Ocean Shore Holding 10Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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: 0-53856

OCEAN SHORE HOLDING CO.

(Exact name of registrant as specified in its charter)

New Jersey	80-0282446
(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 T No o

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 for such shorter period that the registrant was required to submit and post such files). Yes T No o

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. (Check one)

Large Accelerated Filer o	Accelerated Filer o
Non-accelerated Filer o	Smaller Reporting Company x
(Do not check if a 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 o No T

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date:

At November 1, 2011, the registrant had 7,291,643 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

	Unaudited Condensed Consolidated Statements of Financial Condition at September 30, 2011 and December 31, 2010		2

	Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010		3

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010		4

	Notes to Unaudited Condensed Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38

Item 4.	Controls and Procedures		38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		38

Item 1A.	Risk Factors		38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39

Item 3.	Defaults upon Senior Securities		39

Item 4.	[RESERVED]		39

Item 5.	Other Information		39

Item 6.	Exhibits		39

SIGNATURES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	September 30,			December 31,
	2011			2010
ASSETS
Cash and amounts due from depository institutions	$	8,277,905		$	5,330,211
Interest-earning bank balances		166,745,998			105,534,943

Cash and cash equivalents		175,023,903			110,865,154

Investment securities held to maturity (estimated fair value—$6,277,189 at September 30, 2011; $2,638,725 at December 31, 2010)		6,090,930			2,467,418
Investment securities available for sale (amortized cost— $44,427,186 at September 30, 2011; $22,230,208 at December 31, 2010)		43,588,507			21,253,675
Loans—net of allowance for loan losses of $4,118,671 at September 30, 2011 and $3,988,076 at December 31, 2010		743,945,044			660,340,007
Accrued interest receivable:
Loans		2,815,028			2,350,978
Investment securities		105,061			151,401
Federal Home Loan Bank stock—at cost		6,434,800			6,271,600
Office properties and equipment—net		13,991,688			12,905,526
Prepaid expenses and other assets		5,760,595			4,665,491
Real estate owned		313,044			97,500
Cash surrender value of life insurance		15,280,455			14,890,746
Net deferred tax asset		3,808,334			3,597,612
Goodwill		3,127,947			—
Core deposit intangible		667,000			—

TOTAL ASSETS	$	1,020,952,336		$	839,857,108

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Non-interest bearing deposits	$	78,823,319		$	62,070,772
Interest bearing deposits		701,741,016			541,263,654
Advances from Federal Home Loan Bank		110,000,000			110,000,000
Junior subordinated debenture		15,464,000			15,464,000
Advances from borrowers for taxes and insurance		4,015,087			3,494,418
Accrued interest payable		807,853			1,146,224
Other liabilities		6,710,552			5,864,523

Total liabilities		917,561,827			739,303,591

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; 7,307,590 shares issued; 7,291,643 shares outstanding at September 30, 2011 and 7,308,118 outstanding at December 31, 2010		73,076			73,076
Additional paid-in capital		64,308,918			64,013,608
Retained earnings - partially restricted		44,000,379			41,736,830
Treasury stock—at cost: 15,947 shares at September 30, 2011; 10,810 shares at December 31, 2010		(174,232	)		(115,208	)
Common stock acquired by employee benefits plans		(3,750,978	)		(4,007,478	)
Deferred compensation plans trust		(524,149	)		(516,142	)
Accumulated other comprehensive loss		(542,505	)		(631,169	)

Total stockholders’ equity		103,390,509			100,553,517
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,020,952,336		$	839,857,108

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,
	2011		2010		2011		2010

INTEREST AND DIVIDEND INCOME:
Taxable interest and fees on loans	$	9,433,318	$	9,004,043	$	26,617,370	$	27,093,155
Taxable interest on mortgage-backed securities		183,848		204,916		500,283		659,747
Non-taxable interest on municipal securities		16,347		19,305		37,466		55,706
Taxable interest and dividends on other investment securities		365,319		218,954		1,048,973		637,452

Total interest and dividend income		9,998,832		9,447,218		28,204,092		28,446,060

INTEREST EXPENSE:
Interest on deposits		1,697,744		1,982,053		4,758,408		5,940,841
Interest on borrowings		1,523,247		1,523,247		4,531,012		4,531,000

Total interest expense		3,220,991		3,506,300		9,289,420		10,471,841

NET INTEREST INCOME		6,777,841		5,940,918		18,914,672		17,974,219

PROVISION FOR LOAN LOSSES		141,400		124,705		344,235		816,066

NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		6,636,441		5,816,213		18,570,437		17,158,153

OTHER INCOME:
Service charges		445,754		396,526		1,200,139		1,277,637
Cash surrender value of life insurance		130,876		137,990		389,710		411,575
Gain on call of securities		-		-		10,014		5
Other		358,213		301,601		998,810		840,522

Total other income		934,843		836,117		2,598,673		2,529,739

OTHER EXPENSE:
Salaries and employee benefits		3,015,803		2,458,654		8,196,553		7,407,519
Occupancy and equipment		1,259,715		970,439		3,377,741		2,928,922
Federal insurance premiums		217,176		166,103		590,443		496,533
Advertising		119,771		85,515		371,258		313,291
Professional services		379,889		211,280		984,527		592,944
Real estate owned expense		-		1,344		2,499		3,865
Charitable contributions		36,000		34,500		108,000		103,500
Other operating expenses		492,857		391,033		1,356,242		1,299,647

Total other expenses		5,521,211		4,318,868		14,987,263		13,146,221

INCOME BEFORE INCOME TAXES		2,050,073		2,333,462		6,181,847		6,541,671

INCOME TAX EXPENSE		835,207		892,323		2,604,878		2,525,210

NET INCOME	$	1,214,866	$	1,441,139	$	3,576,969	$	4,016,461
Earnings per share, basic:	$	0.18	$	0.21	$	0.53	$	0.59
Earnings per share, diluted:	$	0.18	$	0.21	$	0.52	$	0.59

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,
	2011			2010
OPERATING ACTIVITIES:
Net income	$	3,576,969		$	4,016,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		501,077			773,195
Provision for loan losses		344,235			816,066
Stock based compensation expense		551,810			585,767
Gain on call of AFS securities		(10,014	)		(5	)
Cash surrender value of life insurance		(389,710	)		(411,575	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(62,509	)		38,149
Prepaid expenses and other assets		(109,210	)		745,378
Accrued interest payable		(385,723	)		(338,684	)
Other liabilities		616,744			180,567
Net cash provided by operating activities		4,633,669			6,405,319
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities available for sale		2,726,953			3,522,851
Mortgage-backed securities held to maturity		395,112			513,661
Collateralized mortgage obligations		14,210			—
Loans originated, net of repayments		563,798			(7,050,923	)
Purchases of:
Life insurance contracts		—			(1,500,000	)
Loans		(426,000	)		—
Investment securities held to maturity		(4,900,000	)		(1,474,102	)
Investment securities available for sale		(45,005,000	)		—
Federal Home Loan Bank stock		—			(123,600	)
Office properties and equipment		(510,335	)		(233,267	)
Proceeds from sale of:
Federal Home Loan Bank stock		20,900			—
Proceeds from maturities/ calls of:
Investment securities held to maturity		1,000,000			1,474,102
Investment securities available for sale		25,605,000			771,533
Mortgage-backed securities available for sale		124,361			—
Cash received, net of cash paid for acquisition		27,053,885			—
Net cash (used in) investing activities		6,662,884			(4,099,745	)
FINANCING ACTIVITIES:
Increase in deposits		54,350,586			66,125,376
Fractional share payouts on exchange		—			(15,998	)
Dividends paid		(1,313,420	)		(1,315,356	)
Purchase of treasury stock		(59,024	)		(113,806	)
Purchase of shares by deferred compensation plans trust		(8,007	)		(1,651,760	)
(Decrease) increase in advances from borrowers for taxes and insurance		(107,939	)		72,533
Net cash provided by financing activities		52,862,196			63,100,989
NET INCREASE IN CASH AND CASH EQUIVALENTS		64,158,749			65,406,563
CASH AND CASH EQUIVALENTS—Beginning of period		110,865,154			33,027,710
CASH AND CASH EQUIVALENTS—End of period	$	175,023,903		$	98,434,273
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION—Cash paid during the period for:
Interest	$	9,627,791		$	10,810,525
Income Taxes	$	2,800,574		$	2,563,080
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Transfers of loans to real-estate owned	$	215,544		$	—

See notes to unaudited condensed consolidated financial statements.

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 significant 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, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim information, 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 (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the condensed 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, 2010. The results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011 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 condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions relate to the allowance for loan losses, deferred income taxes and the fair value measurement for investment securities available for sale. Actual results could differ from those estimates.

