Ocean Shore Holding 10Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedJune 30, 2012

£ 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. YesT No£

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

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£	Accelerated FilerT
Non-accelerated Filer£	Smaller Reporting Company£
(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£ NoT

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

At August 1, 2012, the registrant had 7,181,843 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 June 30, 2012 and December 31, 2011	1

	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for
	the three and six months ended June 30, 2012 and 2011	2

	Unaudited Condensed Consolidated Statements of Cash Flows for the six months
	ended June 30, 2012 and 2011	3

	Notes to Unaudited Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

SIGNATURES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	June 30,			December 31,
ASSETS	2012			2011

Cash and amounts due from depository institutions	$	9,034,758		$	6,616,214
Interest-earning bank balances		164,826,128			149,036,727

Cash and cash equivalents		173,860,886			155,652,941

Investment securities held to maturity
(estimated fair value—$5,736,033 at June 30, 2012; $6,147,579 at December 31, 2011)		5,582,189			5,964,393
Investment securities available for sale
(amortized cost— $87,412,201 at June 30, 2012; $47,639,832 at December 31, 2011)		86,903,344			46,767,668
Loans—net of allowance for loan losses of $3,698,032 at June 30, 2012
and $3,762,295 at December 31, 2011		701,749,954			727,626,278
Accrued interest receivable:
Loans		2,470,343			2,550,769
Investment securities		334,873			294,492
Federal Home Loan Bank stock—at cost		6,389,800			6,434,800
Office properties and equipment—net		13,781,524			14,054,679
Prepaid expenses and other assets		5,780,148			6,768,740
Real estate owned		572,199			97,500
Cash surrender value of life insurance		19,195,670			18,812,573
Net deferred tax asset		4,344,426			4,484,212
Goodwill		4,629,503			4,544,121
Other intangible assets		678,000			677,000

TOTAL ASSETS	$	1,026,272,859		$	994,730,166

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Non-interest bearing deposits	$	90,339,181		$	75,551,232
Interest bearing deposits		692,011,493			676,903,679
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		4,077,456			3,999,306
Accrued interest payable		1,138,062			1,146,482
Other liabilities		7,635,593			6,985,863

Total liabilities		920,665,785			890,050,562

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, 7,308,118 shares issued; 7,185,843
shares outstanding at June 30, 2012; 7,291,643 shares outstanding at December 31, 2011		73,076			73,076
Additional paid-in capital		64,614,594			64,408,624
Retained earnings - partially restricted		46,923,942			45,147,396
Treasury stock—at cost: 121,747 at June 30, 2012; 15,947 at December 31, 2011		(1,447,456	)		(174,232	)
Common stock acquired by employee benefits plans		(3,494,478	)		(3,665,478	)
Deferred compensation plans trust		(556,014	)		(538,982	)
Accumulated other comprehensive loss		(506,590	)		(570,800	)

Total stockholders’ equity		105,607,074			104,679,604

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,026,272,859		$	994,730,166

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012			2011

INTEREST AND DIVIDEND INCOME:
Taxable interest and fees on loans	$	8,732,067	$	8,629,480	$	17,732,602		$	17,184,052
Taxable interest on mortgage-backed securities		260,972		151,799		426,374			316,435
Non-taxable interest on municipal securities		17,905		10,473		72,189			21,119
Taxable interest and dividends on other investment securities		402,289		375,780		793,324			683,654

Total interest and dividend income		9,413,233		9,167,532		19,024,489			18,205,260

INTEREST EXPENSE:
Interest on deposits		1,105,647		1,494,677		2,321,091			3,060,664
Interest on borrowings		1,510,333		1,510,333		3,020,667			3,007,765

Total interest expense		2,615,980		3,005,010		5,341,758			6,068,429

NET INTEREST INCOME		6,797,253		6,162,522		13,682,731			12,163,831

PROVISION FOR LOAN LOSSES		253,000		128,035		425,900			202,835

NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		6,544,253		6,034,487		13,256,831			11,933,996

OTHER INCOME:
Service charges		423,218		394,590		834,067			754,386
Cash surrender value of life insurance		149,896		130,365		298,098			258,833
Gain on call of securities		15,000		-		15,000			10,014
Other		377,344		336,786		723,283			640,596

