in the short term end of the yield curve compared to the prior period resulting in an increase in yield in investment securities of 87 basis points and other interest earning assets of 174 basis points. The rise in short-term interest rates over the prior period increased the cost of interest expense on deposits and borrowings by 73 basis points.

The following table summarizes changes in interest income and interest expense for the nine-month periods ended September 30, 2006 and 2005.


	Nine Months Ended September 30,
	2006		2005		$ Change			% Change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	18,747	$	15,287	$	3,460		22.6	%
Investment securities		3,047		3,519		(472	)	(13.4	)
Other interest-earning assets		340		453		(114	)	(25.1	)

Total interest income		22,133		19,259		2,874		14.9

INTEREST EXPENSE:
Deposits		7,974		5,796		2,177		37.6
Borrowings		2,697		2,137		560		26.2

Total interest expense		10,671		7,933		2,737		34.5

Net interest income	$	11,462	$	11,326	$	136		1.2

Interest income increased by $2.9 million in the nine months ended September 30, 2006 compared to the same period in 2005, reflecting increases in loan income offset by decreases in other interest-earning assets income and investment income. The increase in loan income resulted from an increase in the average balance of loans of $60.1 million and an increase in the average yield of 30 basis points. The increase in the average balance of loans was a direct result of new loan originations while the higher yield was the result of both new loans that were originated at higher yields and existing loans repricing at higher rates. Investment income decreased $472,000 as the decrease of the average balance of $29.3 million was offset by an increase in the average yield of 72 basis points. Income in federal funds sold decreased $114,000 as the decrease in the average balance of $12.1 million was offset by an increase in the average yield of 210 basis points. The decreases in the average balances of investments and federal funds were the result of maturities and repayments, while the higher yield was the result of higher short-term interest rates over the prior period.

Interest expense increased by $2.7 million, primarily reflecting an increase in demand deposit expense of $957,000, an increase in time deposit expense of $1.4 million and an increase in interest expense on borrowings of $560,000 partially offset by a decrease in savings deposit expense of $198,000. Demand deposit expense increased as a result of higher interest rates on accounts tied to market rates compared to the prior period, while time deposit expense increased as a result of deposit growth of $23.9 million and an increase in the average rate paid of 76 basis points. Savings deposit expense decreased as a result of lower average balances of $21.2 million. Borrowing expense increased $560,000 as a result of higher average balance of borrowings of $16.4 million offset by a decrease in the rate paid of 29 basis points.

The interest rate spread and net interest margin of the Company were 2.59% and 2.97%, respectively, for the nine months ended September 30, 2006 compared to 2.74% and 3.04%, respectively, for the same period in 2005. The yield on interest earning assets increased as short-term investments were reinvested in higher yielding investments due to higher, short-term interest rates, loans repricing at higher interest rates and new loans originated at higher interest rates. The rise in short-term interest rates over the prior period increased the cost of interest expense on deposits and borrowings.

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. The balances of yields and costs are annualized for presentation purposes. For purposes of the tables, average balances have been calculated using the average daily balances and nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are insignificant. Interest income on loans and investment securities has not been calculated on a tax equivalent basis because the impact would be insignificant.

Average Balance Tables


	Three Months Ended September 30, 2006							Three Months Ended September 30, 2005
	Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	430,728		$	6,466	6.00	%	$	385,064		$	5,491	5.70	%
Investment securities		77,097			987	5.12	%		107,154			1,138	4.25	%
Other interest-earning assets		14,000			183	5.22	%		14,680			128	3.48	%

Total interest-earning assets		521,825			7,635	5.85	%		506,898			6,757	5.33	%

Noninterest-earning assets		38,213							45,488

Total assets	$	560,038						$	552,386

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	174,131		$	1,052	2.42	%	$	178,104		$	757	1.70	%
Savings accounts		66,839			191	1.14	%		89,951			266	1.18	%
Certificates of deposit		147,566			1,599	4.33	%		121,550			1,081	3.56	%