New Accounting Pronouncements – In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment. This update amends the current guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This update does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. In addition, the update does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not anticipate the adoption of this update will have a material impact on its financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This update to comprehensive income guidance requires all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. This update also requires additional changes to the face of the financial statements including eliminating the presentation of other comprehensive income as a part of stockholders’ equity, and the presentation of certain reclassification adjustments between net income and other comprehensive income. The new accounting guidance is effective beginning January 1, 2012, and should be applied retrospectively. The adoption of this update will impact the presentation and disclosure of the Company’s financial statements but will not impact its results of operations, financial position, or cash flows.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. This update to fair value measurement guidance addresses changes to concepts regarding performing fair value measurements including: (i) the application of the highest and best use and valuation premise; (ii) the valuation of an instrument classified in the reporting entity’s shareholders’ equity; (iii) the valuation of financial instruments that are managed within a portfolio; and (iv) the application of premiums and discounts. This update also enhances disclosure requirements about fair value measurements, including providing information regarding Level 3 measurements such as quantitative information about unobservable inputs, further discussion of the valuation processes used and assumption sensitivity analysis. The new accounting guidance is effective beginning January 1, 2012, and should be applied prospectively. The Company does not anticipate the adoption of this update will have a material impact on its financial statements.

In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This new guidance requires a creditor performing an evaluation of whether a restructuring constitutes a troubled debt restructuring, to separately conclude that both (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. This standard clarifies the guidance on a creditor’s evaluation of whether it has granted a concession as well as the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. The updated accounting guidance also requires entities to disclose additional quantitative activity regarding troubled debt restructurings of finance receivables that occurred during the period, as well as additional information regarding troubled debt restructurings that occurred within the previous twelve months and for which there was a payment default during the current period. The new accounting guidance is effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

2. ACQUISITION OF CBHC FINANCIALCORP, INC.

On August 1, 2011, the Company acquired all of the outstanding common stock of CBHC Financialcorp, Inc. (“CBHC”), parent company of Select Bank, in a cash-out merger for a total purchase price of $12.5 million. Select Bank has been merged into Ocean City Home Bank (“Bank”), with the Bank as the surviving entity. Based in Egg Harbor City, New Jersey, CBHC operated five banking offices in Atlantic County, New Jersey at the date of acquisition. As a result of the transaction, the Company has expanded its service area in Atlantic County. The Company expects to reduce costs through consolidation of overlapping offices. The results of operations acquired in the CBHC transaction have been included in the Company’s financial results since August 1, 2011.

The CBHC transaction has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair value becomes available. Assets acquired totaled $133.1 million, including $84.1 million in loans, $5.8 in investment securities, $39.5 million in cash and cash equivalents and $3.8 million of intangibles. Liabilities assumed totaled $123.8 million, including $122.9 million of deposits.

Preliminary goodwill of $3.1 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and consists largely of the synergies and economies of scale expected from combining the operations of the Company and CBHC.

The following table summarizes the consideration paid for CBHC and the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date:

Consideration paid:
Cash	$	12,458,900
Total purchase price	$	12,458,900

Identifiable assets:
Cash and cash equivalents	$	39,512,785
Investment securities		5,765,593
Loans		84,106,728
Office properties and equipment		1,249,234
Core deposit intangible		667,000
Other assets		1,804,983
Total identifiable assets	$	133,106,323

Liabilities:
Deposits	$	122,879,324
Other liabilities		896,046
Total liabilities	$	123,775,370

Net identifiable assets acquired	$	9,330,953
Goodwill		3,127,947
Net assets acquired	$	12,458,900

In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair valuation of acquired loans. The acquired loan portfolios were segregated into categories for valuation purposes primarily based on loan type and payment status (performing or nonperforming). The estimated fair values were computed by discounting the expected cash flows from the respective portfolios. Management estimated the cash flows expected to be collected at the acquisition date by using valuation models that incorporated estimates of current key assumptions, such as prepayment speeds, default rates, and loss severity rates. Prepayment assumptions were developed by reference to recent or historical prepayment speeds observed for loans with similar underlying characteristics. Prepayment assumptions were influenced by many factors including, but not limited to, forward interest rates, loan and collateral types, payment status, and current loan-to-value ratios. Default and loss severity rates were developed by reference to recent or historical default and loss rates observed for loans with similar underlying characteristics. Default and loss severity assumptions were influenced by many factors including, but not limited to, underwriting processes and documentation, vintages, collateral types, collateral locations, estimated collateral values, loan-to-value ratios, and debt-to-income ratios.

The expected cash flows from the acquired loan portfolios were discounted at estimated market rates. The market rates were estimated using a buildup approach which included assumptions with respect to funding cost and funding mix, estimated servicing cost, liquidity premium, and additional spreads, if warranted, to compensate for the uncertainty inherent in the acquired loans. The methods used to estimate the fair values of the covered loans are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets.

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable are accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” Such loans were initially recorded at fair value (as determined by the present value of expected future cash flows) with no carry-over valuation allowance (i.e., the allowance for loan losses) of CBHC’s previously established allowance for loan losses. Under ASC Subtopic 310-30, loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The difference between the undiscounted cash flows expected at acquisition and the investment in the covered loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan losses.

The following is a summary of the loans acquired in the CBHC acquisition:

	Acquired Credit Impaired Loans			Acquired Non-Credit Impaired Loans			Total Acquired Loans
Contractually required principal and interest at acquisition	$	4,354,796		$	79,733,064		$	84,087,860
Contractual cash flows not expected to be collected		(1,062,322	)		(350,810	)		(1,413,132	)
Expected cash flows at acquisition		3,292,474			79,382,254			82,674,728
Interest component of expected cash flows		57,029			1,374,971			1,432,000
Fair value of acquired loans	$	3,349,503		$	80,757,225		$	84,106,728

The core deposit intangible is being amortized over its estimated useful life of approximately 15 years, using an accelerated method. Goodwill, which is not amortized for book purposes, is not deductible for tax purposes.

The fair value of checking, savings and money market deposit accounts acquired from CBHC were assumed to approximate the carrying value as the accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued as the present value of the certificates’ expected contracted payments discounted at market rates for similar certificates.

Direct costs related to the CBHC acquisition were expensed as incurred. During the three and nine months ended September 30, 2011, the Company incurred $433 thousand and $736 thousand, respectively, of acquisition-related expenses. Such expenses were for professional services, fees associated with the conversion of systems and integration of operations, costs related to office consolidations, marketing and promotion expenses, retention and severance compensation costs, and other costs.

The operating results of the Company for the period ended September 30, 2011 include the operating results of the acquired assets and assumed liabilities for the 61 days from the acquisition date of August 1, 2011. The operation of CBHC provided $462 thousand in revenue, net of interest expense, and $116 thousand in net income for the period from the acquisition and is included in the consolidated financial statements. CBHC’s results of operations prior to the acquisition are not included in the Company’s consolidated statement of income.

The following table presents certain pro forma information as if CBHC had been acquired on January 1, 2010. This information combines the historical results of CBHC into the Company’s consolidated statement of income, with adjustments to reflect certain fair valuation adjustments and acquisition-related activity. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisition that are not reflected in the pro forma amounts. These pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.

	Pro Forma Nine Months Ended September 30,
	2011		2010
Total revenues (a)	$	23,981,879	$	24,225,611
Net income	$	3,634,860	$	4,919,090

(a) Represents net interest income plus other income.

3. INVESTMENT SECURITIES

Investment securities are summarized as follows:

	September 30, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
Held to Maturity
Municipal securities	$	4,020,000	$	-	$	-		$	4,020,000
US treasury and government sponsored entity mortgage-backed securities		2,070,930		186,259		-			2,257,189
Totals	$	6,090,930	$	186,259	$	-		$	6,277,189

Available for Sale
Debt securities:
Municipal securities	$	830,000	$	7,935	$	-		$	837,935
Federal Agencies		20,070,211		-		-			20,070,211
Corporate		8,200,130		123,350		(1,714,739	)		6,608,741
Collateralized Mortgage Obligations		679,811		-		-			679,811
Equity securities		2,596		9,959		(1,747	)		10,808
US treasury and government sponsored entity mortgage-backed securities		14,644,438		738,377		(1,814	)		15,381,001
Totals	$	44,427,186	$	879,621	$	(1,718,300	)	$	43,588,507

	December 31, 2010
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
Held to Maturity
US treasury and government sponsored entity mortgage-backed securities	$	2,467,418	$	171,307	$	—		$	2,638,725
Totals	$	2,467,418	$	171,307	$	—		$	2,638,725

Available for Sale
Debt securities:
Municipal	$	1,419,971	$	11,410	$	—		$	1,431,381
Corporate		8,198,927		—		(1,795,691	)		6,403,236
Equity securities		2,596		13,562		(1,777	)		14,381
US treasury and government sponsored entity mortgage-backed securities		12,608,714		795,963		—			13,404,677
Totals	$	22,230,208	$	820,935	$	(1,797,468	)	$	21,253,675

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, 2011 and December 31, 2010:

	September 30, 2011
	Less Than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
Debt securities -
Corporate	$	1,425,000	$	(104,132	)	$	3,062,203	$	(1,610,607	)	$	4,487,204	$	(1,714,739	)
US treasury and government sponsored entity mortgage-backed securities		445,930		(1,814	)		-		-			445,930		(1,814	)
Equity securities		849		(1,747	)		-		-			849		(1,747	)
Totals	$	1,871,779	$	(107,692	)	$	3,062,203	$	(1,610,607	)	$	4,933,982	$	(1,718,300	)

	December 31, 2010
	Less Than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
Debt securities -
Corporate	$	978,030	$	(52,429	)	$	5,425,006	$	(1,743,262	)	$	6,403,036	$	(1,795,691	)
Equity securities		819		(1,777	)		—		—			819		(1,777	)
Totals	$	978,849	$	(54,206	)	$	5,425,006	$	(1,743,262	)	$	6,403,855	$	(1,797,468	)

As of September 30, 2011, management has concluded that the unrealized losses on its investment securities, which totaled eight individual securities, are temporary in nature since there currently is no indication that the entire amortized cost basis of these securities will not be recovered, the Company does not intend to sell these investments, and it is not more likely than not that the Company will be required to sell the investments, before recovery of their amortized cost basis, which may be maturity.