Total other income		965,458		861,741		1,870,448			1,663,829

OTHER EXPENSE:
Salaries and employee benefits		3,050,870		2,568,056		6,180,791			5,180,749
Occupancy and equipment		1,259,299		1,133,834		2,494,586			2,118,025
Federal insurance premiums		128,891		186,188		256,584			373,268
Advertising		130,981		145,457		247,926			251,487
Professional services		274,285		310,191		526,342			604,638
Real estate owned expense		582		1,250		3,259			2,499
Charitable contributions		37,500		36,000		75,000			72,000
Other operating expenses		508,581		429,210		1,007,505			863,385

Total other expenses		5,390,989		4,810,186		10,791,993			9,466,051

INCOME BEFORE INCOME TAXES		2,118,722		2,086,042		4,335,286			4,131,774

INCOME TAX EXPENSE		822,217		928,525		1,684,343			1,769,671

NET INCOME	$	1,296,505	$	1,157,517	$	2,650,943		$	2,362,103

Other comprehensive income, net of tax:
Unrealized gain (loss) on post retirement life benefit		5,712		─		(159,311	)		─
Unrealized gain on securities		269,301		164,068		223,520			415,231

COMPREHENSIVE INCOME	$	1,571,518	$	1,321,585	$	2,715,152		$	2,777,334

Earnings per share, basic:	$	0.19	$	0.17	$	0.39		$	0.35
Earnings per share, diluted:	$	0.19	$	0.17	$	0.39		$	0.35

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six MonthsEnded June 30,
	2012			2011
OPERATING ACTIVITIES:
Net income	$	2,650,943		$	2,362,103
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		566,135			341,132
Provision for loan losses		425,900			202,835
Stock based compensation expense		376,970			371,722
Gain on call of AFS securities		15,000			(10,014	)
Cash surrender value of life insurance		(298,097	)		(258,833	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		40,045			(181,261	)
Prepaid expenses and other assets		973,592			(10,712	)
Accrued interest payable		(8,420	)		(10,539	)
Other liabilities		490,419			60,239
Net cash provided by operating activities		5,232,487			2,866,672
INVESTING ACTIVITIES:
Principal collected on:
Investment securities available for sale		5,780,095			1,903,443
Investment securities held to maturity		349,524			295,283
Loans originated, net of repayments		25,205,739			(2,422,060	)
Purchases of:
Life insurance contracts		(85,000	)		—
Loans		(342,000	)		(168,000	)
Investment securities held to maturity		(88,000	)		(1,000,000	)
Investment securities available for sale		(61,199,502	)		(25,005,000	)
Office properties and equipment		(251,158	)		(247,933	)
Proceeds from sale/ maturities/ calls of:
Federal Home Loan Bank stock		45,000			20,900
Investment securities held to maturity		120,000			─
Investment securities available for sale		15,590,000			724,361
Net cash used in investing activities		(14,875,302	)		(25,899,006	)
FINANCING ACTIVITIES:
Increase in deposits		29,937,263			17,854,373
Dividends paid		(874,397	)		(875,614	)
Purchase of treasury stock		(1,273,224	)		—
Purchase of shares by deferred compensation plans trust		(17,032	)		(5,347	)
Increase in advances from borrowers for taxes and insurance		78,150			239,974
Net cash provided by financing activities		27,850,760			17,213,386
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		18,207,945			(5,818,948	)
CASH AND CASH EQUIVALENTS—Beginning of period		155,652,941			110,865,154
CASH AND CASH EQUIVALENTS—End of period	$	173,860,886		$	105,046,206
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION—Cash paid during the period for:
Interest	$	5,393,677		$	6,078,967
Income Taxes	$	1,848,500		$	1,890,574
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Transfers of loans to real estate owned	$	474,699		$	—

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, 2011. The results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012 or any other period. The Company has evaluated subsequent events through the date of the issuance of its financial statements.

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 andthe 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 became effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05,Presentation of Comprehensive Income. This update to comprehensive income guidance requires all non-owner 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. The new accounting guidance was effective beginning January 1, 2012 and was applied retrospectively. The adoption of this update impacted the presentation and disclosure of the Company’s financial statements but did 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. The adoption of this update impacted the presentation and disclosure of the Company’s financial statements but did not impact its results of operations, financial position, or cash flows.