Total interest-bearing deposits		388,536			2,842	2.93	%		389,605			2,104	2.16	%

FHLB advances		44,014			473	4.30	%		10,000			78	3.13	%
Securities sold under agreements to repurchase		7,838			108	5.51	%		25,808			319	4.94	%
Subordinated debt		15,464			335	8.67	%		15,464			335	8.67	%
Total borrowings		67,316			916	5.44	%		51,272			732	5.71	%

Total interest-bearing liabilities		455,853			3,758	3.30	%		440,877			2,836	2.57	%

Noninterest-bearing liabilities		42,213							49,786

Total liabilities		498,066							490,663
Stockholders’ equity		61,972							61,723

Total liabilities and stockholders’ equity	$	560,038						$	552,386

Net interest income				$	3,877						$	3,921

Interest rate spread						2.55	%						2.76	%
Net interest margin						2.97	%						3.09	%
Average interest-earning assets to average interest-bearing liabilities		114.47	%						114.98	%


	Nine Months Ended September 30, 2006							Nine Months Ended September 30, 2005
	Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	422,574		$	18,747	5.92	%	$	362,511		$	15,287	5.62	%
Investment securities		82,915			3,047	4.90	%		112,240			3,519	4.18	%
Other interest-earning assets		9,155			340	4.95	%		21,246			453	2.85	%

Total interest-earning assets		514,644			22,133	5.73	%		495,997			19,259	5.18	%

Noninterest-earning assets		41,335							45,064

Total assets	$	555,979						$	541,061

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	172,661		$	2,950	2.28	%	$	172,970		$	1,992	1.54	%
Savings accounts		71,556			610	1.14	%		92,784			808	1.16	%
Certificates of deposit		142,507			4,414	4.13	%		118,613			2,996	3.37	%

Total interest-bearing deposits		386,724			7,974	2.75	%		384,367			5,796	2.01	%

FHLB advances		39,332			1,235	4.19	%		10,000			233	3.10	%
Securities sold under agreements to repurchase		11,665			457	5.22	%		24,559			898	4.88	%
Subordinated debt		15,464			1,006	8.67	%		15,464			1,006	8.67	%
Total borrowings		66,461			2,697	5.41	%		50,023			2,137	5.70	%

Total interest-bearing liabilities		453,185			10,671	3.14	%		434,390			7,933	2.44	%

Noninterest-bearing liabilities		41,082							45,829

Total liabilities		494,267							480,219

Stockholders’ equity		61,712							60,842

Total liabilities and stockholders’ equity	$	555,979						$	541,061

Net interest income				$	11,462						$	11,326

Interest rate spread						2.59	%						2.74	%
Net interest margin						2.97	%						3.04	%
Average interest-earning assets to average interest-bearing liabilities		113.56	%						114.18	%

Provision for Loan Losses

We review the level of the allowance for loan losses on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses was $75,000 and $225,000 for the three and nine months ended September 30, 2006, respectively, which were the same provision for loan losses for the corresponding periods ending September 30, 2005. The provision for loan losses was primarily to maintain an allowance level deemed appropriate by management in light of factors such as the level of non-performing loans and the current market conditions.

Other Income

The following table summarizes other income for the three months ended September 30, 2006 and 2005 and the changes between the periods.


	Three Months Ended September 30,
	2006		2005		% Change
	(Dollars in thousands)
OTHER INCOME:

Service charges	$	388	$	410	(5.4	)%
Cash surrender value of life insurance		66		63	4.0
Other		138		148	(6.7	)

Total other income	$	592	$	621	(4.8	)

Other income decreased $29,000, or 4.8%, to $592,000 for the three-month period ended September 30, 2006 from the same period in 2005. The decrease in service charges was the result of lower fees collected compared to the prior period.

The following table summarizes other income for the nine months ended September 30, 2006 and 2005 and the changes between the periods.