Two pooled trust preferred collateralized debt obligations (“CDOs”) backed by bank trust capital securities have been determined to be other-than-temporarily impaired due solely to credit related factors. During the second quarter of 2009 the Company recognized the impairment for the entire carrying amount of these investments. Below is a roll forward of the anticipated credit losses on securities for which the Company has recorded other-than-temporary impairment (“OTTI”) charges through earnings and other comprehensive income.

	2011		2010
Credit component of OTTI as of January 1	$	3,000,000	$	3,000,000
Additions for credit related OTTI charges on previously unimpaired securities		—		—
Reductions for securities sold during the period		—		—
Reductions for increases in cash flows expected to be collected and recognized over the remaining life of the security		—		—
Additional increases as a result of impairment charges recognized on investments for which an OTTI was previously recognized		—		—
Credit component of OTTI as of September 30,	$	3,000,000	$	3,000,000

These securities have Fitch credit ratings below investment grade at September 30, 2011. Each of the securities is in the mezzanine levels of credit subordination. The underlying collateral consists of the bank trust capital securities of over 50 institutions. A summary of key assumptions utilized to forecast future expected cash flows on the securities determined to have OTTI were as follows as of September 30, 2011 and 2010:

	September 30, 2011			September 30, 2010
Future loss rate assumption per annum	.8% to 1.2%			.8% to 1.2%
Expected cumulative loss percentage		27.8	%		27.8	%
Cumulative loss percentage to date	37.0% to 33.2%			37.0% to 33.2%
Remaining life	30 years			31 years

Corporate Debt Securities - The Company’s investments in the preceding table in corporate debt securities consist of corporate debt securities issued by large financial institutions and single issuer and pooled trust preferred/collateralized debt obligations backed by bank trust preferred capital securities.

At September 30, 2011, one corporate debt security and four single issuer trust preferred securities had been in a continuous unrealized loss position for 12 months or longer. Those securities had aggregate depreciation of 27.7% from the Company’s amortized cost basis. The decline is primarily attributable to depressed pricing of two private placement single issuer trust preferred securities. There has been limited secondary market trading for these types of securities, as a declining domestic economy and increasing credit losses in the banking industry have led to illiquidity in the market for these types of securities. The unrealized loss on these debt securities relates principally to the increased credit spread and a lack of liquidity currently in the financial markets for these types of investments. These securities were performing in accordance with their contractual terms as of September 30, 2011, and had paid all contractual cash flows since the Company’s initial investment. Management believes these unrealized losses are not other-than-temporary based upon the Company’s analysis that the securities will perform in accordance with their terms and the Company’s intent not to sell these investments for a period of time sufficient to allow for the anticipated recovery of fair value, which may be maturity. The Company expects recovery of fair value when market conditions have stabilized and that the Company will receive all contractual principal and interest payments related to those investments.

United States Treasury and Government Sponsored Enterprise Mortgage-backed Securities - The Company’s investments in the preceding table in United States government sponsored enterprise notes consist of debt obligations of the Federal Home Loan Bank (“FHLB”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Federal National Mortgage Association (“FNMA”). At September 30, 2011 the Company had none of the above mentioned securities with unrealized losses for 12 months or longer.

The amortized cost and estimated fair value of debt securities at September 30, 2011 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, 2011
	Held to Maturity				Available for Sale Securities
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due within 1 year	$	4,020,000	$	4,020,000	$	-	$	-
Due after 1 year through 5 years		-		-		1,033,060		944,470
Due after 5 years through 10 years		-		-		10,037,150		10,037,150
Due after 10 years		-		-		18,030,130		16,491,266
Total	$	4,020,000	$	4,020,000	$	29,100,341	$	27,516,887

Equity securities had a cost of $2,596 and a fair value of $10,808 as of September 30, 2011. Mortgage-backed securities had a cost of $16,715,368 and a fair value of $17,638,190. Collateralized mortgage obligations had a cost of $679,811 and a fair value of $679,811.

4. LOANS RECEIVABLE ─ NET

Loans receivable consist of the following:

	September 30, 2011			December 31, 2010
Real estate - mortgage:
One-to-four family residential	$	555,115,754		$	514,853,007
Commercial and multi-family		82,204,409			55,237,743
Total real estate-mortgage		637,320,163			570,090,750
Real estate - construction:
Residential		8,115,777			7,785,191
Commercial		4,254,680			3,723,800
Total real estate - construction		12,370,457			11,508,991
Commercial		24,064,426			21,963,288
Consumer:
Home equity		70,372,511			57,119,018
Other consumer loans		866,839			775,569
Total consumer loans		71,239,350			57,894,587
Total loans		744,994,396			661,457,616
Net deferred loan cost		3,050,451			2,870,467
Allowance for loan losses		(4,118,671	)		(3,988,076	)
Yield adjustment net of credit mark		18,868			—
Net total loans	$	743,945,044		$	660,340,007

Changes in the allowance for loan losses are as follows:

	Nine Months Ended September 30,
	2011			2010
Balance, beginning of period	$	3,988,076		$	3,476,040
Provision for loan loss		344,235			816,066
Charge-offs		213,640			309,800
Recoveries		—			—
Balance, end of period	$	4,118,671	��	$	3,982,306

The Company established a provision for loan losses of $141,400 for the three months ended September 30, 2011 as compared to $124,705 for the comparable period in 2010. The allowance for loan losses is based upon past loan loss experiences, understanding of the current macroeconomic factors, and current portfolio trends. These factors are considered in establishing the reserves necessary to cover the losses inherent in the current loan portfolio. The allowance is comprised of collective reserves for portfolio loans evaluated on a pooled basis and specific reserves on loans specifically evaluated for impairment. A loan is considered to be impaired when, based upon current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired. For this purpose, delays less than 90 days generally are considered to be insignificant. As of September 30, 2011 and December 31, 2010, the impairment was measured based on the fair value of the loans’ collateral, adjusted for cost to dispose. Loans collectively evaluated for impairment include residential real estate loans, consumer loans, and smaller balance commercial and commercial real estate loans.

Non-performing loans at September 30, 2011 and December 31, 2010 consisted of non-accrual loans that amounted to $4,881,282 and $5,222,374 respectively. The reserve for delinquent interest on loans totaled $366,903 and $246,558, at September 30, 2011 and December 31, 2010, respectively.

Non-accrual loans segregated by class of loans are as follows:

	September 30, 2011		December 31, 2010
Real estate
One-to-four family residential	$	4,361,826	$	4,282,002
Commercial and multi-family		137,146		729,289
Real estate construction		—		—
Commercial		118,230		134,238
Consumer		264,080		76,845
Total	$	4,881,282	$	5,222,374

An age analysis of past due loans, segregated by class of loans, as of September 30, 2011 and December 31, 2010 is as follows:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
September 30, 2011
Real Estate
1-4 Family Residential	$	1,460,166	$	—	$	4,361,826	$	5,821,992	$	549,293,762	$	555,115,754
Commercial and Multi-Family		795,418		—		239,413		1,034,831		81,169,578		82,204,409
Construction		—		—		—		—		12,370,457		12,370,457
Commercial		—		—		118,230		118,230		23,946,196		24,064,426
Consumer		104,237		21,013		264,080		389,330		70,850,020		71,239,350
Total	$	2,359,821	$	21,013	$	4,983,549	$	7,364,383	$	737,630,013	$	744,994,396

December 31, 2010
Real Estate
1-4 Family Residential	$	1,584,054	$	—	$	4,282,002	$	5,866,056	$	508,986,951	$	514,853,007
Commercial and Multi-Family		—		—		729,289		729,289		54,508,454		55,237,743
Construction		—		—		—		—		11,508,991		11,508,991
Commercial		—		—		134,238		134,238		21,829,050		21,963,288
Consumer		81,600		—		76,845		158,445		57,736,142		57,894,587
Total	$	1,665,654	$	—	$	5,222,374	$	6,888,028	$	654,569,588	$	661,457,616

Impaired loans are set forth the in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
September 30, 2011
With no related allowance recorded
Real Estate
1-4 Family Residential	$	845,530	$	845,530	$	—	$	140,922
Commercial and Multi-Family		137,146		137,146		—		137,146
Commercial		118,230		118,230		—		59,115
Consumer		262,260		262,260		—		65,565
With an allowance recorded
Real Estate
1-4 Family Residential		3,516,296		3,516,296		928,101		439,537
Commercial and Multi-Family		—		—		—		—
Commercial		—		—		—		—
Consumer		1,820		1,820		1,851		1,820
Total
Real Estate
1-4 Family Residential	$	4,361,826	$	4,361,826	$	928,101	$	580,459
Commercial and Multi-Family		137,146		137,146		—		137,146
Commercial		118,230		118,230		—		59,115
Consumer		264,080		264,080		1,851		67,385

December 31, 2010
With no related allowance recorded
Real Estate
1-4 Family Residential	$	2,997,524	$	2,997,524	$	—	$	428,218
Commercial and Multi-Family		729,289		729,289		—		243,096
Commercial		98,885		98,885		—		98,885
Consumer		27,919		27,919		—		27,919
With an allowance recorded
Real Estate
1-4 Family Residential		1,284,478		1,284,478		359,301		256,895
Commercial and Multi-Family		—		—		—		—
Commercial		35,353		35,353		73,285		35,353
Consumer		48,926		48,926		49,161		48,926
Total
Real Estate
1-4 Family Residential	$	4,282,002	$	4,282,002	$	359,301	$	685,113
Commercial and Multi-Family		729,289		729,289		—		243,096
Commercial		134,238		134,238		73,285		134,238
Consumer		76,845		76,845		49,161		76,845

Federal regulations require us to review and classify our assets on a regular basis. In addition, federal banking regulators have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful we establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified loss.