December 2011, the FASB issued ASU No. 2011-12, ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”This update defers the effective date for the part of ASU No. 2011-05 that would have required adjustments of items out of accumulated other comprehensive income to be presented on the components of both net income and other comprehensive income in the financial statements until FASB can adequately evaluate the costs and benefits of this presentation requirement. The new accounting guidance was effective beginning January 1, 2012 and was applied retrospectively. The adoption of this update impacted the presentation and disclosure of the Company’s financial statements but did not impact its results of operations, financial position, or cash flows.

In July 2012, the FASB issued ASU No. 2012-02,Testing Indefinite-lived Intangible Assets for Impairment. This update amends the current guidance on testing indefinite-lived intangible assets for impairment. Under the revised guidance, entities testing indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. An entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendments are effective for annual and interim indefinite-lived intangible assets impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this accounting guidance did not have a material impact on the Company's consolidated financial statements.

2. INVESTMENT SECURITIES

Investment securities are summarized as follows:

	June 30, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
Held to Maturity
Debt Securities - Municipal	$	3,988,000	$	—	$	—		$	3,988,000
US Treasury and government sponsored entity mortgage-backed securities		1,594,189		153,844		—			1,748,033
Totals	$	5,582,189	$	153,844	$	—		$	5,736,033

Available for Sale
Debt securities:
Municipal	$	830,000	$	2,880	$	—		$	832,880
Corporate		13,454,034		52,491		(1,295,637	)		12,210,888
U.S. Treasury and federal agencies		21,318,887		31,784		(27,787	)		21,322,884
Equity securities		2,596		12,114		(1,933	)		12,777
US treasury and government sponsored entity mortgage-backed securities		51,806,684		752,225		(34,994	)		52,523,915
Totals	$	87,412,201	$	851,494	$	(1,360,351	)	$	86,903,344

	December 31, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
Held to Maturity
Debt Securities - Municipal	$	4,020,000	$	—	$	—		$	4,020,000
US Treasury and government sponsored entity mortgage-backed securities		1,944,393		183,186		—			2,127,579
Totals	$	5,964,393	$	183,186	$	—		$	6,147,579

Available for Sale
Debt securities:
Municipal	$	830,000	$	2,000	$	—		$	832,000
Corporate		7,700,531		35,450		(1,625,673	)		6,110,308
U.S. Treasury and federal agencies		25,660,016		24,720		(148	)		25,684,588
Equity securities		2,596		11,980		(2,034	)		12,542
US Treasury and government sponsored entity mortgage-backed securities		13,446,689		707,047		(25,506	)		14,128,230
Totals	$	47,639,832	$	781,197	$	(1,653,361	)	$	46,767,668

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 June 30, 2012 and December 31, 2011:

	June 30, 2012
	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 -
U.S. Agencies	$	6,254,494	$	(27,787	)	$	—	$	—		$	6,254,494	$	(27,787	)
Corporate		2,981,292		(16,788	)		3,424,203		(1,278,850	)		6,405,495		(1,295,638	)
US treasury and government sponsored entity mortgage-backed securities		7,316,792		(34,993	)		—		—			7,316,792		(34,993	)
Equity securities		—		—			663		(1,933	)		663		(1,933	)
Totals	$	16,552,578	$	(79,568	)	$	3,424,866	$	(1,280,783	)	$	19,977,444	$	(1,360,351	)

	December 31, 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 -
U.S. Treasury	$	32,797	$	(148	)	$	—	$	—		$	32,797	$	(148	)
Corporate		—		—			4,076,639		(1,625,673	)		4,076,639		(1,625,673	)
US treasury and government sponsored entity mortgage-backed securities		2,685,526		(25,506	)		—		—			2,685,526		(25,506	)
Equity securities		—		—			562		(2,034	)		562		(2,034	)
Totals	$	2,718,323	$	(25,564	)	$	4,077,201	$	(1,627,707	)	$	6,795,524	$	(1,653,361	)

Management has reviewed its investment securities as of June 30, 2012 and has determined that all declines in fair value below amortized cost are temporary.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company determines whether the unrealized losses are temporary in accordance with FASB ASC 325-40, when applicable, and FASB ASC 320-10. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.