	Nine Months Ended September 30,
	2006		2005		% Change
	(Dollars in thousands)
OTHER INCOME:

Service charges	$	1,166	$	1,145	1.8	%
Cash surrender value of life insurance		196		199	(1.7	)
Other		384		417	(7.9	)

Total other income	$	1,746	$	1,761	(0.9	)

Other income decreased $15,000, or 0.9%, to $1.7 million for the nine-month period ended September 30, 2006 from the same period in 2005. The decreases occurred in service charges, fees and loan servicing fees.

Other Expense

The following table summarizes other expense for the three months ended September 30, 2006 and 2005 and the changes between the periods.


	Three Months Ended September 30,
	2006		2005		% Change
	(Dollars in thousands)
OTHER EXPENSE:

Salaries and employee benefits	$	1,921	$	1,810	6.1	%
Occupancy and equipment		692		664	4.2
Federal insurance premiums		13		14	(4.3	)
Advertising		93		115	(18.8	)
Professional services		167		228	(26.7	)
Other operating expense		333		352	(5.5	)

Total other expense	$	3,219	$	3,183	1.1

Other expense increased $36,000 to $3.2 million for the three-month period ended September 30, 2006 from the same period in 2005. Salaries and employee benefits increased $110,000 due to regular salary increases and the cost of share-based compensation.Occupancy and equipment increased $28,000 due to costs associated with the opening of a new branch office compared to a year ago. These increases were offset by decreases in advertising, other operating expenses and professional services, including decreases in legal and accounting services.

The following table summarizes other expense for the nine months ended September 30, 2006 and 2005 and the changes between the periods.


	Nine Months Ended September 30,
	2006		2005		% Change
	(Dollars in thousands)
OTHER EXPENSE:

Salaries and employee benefits	$	5,670	$	5,269	7.6	%
Occupancy and equipment		2,013		1,830	10.0
Federal insurance premiums		41		43	(5.7	)
Advertising		296		316	(6.3	)
Professional services		465		591	(21.3	)
Other operating expense		1,018		1,013	0.5

Total other expense	$	9,503	$	9,061	4.9

Other expense increased $442,000 to $9.5 million for the nine-month period ended September 30, 2006 from the same period in 2005. Salaries and employee benefits increased $401,000 due to regular salary increases and the cost of share-based compensation.Occupancy and equipment increased $183,000 due primarily to costs associated with the opening of a new branch office. These increases were offset by a decrease in advertising and professional services, including legal and accounting services.

Income Taxes

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of New York. 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 (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2006, cash and cash equivalents totaled $30.9 million. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $15.8 million at September 30, 2006. In addition, at September 30, 2006, we had the ability to borrow a total of approximately $161.3 million from the Federal Home Loan Bank of New York, which included available overnight lines of credit of $107.1 million. On that date, we had no overnight advances outstanding.

At September 30, 2006, we had $44.3 million in loan commitments outstanding, which included $12.3 million in undisbursed loans, $22.9 million in unused home equity lines of credit and $9.1 million in commercial lines of credit. Certificates of deposit due within one year of September 30, 2006 totaled $99.1 million, or 67.1%, of certificates of deposit. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We also have the ability to attract and retain deposits by adjusting the interest rates offered.

At September 30, 2006, the Bank exceeded all of its regulatory capital requirements with tangible capital of $57.5 million, or 10.59% of total adjusted assets, which is above the required level of $8.1 million or 1.5%; core capital of $57.5 million, or 10.59% of total adjusted assets, which is above the required level of $21.7 million or 4%; and risk-based capital of $59.5 million, or 19.11% of risk-weighted assets, which is above the required level of $24.9 million or 8%. The Bank is considered a “well-capitalized” institution under the Office of Thrift Supervision’s prompt corrective action regulations.

On March 29, 2006, the Company announced that its board of directors approved the repurchase of up to 200,087 shares of the Company’s outstanding common stock, which is 5% of our outstanding shares (excluding those held by OC Financial MHC). The program began on May 1, 2006. Repurchases, which will be conducted through open market purchases or privately negotiated transactions, will be made from time to time depending on market conditions and other factors. Repurchased shares will be held in treasury. As of September 30, 2006, the Company had repurchased 128,800 shares under this plan at a cost of $1.8 million.