The following table presents classified loans by class of loans as of September 30, 2011 and December 31, 2010.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	9/30/2011		12/31/2010		9/30/2011		12/31/2010		9/30/2011		12/31/2010		9/30/2011		12/31/2010		9/30/2011		12/30/2010
Grade:
Special Mention	$	1,275,276	$	927,945	$	578,609	$	—	$	—	$	—	$	—	$	—	$	129,910	$	197,031
Substandard		7,376,957		8,291,507		2,034,101		1,310,396		—		—		281,047		476,895		535,318		302,046
Doubtful and Loss		288,977		288,977		—		—		—		—		—		70,686		—		48,926
Total	$	8,941,210	$	9,508,429	$	2,612,710	$	1,310,396	$	—	$	—	$	281,047	$	547,581	$	665,228	$	548,003

The following table presents the credit risk profile of loans based on payment activity as of September 30, 2011 and December 31, 2010.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	9/30/2011		12/31/2010		9/30/2011		12/31/2010		9/30/2011		12/31/2010		9/30/2011		12/31/2010		9/30/2011		12/30/2010
Performing	$	550,753,928	$	510,571,005	$	82,067,263	$	54,508,454	$	12,370,457	$	11,508,991	$	23,946,196	$	21,829,050	$	70,975,270	$	57,817,742
Non-Performing		4,361,826		4,282,002		137,146		729,289		—		—		118,230		134,238		264,080		76,845
Total	$	555,115,754	$	514,853,007	$	82,204,409	$	55,237,743	$	12,370,457	$	11,508,991	$	24,064,426	$	21,963,288	$	71,239,350	$	57,894,587

The following table details activity in the allowance for possible loan losses by portfolio segment for the periods ended September 30, 2011 and December 31, 2010. Allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other categories.

	Real Estate
	1-4 Family Residential			Commercial and Multi-Family			Construction			Commercial			Consumer			Total
September 30, 2011
Allowance for credit losses:
Beginning Balance	$	2,731,325		$	281,762		$	32,494		$	268,411		$	674,084		$	3,988,076
Charge-offs		(74,019	)		—			—			(90.694	)		(48,927	)		(213,640	)
Recoveries		—			—			—			—			—			—
Provision for loan losses		436,215			(5,326	)		(1,187	)		79,070			(164,537	)		344,235
Ending balance	$	3,093,521		$	276,436		$	31,307		$	256,787		$	460,620		$	4,118,671
Ending balance: individually evaluated for impairment		927,943			—			—						2,009			929,952
Ending balance: collectively evaluated for impairment	$	2,165,578		$	276,436		$	31,307		$	256,787		$	458,611		$	3,188,719
Loan Receivables:
Ending balance	$	555,115,754		$	82,204,409		$	12,370,457		$	24,064,426		$	71,239,350		$	744,994,396
Ending balance: individually evaluated for impairment		4,361,826			137,146			—			118,230			264,080			4,881,282
Ending balance: collectively evaluated for impairment	$	550,753,928		$	82,067,263		$	12,370,457		$	23,946,196		$	70,975,270		$	740,113,114

December 31, 2010
Allowance for credit losses:
Beginning Balance	$	2,220,529		$	524,107		$	49,680		$	275,826		$	405,898		$	3,476,040
Charge-offs		(16,316	)		(35,347	)		—			(10,860	)		(317,232	)		(379,755	)
Recoveries		—			—			—			—			—			—
Provision for loan losses		527,112			(206,998	)		(17,186	)		3,445			585,418			891,791
Ending balance	$	2,731,325		$	281,762		$	32,494		$	268,411		$	674,084		$	3,988,076
Ending balance: individually evaluated for impairment		359,300			—			—			73,285			49,510			482,095
Ending balance: collectively evaluated for impairment	$	2,372,025		$	281,762		$	32,494		$	195,126		$	624,574		$	3,505,981
Loan Receivables:
Ending balance	$	514,853,007		$	55,237,743		$	11,508,991		$	21,963,288		$	57,894,587		$	661,457,616
Ending balance: individually evaluated for impairment		4,282,002			729,289			—			134,238			76,845			5,222,374
Ending balance: collectively evaluated for impairment	$	510,571,005		$	54,508,454		$	11,508,991		$	21,829,050		$	57,817,742		$	656,235,242

5. DEPOSITS

Deposits consist of the following major classifications:

	September 30, 2011					December 31, 2010
			Weighted					Weighted
			Average					Average
	Amount		Interest Rate			Amount		Interest Rate

NOW and other demand deposit accounts	$	394,078,109		0.36	%	$	289,903,528		0.66	%
Passbook savings and club accounts		129,730,696		0.56	%		102,467,025		1.07	%
Subtotal		523,808,805					392,370,553
Certificates with original maturities:
Within one year		89,636,402		0.83	%		93,134,491		1.11	%
One to three years		141,956,285		1.89	%		94,347,156		2.17	%
Three years and beyond		25,162,843		3.26	%		23,482,226		3.48	%
Total certificates		256,755,530					210,963,873
Total	$	780,564,335				$	603,334,426

The aggregate amount of certificate accounts in denominations of $100,000 or more at September 30, 2011 and December 31, 2010 amounted to $96,524,720 and $83,439,728, respectively.

Municipal demand deposit accounts in denominations of $100,000 or more at September 30, 2011 and December 31, 2010 amounted to $134,822,576 and $108,593,238, respectively.

6. EARNINGS PER SHARE

Basic net income per share is based upon the weighted average number of common shares outstanding, net of any treasury shares, while diluted net income per share is based upon the weighted average number of common shares outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period, and impact of unallocated Employee Stock Ownership Plan (“ESOP”) shares.

The calculated basic and dilutive EPS are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Numerator	$	1,214,866	$	1,441,139	$	3,576,969	$	4,016,461
Denominators:
Basic average shares outstanding		6,753,956		6,826,698		6,741,124		6,824,073
Effect of dilutive securities		82,741		8,823		87,159		-
Diluted average shares outstanding		6,836,697		6,835,521		6,828,283		6,824,073

Earnings per share:
Basic	$	0.18	$	0.21	$	0.53	$	0.59
Diluted	$	0.18	$	0.21	$	0.52	$	0.59

At September 30, 2011 and 2010, there were 654,122 and 624,007 outstanding anti-dilutive options, respectively, and 80,190 and 99,000 outstanding dilutive non-vested shares, respectively.

7. STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with FASB ASC 718, Compensation – Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period. However, consistent with the stock compensation topic of the FASB Accounting Standards Codification, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date and as a result it may be necessary to recognize the expense using a ratable method. In accordance with FASB ASC 505-50, Equity-Based Payments to Non-Employees, the compensation expense for non-employees is recognized on the grant date, or when applicable, the service period.

The Company’s 2005 and 2010 Equity-Based Incentive Plans (the “Equity Plans”) authorizes the issuance of shares of common stock pursuant to awards that may be granted in the form of stock options to purchase common stock (“options”) and awards of shares of common stock (“stock awards”). The purpose of the Equity Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, advisory directors, employees and other persons to promote the success of the Company. Under the Equity Plan, options expire ten years after the date of grant, unless terminated earlier under the option terms. A committee of non-employee directors has the authority to determine the conditions upon which the options granted will vest. Options are granted at the then fair market value of the Company’s stock.

A summary of the status of the Company’s stock options under the Equity Plans as of September 30, 2011 and 2010 and changes during the nine months ended September 30, 2011 and 2010 are presented below:

	Nine Months Ended September 30, 2011				Nine Months Ended September 30, 2010
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price
Outstanding at the beginning of the period		587,504	$	11.92		373,592	$	13.10
Granted		66,618	$	11.64		257,010	$	10.21
Exercised		—		—		—
Forfeited		—		—		6,595	$	13.19
Outstanding at the end of the period		654,122	$	11.89		624,007	$	11.91
Exercisable at the end of the period		329,144	$	13.16		338,573	$	13.11
Stock options vested or expected to vest (1)		588,800	$	11.89		561,606	$	11.91

(1) Includes vested shares and nonvested shares after a forfeiture rate, which is based upon historical data, is applied.

The following table summarizes all stock options outstanding under the Equity Plans as of September 30, 2011:

	Options Outstanding
Date Issued	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
August 10, 2005		294,127	$	13.19	3.9 years
November 21, 2006		19,784	$	14.78	5.1 years
November 20, 2007		31,983	$	11.32	6.1 years
August 18, 2010		241,610	$	10.21	8.9 years
March 15, 2011		13,600	$	12.06	9.5 years
August 17, 2011		53,018	$	11.53	9.9 years

The compensation expense recognized for the three and nine months ended September 30, 2011 was $32,484 and $97,452 as compared to $24,813 and $58,089 for the three and nine months ended September 30, 2010.