Below is a roll forward of the anticipated credit losses on securities for which the Company has recorded other than temporary impairment charges through earnings and other comprehensive income.

	2012		2011
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 June 30,	$	3,000,000	$	3,000,000

Two pooled trust preferred collateralized debt obligations (“CDOs”) backed by bank trust capital securities have been determined to be other-than-temporarily impaired in 2009 and 2008, due solely to credit related factors. These securities have Fitch credit below investment grade at June 30, 2012. 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 June 30, 2012 and 2011:

	June 30, 2012	June 30, 2011
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	29 years	30 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 June 30, 2012, two single issuer trust preferred securities had been in a continuous unrealized loss position for 12 months or longer. Those securities had aggregate depreciation of 49.8% 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 June 30, 2012, and had paid all contractual cash flows since the Company’s initial investment. Management believes these unrealized losses are notother-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, US Federal Agencies 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 June 30, 2012 the Company had no agency mortgage-backed securities with unrealized losses for 12 months or longer.

The amortized cost and estimated fair value of debt securities available for sale and held to maturity at June 30, 2012 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.

	June 30, 2012
	Held to Maturity				Available for Sale Securities
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due within 1 year	$	3,988,000	$	3,988,000	$	─	$	─
Due after 1 year through 5 years		─		─		6,784,982		6,837,192
Due after 5 years through 10 years		─		─		5,036,606		5,040,190
Due after 10 years		─		─		23,781,333		22,489,270
Total	$	3,988,000	$	3,988,000	$	35,602,921	$	34,366,652

Equity securities had a cost of $2,596and a fair value of $12,777 as of June 30, 2012. Mortgage-backed securities had a cost of $53,400,873 and a fair value of $54,271,948 as of June 30, 2012.

3. LOANS RECEIVABLE─NET

Loans receivable consist of the following:

	June 30, 2012			December 31, 2011
Real estate - mortgage:
One-to-four family residential	$	517,510,241		$	547,906,420
Commercial and multi-family		78,757,690			77,072,427
Total real estate-mortgage		596,267,931			624,978,847
Real estate - construction:
Residential		11,622,777			8,057,416
Commercial		5,106,435			3,790,673
Total real estate - construction		16,729,212			11,848,089
Commercial		24,220,859			23,937,050
Consumer:
Home equity		64,211,920			66,787,820
Other consumer loans		867,367			809,965
Total consumer loans		65,079,287			67,597,785
Total loans		702,297,289			728,361,771
Net deferred loan cost		3,150,697			3,026,802
Allowance for loan losses		(3,698,032	)		(3,762,295	)
Net total loans	$	701,749,954		$	727,626,278

Changes in the allowance for loan losses are as follows:

	Six Months Ended June 30,
	2012			2011
Balance, beginning of period	$	3,762,295		$	3,988,076
Provision for loan loss		425,900			202,835
Charge-offs		(503,783	)		(122,946	)
Recoveries		13,620			—
Balance, end of period	$	3,698,032		$	4,067,965

The provision for loan losses charged to expense is based upon past loan loss experiences and an evaluation of losses in the current loan portfolio, including the evaluation of impaired loans. The Company established a provision for loan losses of $425,900 for the six months ended June 30, 2012 as compared to $202,835 for the comparable period in 2011. The increase in the provision for loan losses was a result of required reserves for an increase in classified loans.

A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or 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 June 30, 2012 and December 31, 2011, 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 June 30, 2012 and December 31, 2011 consisted of non-accrual loans that amounted to $4,751,354 and $5,676,819 respectively, and non-accrual troubled debt restructurings of $0 and $805,095, respectively. The reserve for delinquent interest on loans totaled $347,742 and $425,384, at June 30, 2012 and December 31, 2011, respectively.