MARKET RISK MANAGEMENT

Net Interest Income Simulation Analysis

We analyze our interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

Simulation analysis is only an estimate of our interest rate risk exposure at a particular point in time. We continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The following table reflects changes in estimated net interest income only for Ocean Shore Holding.


	At September 30, 2006 Percentage Change in Estimated Net Interest Income Over
	12 Months		24 Months
200 basis point increase in rates	(2.05	)%	(7.38	)%
100 basis point decrease in rates	0.20	%	(0.63	)%

The 200 and 100 basis point change in rates in the above table is assumed to occur evenly over the following twelve months. Based on the scenario above, net interest income would be adversely affected (within our internal guidelines) in the 12 month and 24 month periods if rates rose by 200 basis points. In addition, if rates declined by 100 basis points, net interest income would be positively affected (within our internal guidelines) in the twelve-month period and adversely affected in the twenty-four-month period.

Net Portfolio Value Analysis

In addition to a net interest income simulation analysis, an interest rate sensitivity analysis prepared by the Office of Thrift Supervision is used to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in the net portfolio value of cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 to 300 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. We measure interest rate risk by modeling the changes in net portfolio value over a variety of interest rate scenarios. The following table, which is based on information that we provide to the Office of Thrift Supervision, presents the change in our net portfolio value at September 30, 2006 that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change.


	Net Portfolio Value (Dollars in Thousands)							Net Portfolio Value as % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates	$ Amount		$ Change			% Change		NPV Ratio		Change
300 bp	$	56,397	$	(28,893	)	(34	)%	10.3	%	(420	)
200		66,392		(18,897	)	(22	)	11.8		(267	)
100		77,891		(7,398	)	(9	)	13.5		(99	)
0		85,289		—		—		14.5		—
(100)		87,168		1,879		2		14.6		15
(200)		81,861		(3,429	)	(4	)	13.7		(77	)
(300)		73,905		(11,384	)	(13	)	12.4		(209	)

The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods

to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the three and nine months ended September 30, 2006, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is included in Item 2 of this report under “Market Risk Management.”

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial offers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


Period	(a) Total number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Appropriate Dollar Value) of Shares (or units) that May Yet Be Purchased Under the Plans or Programs
Month #1 July 1, 2006 through July 31, 2006	None		None	28,800	171,736
Month #2 August 1, 2006 through August 31, 2006	100,000	$	13.05	128,800	71,736
Month #3 September 1, 2006 through September 30, 2006	None		None	128,800	71,736
Total	100,000	$	13.05

(1)

On August 10, 2005, the Company’s Board of Directors approved the formation and funding of a trust that will purchase 171,749 shares of the Company’s common stock in the open market with funds contributed by the Company. As of September 23, 2005, 171,300 shares were purchased. The remaining 449 shares have not been awarded and may be purchased from time to time at the discretion of the independent trustee of the trust and the shares will be used to fund restricted stock awards under the Company’s 2005 Equity Incentive Plan.

(2)

On March 29, 2006, the Company’s Board of Directors approved the repurchase of 200,087 shares of the Company’s common stock in the open market. As of September 30, 2006, 128,800 shares were purchased. The Company is still purchasing shares in the open market to complete the remaining 71,287 shares approved for purchase.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits


31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

SIGNATURES

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


				OCEAN SHORE HOLDING CO.
				(Registrant)

Date: November 13, 2006				/s/ Steven E. Brady
				Steven E. Brady
				President and Chief Executive Officer


Date: November 13, 2006				/s/ Donald F. Morgenweck
				Donald F. Morgenweck
				Chief Financial Officer and Senior Vice President

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Ocean Shore Holding Inactive 10-Q2006 Q3 Quarterly report

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