At September 30, 2011, there was $730,344 of total unrecognized compensation cost related to options granted under the stock option plans. That cost is expected to be recognized over a weighted average period of 3.9 years.

Summary of Non-vested Stock Award Activity:

	Nine months ended September 30, 2011				Nine months ended September 30, 2010
	Number of shares		Weighted avg grant date fair value		Number of shares		Weighted avg grant date fair value

Beginning of period		99,000	$	10.21		30,125	$	13.19
Issued		4,950		12.06		99,000		10.21
Forfeited		4,950		10.21		—		—
Vested		18,810		10.21		30,125		13.19
Outstanding at September 30, 2011		80,190	$	10.32		99,000	$	10.21

The compensation expense recognized for the three and nine months ended September 30, 2011 was $51,000 and $146,730 as compared to $58,347 and $257,060 for the three and nine months ended September 30, 2010.

As of September 30, 2011, there was $788,251 of total unrecognized compensation costs related to nonvested stock awards. That cost is expected to be recognized over a weighted average period of 3.9 years.

8. INCOME TAXES

Income tax expense was $2.6 million for an effective tax rate of 42.1% for the nine months ended September 30, 2011 compared to $2.5 million for an effective tax rate of 38.6% for the same period in 2010.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available evidence in future periods, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

Items considered in this evaluation include historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earning trends and the timing of reversals of temporary differences. The evaluation is based on current tax laws as well as expectations of future performance. At September 30, 2011, no valuation allowance has been recorded for any portfolio of the outstanding deferred tax asset.

The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. As of September 30, 2011, the tax years ended December 31, 2007 through 2010 were subject to examination by all tax jurisdictions. As of September 30, 2011, the Company has been notified by Internal Revenue Service of a pending examination for the tax year ended December 31, 2009.

9. DECLARATION OF DIVIDEND

During the third quarter of 2011, the Board of Directors of the Company declared a cash dividend of $0.06 per share, which was paid on August 26, 2011 to stockholders of record as of the close of business on August 5, 2011.

10. FAIR VALUE MEASUREMENTS

The Company accounts for fair value measurement in accordance with FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 does not require any new fair value measurements. The definition of fair value retains the exchange price notion in earlier definitions of fair value. FASB ASC 820 clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. FASB ASC 820 also clarifies the application of fair value measurement in a market that is not active.

FASB ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

In addition, the Company is to disclose the fair value measurements for financial assets on both a recurring and non-recurring basis.

Recurring Fair Value Measurements:

Those assets at September 30, 2011 which will continue to be measured at fair value on a recurring basis are as follows:

	Category Used for Fair Value Measurement
Assets:	Level 1		Level 2		Level 3
Securities available for sale:
U.S. Government agencies and mortgage-backed securities	$	—	$	35,451,212	$	—
State and municipal obligations		—		837,935		—
Corporate securities		—		6,608,541		200
Collateralized Mortgage Obligations		—		679,811		—
Equity securities		10,808		—		—
Totals	$	10,808	$	43,577,499	$	200

Those assets at December 31, 2010 which will continue to be measured at fair value on a recurring basis are as follows:

	Category Used for Fair Value Measurement
Assets:	Level 1		Level 2		Level 3
Securities available for sale:
U.S. Government agencies and mortgage-backed securities	$	—	$	13,404,677	$	—
State and municipal obligations		—		1,431,381		—
Corporate securities		—		6,403,036		200
Equity securities		14,381		—		—
Totals	$	14,381	$	21,239,094	$	200

In 2008, as a result of general market conditions and the illiquidity in the market for CDOs, management deemed it necessary to shift its market value measurement of each of the securities from quoted prices for similar assets (Level 2) to an internally developed discounted cash flow model (Level 3). In arriving at the discount rate used in the model for each issue, the Company determined a trading group of similar securities quoted on the New York Stock Exchange or the NASDAQ over the counter market, based upon its review of market data points, such as Moody’s or comparable credit ratings, maturity, price, and yield. The Company indexed the individual CDOs within the trading group to a comparable interest rate swap (to maturity) in determining the spread. The average spread on the trading group was matched with the individual trust preferred issues based on their comparable credit rating which was then used in arriving at the discount rate input to the model.

The following provides details of the fair value measurement activity for Level 3 for the nine months ended September 30, 2011 and September 30, 2010:

Fair Value Measurement Activity – Level 3 (only)

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Trust Preferred Securities		Total
Balance, January 1, 2011	$	200	$	200
Total gains (losses), realized/unrealized:
Included in earnings (1)		—		—
Included in accumulated other comprehensive loss		—		—
Purchases, maturities, prepayments and call, net		—		—
Transfers into Level 3 (2)		—		—
Balance, September 30, 2011	$	200	$	200

(1) Amount included in impairment charge on available for sale securities on Consolidated Statement of Income.

(2) Transfers into Level 3 are assumed to occur at the end of the quarter in which the transfer occurred.

Fair Value Measurement Activity – Level 3 (only)

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Trust Preferred Securities		Total
Balance, January 1, 2010	$	200	$	200
Total gains (losses), realized/unrealized:
Included in earnings (1)		—		—
Included in accumulated other comprehensive loss		—		—
Purchases, maturities, prepayments and call, net		—		—
Transfers into Level 3 (2)		—		—
Balance, September 30, 2010	$	200	$	200

(1) Amount included in impairment charge on available for sale securities on Consolidated Statement of Income.

(2) Transfers into Level 3 are assumed to occur at the end of the quarter in which the transfer occurred.

In accordance with the fair value measurement and disclosures topic of the FASB Accounting Standards Codification management assessed whether the volume and level of activity for certain assets have significantly decreased when compared with normal market conditions. Fair value for these securities is obtained from third party broker quotes. The Company evaluated these values to determine that the quoted price is based on current information that reflects orderly transactions or a valuation technique that reflects market participant assumptions by benchmarking the valuation results and assumptions used against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates we assign to these securities assume liquidation in an orderly fashion and not under distressed circumstances.

Non-recurring Fair Value Measurements:

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and loans or bank properties transferred into other real estate owned at fair value on a non-recurring basis.

Impaired Loans

				Category Used for Fair Value Measurement						Total (Losses)
		Total		Level 1		Level 2		Level 3		Gains
September 30, 2011
Assets:
Impaired loans	$	2,678,221	$	─	$	2,158,691	$	519,530	$	(570,651)
Real estate owned		215,544		─		215,544		─		─

September 30, 2010
Assets:
Impaired loans	$	1,962,230	$	─	$	1,309,550	$	652,680	$	(341,678)
Real estate owned		97,500		─		97,500		─		─

The Company considers a loan to be impaired when it becomes probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. Under FASB ASC 310, collateral dependent impaired loans are valued based on the fair value of the collateral, which is based on appraisals. In some cases, adjustments are made to the appraised values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement.

Loans remeasured at fair value at September 30, 2011 and 2010 totaled $2,678,221 and $1,962,230, respectively. Such loans were carried at the value of $3,248,872 and $2,303,908 immediately prior to remeasurement, resulting in recognition of impairment through earnings in the amount of $570,651 and $341,678 for the nine months ended September 30, 2011 and 2010, respectively. Specific reserves were calculated for impaired loans with an aggregate carrying amount of $3,518,116 and $1,193,073 at September 30, 2011 and 2010, respectively. The collateral underlying these loans had a fair value of $3,217,000 and $2,069,000, while the claims against collateral from other third parties, shortfall in collateral to appraised amount amounted to $630,656 and $875,927, at September 30, 2011 and 2010, respectively. This resulted in specific reserves in the allowance for loan losses of $929,952 and $341,678 at September 30, 2011 and 2010, respectively. There were charge-offs of $213,640 and $299,335 for impaired loans with specific reserves during the nine months ended September 30, 2011 and 2010, respectively. No specific reserve was calculated for impaired loans with an aggregate carrying amount of $1,363,166 and $769,157 at September 30, 2011 and 2010, respectively, as the underlying collateral was not below the carrying amount.

Real Estate Owned

Once an asset is determined to be uncollectible, the underlying collateral is repossessed and reclassified to foreclosed real estate and repossessed assets. These assets are carried at lower of cost or fair value of the collateral, less cost to sell. In some cases, adjustments are made to the appraised values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. At September 30, 2011, the Company did not have any remeasurement to fair value to its foreclosed real estate and repossessed assets since the original recording. The Company had two foreclosed properties at September 30, 2011 and one foreclosed property at December 31, 2010 totaling $313,044 and $97,500, respectively. The Company took possession of a commercial property during the third quarter of 2011. The collateral underlying the loan had a fair value of $215,544, with an aggregate carrying value of $215,544, resulting in no required net charge-off.