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

	June 30, 2012		December 31, 2011
Real estate
One-to-four family residential	$	3,039,015	$	4,768,395
Commercial and multi-family		1,229,351		392,146
Commercial		200,000		318,230
Consumer		282,988		198,048
Non-accrual loans		4,751,354		5,676,819
Troubled debt restructuring, non-accrual		─		805,095
Total non-accrual loans	$	4,751,354	$	6,481,914

A rollforward of the Company’s nonaccretable and accretable yield on loans accounted for under ASC 310-30, Loans and Debts Securities Acquired with Deteriorated Credit Quailty, is shown below for the six month period ended June 30, 2012:

	Contractual Receivable Amount			Nonaccretable (Yield)/Premium			Accretable (Yield)/Premium			Carrying Amount

Balance at January 1, 2012	$	78,039,662			(3,835,961	)		1,284,000			75,487,701
Principal reductions		(13,076,846	)		─			─			(13,076,846	)
Charge-offs, net		(460,738	)		460,738			─			─
Amortization of loan premium		─			─			(150,500	)		(150,500	)
Settlement adjustments		─			(85,382	)		─			(85,382	)
Balance at June 30, 2012	$	64,502,078		$	(3,460,605	)	$	1,133,500		$	62,174,973

An age analysis of past due loans, segregated by class of loans, as of June 30, 2012 and December 31, 2011 is as follows:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
June 30, 2012
Real Estate
1-4 Family Residential	$	920,693	$	155,855	$	3,039,015	$	4,115,563	$	513,394,678	$	517,510,241
Commercial and Multi-Family		427,118		-		1,229,351		1,656,469		77,101,221		78,757,690
Construction		-		-		-		-		16,729,212		16,729,212
Commercial		-		-		200,000		200,000		24,020,859		24,220,859
Consumer		64,545		74,364		282,988		421,897		64,657,390		65,079,287
Total	$	1,412,356	$	230,219	$	4,751,354	$	6,393,929	$	695,903,360	$	702,297,289

December 31, 2011
Real Estate
1-4 Family Residential	$	665,563	$	-	$	4,768,395	$	5,433,958	$	542,472,462	$	547,906,420
Commercial and Multi-Family		12,318		-		392,146		404,464		76,667,963		77,072,427
Construction		-		-		-		-		11,848,089		11,848,089
Commercial		-		-		318,230		318,230		23,618,820		23,937,050
Consumer		218,766		198,995		198,048		615,809		66,981,976		67,597,785
Total	$	896,647	$	198,995	$	5,676,819	$	6,772,461	$	721,589,310	$	728,361,771

Impaired loans are set forth 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
June 30, 2012
With no related allowance recorded
Real Estate
1-4 Family Residential	$	2,158,516	$	1,962,203	$	-	$	196,229
Commercial and Multi-Family		1,229,351		1,229,351		-		409,784
Commercial		-		-		-		-
Consumer		282,988		282,988		-		70,747
With an allowance recorded
Real Estate
1-4 Family Residential		2,567,197		3,053,774		370,137		285,244
Commercial and Multi-Family		-		-		-		-
Commercial		200,000		200,000		20,424		200,000
Consumer		-		-		-		-
Total
Real Estate
1-4 Family Residential		4,725,713		5,015,977		370,137		481,473
Commercial and Multi-Family		1,229,351		1,229,351		-		409,784
Commercial		200,000		200,000		20,424		200,000
Consumer		282,988		282,988		-		70,747

December 31, 2011
With no related allowance recorded
Real Estate
1-4 Family Residential	$	2,287,176	$	2,287,176	$	-	$	190,598
Commercial and Multi-Family		392,146		392,146		-		130,715
Commercial		318,230		318,230		-		106,077
Consumer		183,937		183,937		-		36,787
With an allowance recorded
Real Estate
1-4 Family Residential		3,286,313		3,764,871		371,554		328,631
Commercial and Multi-Family		-		-		-		-
Commercial		-		-		-		-
Consumer		14,111		14,111		14,286		14,111
Total
Real Estate
1-4 Family Residential		5,573,489		6,052,047		371,554		519,229
Commercial and Multi-Family		392,146		392,146		-		130,715
Commercial		318,230		318,230		-		106,077
Consumer		198,048		198,048		14,286		50,898

Included in the Company’s loan portfolio are modified commercial loans. Per FASB ASC 310-40, Troubled Debt Restructuring (“TDR”), a modification is one in which the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider, such as providing for a below market interest rate and/or forgiving principal or previously accrued interest; this modification may stem from an agreement or be imposed by law or a court, and may involve a multiple note structure. Generally, prior to the modification, the loans which are modified as a TDR are already classified as non-performing. These loans may only be returned to performing (i.e. accrual status) after considering the borrower’s sustained repayment performance for a reasonable amount of time, generally six months; this sustained repayment performance may include the period of time just prior to the restructuring. The Company entered into four (4) TDR agreements. As of June 30, 2012, the total carrying value of the TDRs were $1,687,000, of which $1,687,000 was performing.

Included in impaired loans at June 30, 2012 were two TDRs, which had a specific reserve of $182,800. The following table presents an analysis of the Company’s TDR agreements existing as of June 30, 2012 and December 31, 2011, respectively.

	As of June 30, 2012						As of December 31, 2011
			Outstanding Recorded Investment						Outstanding Recorded Investment
	Number of Contracts		Pre- Modification		Post- Modification		Number of Contracts		Pre- Modification		Post- Modification
1-4 Family Residential		4	$	1,686,697	$	1,686,697		1	$	805,095	$	805,095

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 June 30, 2012 and December 31, 2011.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	6/30/2012		12/31/2011		6/30/2012		12/31/2011		6/30/2012		12/31/2011		6/30/2012		12/31/2011		6/30/2012		12/30/2011
Grade:
Special Mention	$	3,538,122	$	1,779,742	$	3,526,581	$	3,518,440	$	—	$	—	$	767,868	$	-	$	477,159	$	229,156
Substandard		6,170,500		6,134,849		3,657,683		2,760,244		—		—		1,374,905		1,494,731		750,350		538,676
Doubtful and Loss		-		148,849		-		-		—		—		-		-		64,299		-
Total	$	9,780,622	$	8,063,440	$	7,184,264	$	6,278,684	$	—	$	—	$	2,142,773	$	1,494,731	$	1,291,808	$	767,832

The following table presents the credit risk profile of loans based on payment activity as of June 30, 2012 and December 31, 2011.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	6/30/2012		12/31/2011		6/30/2012		12/31/2011		6/30/2012		12/31/2011		6/30/2012		12/31/2011		6/30/2012		12/30/2011
Performing	$	514,471,226	$	542,332,930	$	77,528,339	$	76,680,281	$	16,729,212	$	11,848,089	$	24,020,859	$	23,618,820	$	64,796,299	$	67,399,737
Non-Performing		3,039,015		5,573,490		1,229,351		392,146		-		-		200,000		318,230		282,988		198,048
Total	$	517,510,241	$	547,906,420	$	78,757,690	$	77,072,427	$	16,729,212	$	11,848,089	$	24,220,859	$	23,937,050	$	65,079,287	$	67,597,785

The following table details activity in the allowance for possible loan losses by portfolio segment for the periods ended June 30, 2012 and December 31, 2011. 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
June 30, 2012
Allowance for credit losses:
Beginning Balance	$	2,512,970		$	459,987	$	97,825	$	229,055		$	462,458		$	3,762,295
Charge-offs		(413,655	)		-		-		-			(90,128	)		(503,783	)
Recoveries		-			-		-		13,620			-			13,620
Provision for loan losses		343,153			24,141		20,301		(10,703	)		49,008			425,900
Ending balance	$	2,442,468		$	484,128	$	118,126	$	231,972		$	421,338		$	3,698,032
Ending balance: individually evaluated for impairment	$	370,137		$	-	$	-	$	20,424		$	-		$	390,561
Ending balance: collectively evaluated for impairment	$	2,072,331		$	484,128	$	118,126	$	211,548		$	421,338		$	3,307,471
Loan Receivables:
Ending balance	$	517,510,241		$	78,757,690	$	16,729,212	$	24,220,859		$	65,079,287		$	702,297,289
Ending balance: individually evaluated for impairment	$	3,039,015		$	1,229,351	$	-	$	200,000		$	282,988		$	4,751,354
Ending balance: collectively evaluated for impairment	$	514,471,226		$	77,528,339	$	16,729,212	$	24,020,859		$	64,796,299		$	697,545,935