Fair Value of Financial Instruments

In accordance with FASB ASC 825-10-50-10, the Company is required to disclose the fair value of financial instruments. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a distressed sale. Fair value is best determined using observable market prices; however, for many of the Company’s financial instruments, no quoted market prices are readily available. In instances where quoted market prices are not readily available, fair value is determined using present value or other techniques appropriate for the particular instrument. These techniques involve some degree of judgment and, as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. Different assumptions or estimation techniques may have a material effect on the estimated fair value. The following table summarizes these results:

	September 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	$	175,023,903	$	175,023,903	$	110,865,154	$	110,865,154
Investment securities:
Held to maturity		6,090,930		6,277,189		2,467,418		2,683,725
Available for sale		43,588,507		43,588,507		21,253,675		21,253,675
Loans receivable, net		743,945,044		749,321,239		660,340,007		672,130,581
Federal Home Loan Bank stock		9,434,800		6,434,800		6,271,600		6,271,600

Liabilities:
NOW and other demand deposit accounts		394,078,109		407,490,109		289,903,528		297,533,528
Passbook savings and club accounts		129,730,696		139,420,696		102,467,025		107,987,025
Certificates		256,755,530		254,931,299		210,963,873		210,964,376
Advances from Federal Home Loan Bank		110,000,000		125,742,534		110,000,000		121,188,927
Junior subordinated debenture		15,464,000		10,824,800		15,464,000		9,278,400

Cash and Cash Equivalents—For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Investment and Mortgage-Backed Securities—For investment securities, fair values are based on a combination of quoted prices for identical assets in active markets, quoted prices for similar assets in markets that are either actively or not actively traded and pricing models, discounted cash flow methodologies, or similar techniques that may contain unobservable inputs that are supported by little or no market activity and require significant judgment. For investment securities that do not actively trade in the marketplace, (primarily our investment in trust preferred securities of non-publicly traded companies) fair value is obtained from third party broker quotes. The Company evaluates prices from a third party pricing service, third party broker quotes, and from another independent third party valuation source to determine their estimated fair value. These quotes are benchmarked against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates we assign to these securities assume liquidation in an orderly fashion and not under distressed circumstances. For securities classified as available for sale, the changes in fair value are reflected in the carrying value of the asset and are shown as a separate component of stockholders’ equity.

Loans Receivable - Net—The fair value of loans receivable is estimated based on the present value using discounted cash flows based on estimated market discount rates at which similar loans would be made to borrowers and reflect similar credit ratings and interest rate risk for the same remaining maturities.

FHLB Stock—Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. While certain conditions are noted that required management to evaluate the stock for impairment, it is currently probable that the Company will realize its cost basis. Management concluded that no impairment existed as of September 30, 2011. The estimated fair value approximates the carrying amount.

NOW and Other Demand Deposit, Passbook Savings and Club, and Certificates Accounts—The fair value of NOW and other demand deposit accounts and passbook savings and club accounts is the amount payable on demand at the reporting date. The fair value of certificates is estimated by discounting future cash flows using interest rates currently offered on certificates with similar remaining maturities.

Advances from FHLB—The fair value was estimated by determining the cost or benefit for early termination of each individual borrowing.

Junior Subordinated Debenture—The fair value was estimated by discounting approximate cash flows of the borrowings by yields estimating the fair value of similar issues.

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2011 and December 31, 2010. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since September 30, 2011 and December 31, 2010, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

11. REAL ESTATE OWNED

Summary of Real Estate Owned (“REO”):

	Residential Property		Commercial Property		Total
Balance, January 1, 2011	$	97,500	─		$	97,500
Transfers into Real Estate Owned	─		$	215,544		215,544
Sales of Real Estate Owned	─		─		─
Balance, September 30, 2011	$	97,500	$	215,544	$	313,044

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’s 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, 2010 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 Co. (“Ocean Shore Holding” or the “Company”) is the holding company for Ocean City Home Bank (the “Bank”). The Company’s assets consist of its investment in Ocean City Home Bank and its liquid investments. The Company is primarily engaged in the business of directing, planning, and coordinating the business activities of the Bank.

Ocean City Home Bank is a federally chartered savings bank. The Bank operates as a community-oriented financial institution offering a wide range of financial services to consumers and businesses in our market area. The Bank attracts deposits from the general public, small businesses and municipalities and uses those funds to originate a variety of consumer and commercial loans, which we hold primarily for investment.

ACQUISITION OF CBHC FINANCIALCORP, INC.

Effective August 1, 2011, the Company completed its acquisition of CBHC Financialcorp, Inc. and its wholly-owned subsidiary, Select Bank. As part of the transaction, Select Bank was merged with and into Ocean City Home Bank. At August 1, 2011, Select Bank had total assets of $132.4 million. The Company paid a total of $12.5 million to the shareholders of CBHC Financialcorp.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010

Total assets of the Company increased by $181.1 million to $1,021.0 million at September 30, 2011, from $839.9 million at December 31, 2010. Loans receivable, net, increased $83.6 million, investment and mortgage-backed securities increased $26.0 million and cash and cash equivalents increased by $64.2 million. Asset growth was primarily the result of the acquisition of CBHC Financialcorp and its subsidiary Select Bank.

Investments

Investments increased $26.0 million to $49.7 million at September 30, 2011 from $23.7 million at December 31, 2010. The increase was the resulted from $20.0 million in purchases of agency securities and $6.0 million of investments acquired from Select Bank.

Loans

Loans receivable, net, increased $83.6 million to $743.9 million at September 30, 2011 from $660.3 million at December 31, 2010. The increase in the loan portfolio was primarily the result of $83.9 million of loans acquired from Select Bank. Loan originations totaled $104.9 million for the nine months ended September 30, 2011 compared to $99.5 million originated in the nine months ended September 30, 2010. Real estate mortgage loan originations totaled $70.4 million, real estate construction loan originations totaled $12.4 million, consumer loan originations totaled $9.9 million and commercial loan originations totaled $12.2 million for nine months ended September 30, 2011. Origination activity for the period was offset by $105.2 million of normal loan payments and payoffs.

The following table summarizes changes in the loan portfolio in the nine months ended September 30, 2011.

	September 30, 2011			December 31, 2010			$ change			% change
	(Dollars in thousands)
Real estate – mortgage:
One-to-four-family residential	$	555,116		$	514,853		$	40,263			7.8	%
Commercial and multi-family		82,204			55,238			26,966			48.8
Total real estate – mortgage		637,320			570,091			67,229			11.8

Real estate – construction:
Residential		8,116			7,785			331			4.3
Commercial		4,255			3,724			531			14.3
Total real estate – construction		12,371			11,509			862			7.5

Commercial		24,064			21,963			2,101			9.6

Consumer
Home equity		70,372			57,119			13,253			23.2
Other consumer loans		867			776			91			11.8
Total consumer loans		71,239			57,895			13,344			23.0

Total loans		744,994			661,458			83,536			12.6

Yield adjustment net of credit mark		19			—			—			N/M
Net deferred loan cost		3,051			2,870			181			6.3
Allowance for loan losses		(4,119	)		(3,988	)		(131	)		3.3

Net total loans	$	743,945		$	660,340		$	83,605			12.7	%

Non-Performing Assets

Non-performing assets totaled $5.3 million, or 0.52% of total assets, at September 30, 2011 compared to $5.3 million or 0.79% of total assets at December 31, 2010 and $4.1 million, or 0.48% of total assets, at September 30, 2010. There was no change in total non-performing assets from December 31, 2010. Non-performing assets consisted of fourteen residential mortgages totaling $4.4 million, two commercial mortgages totaling $240 thousand, two commercial loan totaling $118 thousand, three consumer equity loans totaling $264 thousand and two real estate owned properties totaling $313 thousand. Specific reserves were recorded for eleven of the loans included above in the amount of $930 thousand at September 30, 2011 as compared to eleven loans with specific reserves of $482 thousand at December 31, 2010. Real estate owned increased $215 thousand to $313 thousand at September 30, 2011. Charge-offs totaled $213 thousand in 2011 compared to $310 thousand for the same period in 2010.

The allowance for loan losses increased $137 thousand to $4.1 million, or 0.55% of total net loans, from $4.0 million at December 31, 2010, or 0.59% of total net loans. The increase in the provision for loan losses was primarily to maintain a reserve level deemed appropriate by management in light of factors such as the level of non-performing loans, growth in the loan portfolio and the current economic conditions. The loss factors used to calculate the allowance at September 30, 2011 were slightly higher than at December 31, 2011 due to increases in delinquencies. At September 30, 2011, the specific allowance on loans individually evaluated for impairment was $930 thousand and pooled allowance on the remainder of the loan portfolio was $3.2 million as compared to specific allowance on loans individually evaluated for impairment of $482 thousand and pooled allowance on the reminder of the loan portfolio of $3.5 million at December 31, 2010.