December 31, 2011
Allowance for credit losses:
Beginning Balance	$	2,731,325		$	281,762	$	32,494	$	268,411		$	674,084		$	3,988,076
Charge-offs		(558,727	)		-		-		(90,694	)		(50,904	)		(700,325	)
Recoveries		-			-		-		-			1,309			1,309
Provision for loan losses		340,372			178,225	$	65,331	$	51,338		$	(162,031	)	$	473,235
Ending balance	$	2,512,970		$	459,987	$	97,825	$	229,055		$	462,458		$	3,762,295
Ending balance: individually evaluated for impairment	$	371,554		$	-	$	-	$	-		$	14,286		$	385,840
Ending balance: collectively evaluated for impairment	$	2,141,416		$	459,987	$	97,825	$	229,055		$	448,172		$	3,376,455
Loan Receivables:
Ending balance	$	547,906,420		$	77,072,427	$	11,848,089	$	23,937,050		$	67,597,785		$	728,361,771
Ending balance: individually evaluated for impairment	$	5,573,490		$	392,146	$	-	$	318,230		$	198,048		$	6,481,914
Ending balance: collectively evaluated for impairment	$	542,332,930		$	76,680,281	$	11,848,089	$	23,618,820		$	67,399,737		$	721,879,857

4. DEPOSITS

Deposits consist of the following major classifications:


	June 30, 2012			December 31, 2011
			Weighted			Weighted
			Average			Average
	Amount		Interest Rate	Amount		Interest Rate

NOW and other demand deposit accounts	$	404,153,165	0.22%	$	378,271,640	0.28%
Passbook savings and club accounts		140,702,681	0.29%		130,324,314	0.46%
Subtotal		544,855,846			508,595,954
Certificates with original maturities:
Within one year		78,444,243	0.49%		83,200,428	0.66%
One to three years		130,398,627	1.53%		135,954,595	1.76%
Three years and beyond		28,651,958	2.67%		24,703,934	3.10%
Total certificates		237,494,828			243,858,957
Total	$	782,350,674		$	752,454,911

The aggregate amount of certificate accounts in denominations of $100,000 or more at June 30, 2012 and December 31, 2011 amounted to $89,983,895 and $90,275,593, respectively.

Municipal demand deposit accounts in denominations of $100,000 or more at June 30, 2012 and December 31, 2011 amounted to$116,574,252and $118,827,074, respectively.

5. 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 June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Numerator – Net Income	$	1,296,505	$	1,157,517	$	2,650,943	$	2,362,103
Denominators:
Basic average shares outstanding		6,742,591		6,738,827		6,760,448		6,734,602
Effect of dilutive common stock equivalents		54,742		70,250		60,047		70,614
Diluted average shares outstanding		6,797,333		6,809,077		6,820,495		6,805,216

Earnings per share:
Basic	$	0.19	$	0.17	$	0.39	$	0.35
Diluted	$	0.19	$	0.17	$	0.39	$	0.35

At June 30, 2012 and 2011, there were 650,804 and 601,104 outstanding anti-dilutive options, respectively, and 79,200 and 99,000 outstanding dilutive non-vested shares, respectively.

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 June 30, 2012 and 2011 and changes during the six months ended June 30, 2012 and 2011 are presented below:

	Six Months Ended June 30, 2012						Six Months Ended June 30, 2011
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price

Outstanding at the beginning of the period		650,804	$	11.90		587,504	$	11.92
Granted		—		—		13,600	$	12.06
Exercised		—		—		—		—
Forfeited		—		—		—		—
Outstanding at the end of the period		650,804	$	11.90		601,104	$	11.92
Exercisable at the end of the period		389,085	$	12.79		329,144	$	13.16
Stock options vested or expected to vest(1)		585,723	$	11.90		540,993	$	11.92

(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 Plan as of June 30, 2012:

	Options Outstanding
Date Issued	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life
August 10, 2005		294,127	$13.19	3.1 years
November 21, 2006		19,784	$14.78	4.3 years
November 20, 2007		30,665	$11.32	5.3 years
August 18, 2010		239,610	$10.21	8.1 years
March 15, 2011		13,600	$12.06	8.6 years
August 17, 2011		53,018	$11.53	9.1 years
Total		650,804	$11.90	5.7 years

The compensation expense recognized for the three and six months ended June 30, 2012 was $36,750 and $73,500 as compared to $32,484 and $64,968 for the three and six months ended June 30, 2011.