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Allowance for loan losses:
Allowance at beginning of period	$	3,988		$	3,476
Provision for loan losses		344			816

Recoveries		—			—
Charge-offs		(213	)		(310	)
Net (charge-offs) recoveries		(213	)		(310	)

Allowance at end of period	$	4,119		$	3,982
Allowance for loan losses as a percent of total loans		0.55	%		0.59	%
Allowance for loan losses as a percent of non-performing loans		82.64	%		100.7	%

	September 30, 2011			December 31, 2010
	(Dollars in thousands)
Nonaccrual loans:
Real estate mortgage loans	$	4,362		$	4,282
Construction		240			729
Commercial		118			134
Consumer loans		264			77
Total of non-accrual and 90 days or more past due loans		4,984			5,222
Real estate owned		313			98
Other nonperforming assets		—			—
Total non-performing assets	$	5,297		$	5,320
Troubled debt restructurings		—			—
Troubled debt restructurings and total non-performing assets	$	5,297		$	5,320

Total non-performing loans to total loans		0.67	%		0.79	%
Total non-performing loans to total assets		0.49	%		0.62	%
Total non-performing assets and troubled debt
restructurings to total assets		0.52	%		0.63	%

Deposits

Deposits increased by $177.2 million, or 29.4%, to $780.5 million at September 30, 2011 from $603.3 million at December 31, 2010. The increase was primarily the result $122.7 million of deposits acquired from Select Bank. Interest bearing demand deposits increased $87.4 million, non-interest bearing checking increased $16.8 million, savings accounts increased by $27.3 million and certificates of deposit increased by $45.8 million. The Company continued its focus on attracting core deposits which accounted for all of the increase in deposits less deposits acquired from Select Bank.

The following table summarizes changes in deposits in the nine months ended September 30, 2011.

	September 30,		December 31,
	2011		2010		$ change		% change
	(Dollars in thousands)
Non-interest-bearing demand deposits	$	78,823	$	62,071	$	16,752		27.0	%
Interest-bearing demand deposits		315,255		227,832		87,423		38.4
Savings accounts		129,730		102,467		27,263		26.6
Time deposits		256,756		210,964		45,792		21.7
Total	$	780,564	$	603,334	$	177,230		29.4	%

Borrowings

Federal Home Loan Bank advances were unchanged at $110.0 million at September 30, 2011 from December 31, 2010. Other borrowings were unchanged at $15.5 million at September 30, 2011 compared to December 31, 2010.

Stockholders’ Equity

Stockholders’ equity increased $2.8 million to $103.4 million at September 30, 2011, from $100.6 million at December 31, 2010, primarily as a result of net income of $3.6 million in 2011.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Net income was $1.2 million for the three months ended September 30, 2011 as compared to $1.44 million for the three months ended September 30, 2010. The decrease of $226 thousand, or 15.7%, in 2011 from 2010 was due primarily to expenses of $294 thousand (net of tax) related to the acquisition of CBHC Financialcorp, Inc and its subsidiary Select Bank.

Net income was $3.6 million for the nine months ended September 30, 2011 as compared to $4.0 million for the nine months ended September 30, 2010. The $439 thousand, or 10.9%, decrease in 2011 from 2010 was due primarily to expenses of $538 thousand (net of tax) related to the acquisition of CBHC Financialcorp, Inc and its subsidiary Select Bank.

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011			2010				2011			2010
	(Dollars in thousands, except per share data)							(Dollars in thousands, except per share data)

Net income	$	1,215			$	1,441		$	3,577		$	4,016
Basic earnings per share	$	0.18			$	0.21		$	0.53		$	0.59
Diluted earnings per share	$	0.18			$	0.21		$	0.52		$	0.59
Return on average assets (annualized)		0.50	%			0.69	%		0.53	%		0.66	%
Return on average equity (annualized)		4.67	%			5.72	%		4.64	%		5.37	%

Net Interest Income

The following table summarizes changes in interest income and interest expense for the three month periods ended September 30, 2011 and 2010.

	Three Months Ended September 30,
	2011		2010		$ change			% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	9,433	$	9,004	$	429			4.8	%
Investment securities		566		443		123			27.8
Total interest income		9,999		9,447		552			5.8	%

INTEREST EXPENSE:
Deposits		1,698		1,983		(285	)		(14.4	)
Borrowings		1,523		1,523		-			0.0
Total interest expense		3,221		3,506		(285	)		(8.1	)
Net interest income	$	6,778	$	5,941	$	837			14.1	%

Interest income increased by $552 thousand, or 5.8%, for the quarter ended September 30, 2011 compared to September 30, 2010. The increase resulted from an increase in the average balance of loans, offset by a decrease in the average rate earned on loans and investments.

Interest expense decreased by $285 thousand, or 8.1%, over the same period last year due to a decrease in interest paid on deposits. The decrease in interest expense resulted from a decrease in the rate paid on deposits, offset by an increase in the average balances of deposits.

The interest rate spread and net interest margin of the Company were 3.58% and 3.55% respectively, for the three months ended September 30, 2011, compared to 3.28% and 3.39% for the same period in 2010. The increase in the interest rate spread of 30 basis points and margin of 16 basis points resulted from a decrease in the average rate paid on interest-bearing liabilities of 46 basis points offset by a decrease in the rate earned on interest-earning assets of 16 basis points. The decrease in cost of interest bearing liabilities resulted from a decrease in the average rate paid on deposits of 44 basis points offset by an increase in the average balances on deposits of $115.6 million. The decrease in rate on interest earnings assets resulted from a decrease in the average rate earned on loans of 8 basis points and investments of 187 basis points offset by an increase in the average balance of loans of $43.6 million and investments of $19.8 million.

The following table summarizes changes in interest income and interest expense for the nine month periods ended September 30, 2011 and 2010.

	Nine Months Ended September 30,
	2011		2010		$ Change			% Change
	(Dollars in thousands)

INTEREST INCOME:
Loans	$	26,617	$	27,093	$	(476	)		(1.8	)%
Investment securities		1,587		1,353		234			17.3
Total interest income	$	28,204	$	28,446	$	( 242	)		(0.9	)%
INTEREST EXPENSE:
Deposits	$	4,758	$	5,941	$	(1,183	)		(19.9	)
Borrowings		4,531		4,531		-			-
Total interest expense		9,289		10,472		(1,183	)		(11.3	)
Net interest income	$	18,915	$	17,974	$	941			5.2	%

Interest income decreased by $242 thousand, or 0.9%, for the nine months ended September 30, 2011 compared the same period ended September 30, 2010. The decrease resulted from a decrease in the average rate earned on loans and investments offset by an increase the average balance of loans and investments.

Interest expense decreased by $1.2 million, or 11.3%, over the same period last year due to a decrease in interest paid on deposits. The decrease in interest expense resulted from a decrease in the rate paid on deposits offset by an increase in the average balances of deposits.

The interest rate spread and net interest margin of the Company were 3.52% and 3.50% respectively, for the nine months ended September 30, 2011, compared to 3.27% and 3.44% for the same period in 2010. The increase in the interest rate spread of 25 basis points and margin of 6 basis points resulted from a decrease in the average rate paid on interest-bearing liabilities of 48 basis points offset by a decrease in the rate earned on interest-earning assets of 23 basis points. The decrease in cost of interest bearing liabilities resulted from a decrease in the average rate paid on deposits of 48 basis points offset by an increase in the average balances on deposits of $86.7 million. The decrease in rate on interest earnings assets resulted from a decrease in the average rate earned on loans of 18 basis points and investments of 142 basis points offset by an increase in the average balance of loans of $10.4 million and investments of $13.4 million.

The following table presents 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 yields and costs are annualized for presentation purposes. For purposes of this table, average balances have been calculated using the average daily balances and nonaccrual loans are only included in average balances. 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, 2011								Three Months Ended September 30, 2010
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
Assets:	(Dollars in thousands)								(Dollars in thousands)
Interest-earning assets:
Loans	$	717,630		$	9,433		5.26	%	$	674,048		$	9,004		5.34	%
Investment securities		45,876			566		4.93	%		26,074			443		6.80	%
Total interest-earning assets		763,506			9,999		5.24	%		700,122			9,447		5.40	%
Noninterest-earning assets		208,258								135,642
Total assets	$	971,764							$	835,764

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	289,791			468		0.65	%	$	234,869			651		1.11	%
Savings accounts		121,978			209		0.69	%		88,576			237		1.07	%
Certificates of deposit		240,531			1,021		1.70	%		213,261			1,095		2.05	%
Total interest-bearing deposits		652,300			1,698		1.04	%		536,706			1,983		1.48	%

FHLB advances		110,000			1,188		4.32	%		110,000			1,188		4.32	%
Subordinated debt		15,464			335		8.67	%		15,464			335		8.67	%
Total borrowings		125,464			1,523		4.86	%		125,464			1,523		4.86	%
Total interest-bearing liabilities		777,764			3,221		1.66	%		662,170			3,506		2.12	%
Noninterest-bearing demand accounts		75,310								63,169
Other liabilities		14,614								9,687
Total liabilities		867,688								735,026

Stockholders’ equity		104,076								100,738
Total liabilities and stockholders’ equity	$	971,764							$	835,764

Net interest income				$	6,778							$	5,941
Interest rate spread							3.58	%							3.28	%
Net interest margin							3.55	%							3.39	%
Average interest-earning assets to average interest-bearing liabilities		98.17	%							105.73	%

Average Balance Tables

	Nine Months Ended September 30, 2011								Nine Months Ended September 30, 2010
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
Assets:	(Dollars in thousands)								(Dollars in thousands)
Interest-earning assets:
Loans	$	679,317		$	26,617		5.22	%	$	668,872		$	27,093		5.40	%
Investment securities		40,703			1,587		5.20	%		27,264			1,353		6.62	%
Total interest-earning assets		720,020			28,204		5.22	%		696,136			28,446		5.45	%

Noninterest-earning assets		188,224								110,986
Total assets	$	908,244							$	807,122

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	271,336			1,318		0.65	%	$	217,103			1,827		1.12	%
Savings accounts		112,288			608		0.72	%		83,157			674		1.08	%
Certificates of deposit		217,099			2,832		1.74	%		213,808			3,439		2.14	%
Total interest-bearing deposits		600,723			4,758		1.06	%		514,068			5,941		1.54	%

FHLB advances		110,000			3,525		4.27	%		110,000			3,525		4.27	%
Subordinated debt		15,464			1,006		8.67	%		15,464			1,006		8.67	%
Total borrowings		125,464			4,531		4.82	%		125,464			4,531		4.82	%
Total interest-bearing liabilities		726,187			9,289		1.71	%		639,532			10,472		2.18	%

Noninterest-bearing demand accounts		68,063								58,795
Other		11,169								9,149
Total liabilities		805,419								707,476

Stockholders’ equity		102,825								99,646
Total liabilities and stockholders’ equity	$	908,244							$	807,122

Net interest income				$	18,915							$	17,974
Interest rate spread							3.52	%							3.27	%
Net interest margin							3.50	%							3.44	%
Average interest-earning assets to average interest-bearing liabilities		99.15	%							108.85	%

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 $141 thousand and $344 thousand in the three and nine months ended September 30, 2011 compared to $125 thousand and $816 thousand in the three and nine months ended September 30, 2010. The provision was primarily to maintain a reserve level deemed appropriate by management in light of factors such as the level of non-performing loans, growth in the loan portfolio and the current economic environment.

Other Income

The following table summarizes other income for the three months ended September 30, 2011 and 2010 and the changes between the periods.

	Three Months Ended September 30,
	2011		2010		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	446	$	396		12.6	%
Cash surrender value of life insurance		131		138		(5.1	)
Other		358		302		18.6
Total other income	$	935	$	836		11.8	%

Other income increased $99 thousand, or 11.8%, to $935 thousand for the three-month period ended September 30, 2011 from the same period in 2010. The increase in service charges income of $50 thousand resulted from higher service charges collected on deposit accounts. The decrease in cash surrender value of life insurance income of $7 thousand resulted from a lower yield earned on existing policies. Other income increased $56 thousand primarily from higher debit card commissions received.

The following table summarizes other income for the nine months ended September 30, 2011 and 2010 and the changes between the periods.

	Nine Months Ended September 30,
	2011		2010		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	1,200	$	1,278		(6.1	)%
Cash surrender value of life insurance		390		412		(5.3	)
Other		1,009		840		20.1
Total other income	$	2,599	$	2,530		2.7	%

Other income increased $69 thousand, or 2.7%, to $2.6 million for the nine month period ended September 30, 2011 from the same period in 2010. The decrease in service charges income of $78 thousand resulted from lower service charges collected on deposit accounts. The decrease in cash surrender value of life insurance income of $22 thousand resulted from a lower yield earned on existing policies. Other income increased $169 thousand primarily from higher debit card commissions received.

Other Expense

The following table summarizes other expense for the three months ended September 30, 2011 and 2010 and the changes between periods.

	Three Months Ended September 30,
	2011		2010		% Change
OTHER EXPENSE:	(Dollars in thousands)
Salaries and employee benefits	$	3,016	$	2,459		22.7	%
Occupancy and equipment		1,260		970		29.9
Federal insurance premiums		217		166		30.7
Advertising		119		86		38.4
Professional services		380		211		80.1
Real estate owned expense		─		1		N/M
Other operating expense		529		426		24.2
Total other expense	$	5,521	$	4,319		27.8	%

N/M – not measurable

Other expenses increased $1.2 million, or 27.8%, to $5.5 million for the three month period ended September 30, 2011 from the same period in 2010. Costs associated with the acquisition of CBCH Financialcorp and its subsidiary Select Bank increased salaries and employee benefits $120 thousand, occupancy and equipment $125 thousand, professional services $157 thousand and other operating expenses $32 thousand. Increased expenses resulting from the acquired operations of Select Bank were salaries and employee benefits of $129 thousand, occupancy and equipment of $66 thousand, FDIC insurance of $51 thousand, advertising of $3 thousand and other operating expenses of $18 thousand. The remaining expense increases were the result of normal increases in year over year operations.

The following table summarizes other expense for the nine months ended September 30, 2011 and 2010 and the changes between the periods.

	Nine Months Ended September 30,
	2011		2010		% Change
	(Dollars in thousands)
OTHER EXPENSE:
Salaries and employee benefits	$	8,197	$	7,408		10.7	%
Occupancy and equipment		3,378		2,929		15.3
Federal insurance premiums		590		496		19.0
Advertising		371		313		18.5
Professional services		985		593		66.1
Real estate owned expense		2		4		(50.0	)
Other operating expense		1,464		1,403		4.3
Total other expense	$	14,987	$	13,146		14.0	%

Other expenses increased $1.8 million, or 14.0%, to $15.0 million for the nine month period ended September 30, 2011 from the same period in 2010. Costs associated with the acquisition of CBCH Financialcorp and its subsidiary Select Bank increased salaries and employee benefits $120 thousand, occupancy and equipment $235 thousand, professional services $336 thousand and other operating expenses of $46 thousand. Increased expenses resulting from the acquired operations of Select Bank were salaries and employee benefits of $129 thousand, occupancy and equipment of $66 thousand, FDIC insurance of $51 thousand, advertising of $3 thousand and other operating expenses of $18 thousand. The remaining expense increases were the result of normal increases in year over year operations.

Income Taxes

Income taxes decreased $57 thousand to $835 thousand for an effective tax rate of 40.7% for the three months ended September 30, 2011, compared to $892 thousand for an effective tax rate of 38.2% from the same period in 2010. The decrease in tax was a result of lower taxable income.

Income taxes increased $80 thousand to $2.6 million for an effective tax rate of 42.1% for the nine months ended September 30, 2011, compared to $2.5 million for an effective tax rate of 38.6% from the same period in 2010. The increase in tax was a result of lower taxable income offset by merger expenses that are not tax deductable.

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, 2011, cash and cash equivalents totaled $175.0 million. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $31.4 million at September 30, 2011. In addition, at September 30, 2011, we had the ability to borrow a total of approximately $244 million from the Federal Home Loan Bank of New York.

At September 30, 2011, we had $60.9 million in loan commitments outstanding, which included $14.0 million in undisbursed loans, $26.6 million in unused home equity lines of credit and $20.3 million in commercial lines and letters of credit. Certificates of deposit due within one year of September 30, 2011 totaled $163.7 million, or 63.8% 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 have the ability to attract and retain deposits by adjusting the interest rates offered.

At September 30, 2011, the Bank exceeded all of its regulatory capital requirements with tangible capital of $96.4 million, or 9.50% of total adjusted assets, which is above the required level of $15.1 million or 1.50%; core capital of $96.4 million, or 9.50% of total adjusted assets which is above the required level of $40.3 million or 4.00%; and risk-based capital of $101.0 million, or 19.35% of risk-weighted assets, which is above the required level of $41.5 million or 8.00%. The Bank is considered a “well-capitalized” institution under the applicable prompt corrective action regulations.

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 the Company:

	At June 30, 2011 Percentage Change in Estimated Net Interest Income Over
	12 Months			24 Months
200 basis point increase in rates		8.15	%		14.72	%
100 basis point decrease in rates		N/M			N/M

The 200 and 100 basis point change in rates in the above table is assumed to occur evenly over the following 12 and 24-month periods. Based on the scenario above, net interest income would be positively affected (within our internal guidelines) in the 12-month if rates rose by 200 basis points. In addition, a decline in rates by 100 basis points in both the 12- and 24-month periods has been determined by management as not possible and therefore deemed not measurable.

Net Portfolio Value Analysis

In addition to a net interest income simulation analysis, we use an interest rate sensitivity analysis prepared by the Office of Thrift Supervision to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in net portfolio value of our 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 50 to 300 basis point increase or a sustained 50 to 100 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 June 30, 2011 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.

Basis Point (“bp”)		Net Portfolio Value (Dollars in Thousands)								Net Portfolio Value as % of Portfolio Value of Assets
Change in Rates		$ Amount		$ Change			% Change			NPV Ratio			Change
	300 bp	$	82,972	$	(38,051	)		(31	)%		9.83	%		(361) bp
	200		99,897		(21,126	)		(17	)		11.53			(191)
	100		114,077		(6,946	)		(6	)		12.87			(57)
	50		118,421		(2,602	)		(2	)		13.24			(20)
	0		121,023								13.44
	(50)		120,046		(977	)		(1	)		13.29			(15)
	(100)		120,799		(224	)		0			13.32			(12)

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 months and nine ended September 30, 2011 and September 30, 2010, 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 officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are 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

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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

The Company repurchased 5,137 shares of its common stock at an average cost of $11.49 per share during the quarter ended September 30, 2011 and did not have any outstanding repurchase authorizations.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. [RESERVED]

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 Office.

101.0

The following materials from the Ocean Shore Holding Co. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Financial Condition, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes.

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 14, 2011		/s/ Steven E. Brady
		Steven E. Brady
		President and Chief Executive Officer

Date: November 14, 2011		/s/ Donald F. Morgenweck
		Donald F. Morgenweck
		Chief Financial Officer and Senior Vice President

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Ocean Shore Holding Inactive 10-Q2011 Q3 Quarterly report

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