At June 30, 2012, there was $615,908 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 3.1 years.

Summary of Non-vested Stock Award Activity:

	Six months ended June 30, 2012				Six months ended June 30, 2011
	Number of shares		Weighted avg grant date fair value		Number of shares		Weighted avg grant date fair value

Beginning of period		80,190	$	10.32		99,000	$	10.21
Issued		—				4,950	$	12.06
Forfeited		—				4,950	$	10.21
Vested		990	$	12.06		—		—
Outstanding at June 30, 2012		79,200	$	10.30		99,000	$	10.30

The compensation expense recognized for the three and six months ended June 30, 2012 was $51,000 and $102,000 as compared to $51,000 and $99,730 for the three and six months ended June 30, 2011.

As of June 30, 2012, there was $631,397 of total unrecognized compensation costs related to nonvested stock awards. That cost is expected to be recognized over a weighted average period of 3.1 years.

INCOME TAXES

Income tax expense was$1,684,343for an effective tax rate of 38.9% for the six months ended June 30, 2011 compared to$1,769,671for an effective tax rate of 42.8% for the same period in 2011.

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 carryforward periods, experience with operating loss and tax credit carryforwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings 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 June 30, 2012 and December 31, 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 June 30, 2012, the tax years ended December 31, 2008 through 2011 were subject to examination by the Internal Revenue Service, while the tax years ended December 31, 2007 through 2011 were subject to state examination. As of June 30, 2012, the Internal Revenue Service is reviewing the Company’s 2009 tax return.

STOCKHOLDERS’ EQUITY

During the second quarter of 2012, the Board of Directors of the Company declared a cash dividend of $0.06 per share, which was paid on May 25, 2012 to stockholders of record as of the close of business on May 4, 2012.

During the second quarter of 2012, the Company repurchased 105,800 treasury shares totaling $1,273,224 at a weighted average per share cost of $12.03.

At June 30 2012 the components of Accumulated Other Comprehensive Income are an unrealized holding loss of $159,311 from unrealized loss in the post retirement life benefit and an unrealized holding loss of $346,279 from unrealized net losses on investment securities available for sale.

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 - Quotedprices 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; quotedprices inmarkets 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 available for sale investment securities, which generally include, U.S. government mortgage backed securities, U. S. Treasury and federal agencies, corporate securities and state and municipal obligations are reported at fair value. These securities are valued by an independent third party. The third party’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U. S. Treasury and federal agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads. State and municipal obligations are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available for sale investments are evaluated using a broker-quote based application, including quotes from issuers.

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.

Those assets at June 30, 2012 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 sponsored entity mortgage-backed securities	$	-	$	52,523,915	$	-
U.S. Treasury and federal agencies		-		21,322,884		-
State and municipal obligations		-		832,880		-
Corporate securities		-		12,210,688		200
Equity securities		12,777		-		-
Totals	$	12,777	$	86,890,367	$	200

Those assets at December 31, 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 sponsored entity mortgage-backed securities	$	-	$	25,684,588	$	-
U.S. Treasury and federal agencies		-		14,128,230		-
State and municipal obligations		-		832,000		-
Corporate securities		-		6,110,108		200
Equity securities		12,542		-		-
Totals	$	12,542	$	46,754,926	$	200

In 2008, as a result of general market conditions and the illiquidity in the market for both single issuer and pooled trust preferred securities, 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 securities 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 six-months ended June 30, 2012 and June 30, 2011:

Fair Value Measurement Activity – Level 3 (only)

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Trust Preferred Securities		Total
Balance, January 1, 2012	$	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, June 30, 2012	$	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, 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, June 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.

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.

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, FHLB stock 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
June 30, 2012
Assets:
Impaired loans	$	2,572,949	$	─	$	2,572,949	$	─	$	(156,573	)
Real estate owned		474,699		─		474,699		─		(50,676	)

June 30, 2011
Assets:
Impaired loans	$	4,186,838	$	─	$	─	$	4,186,838	$	(390,679	)
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 would be categorized as a Level 3 measurement. At June 30, 2012, total loans remeasured at fair value were $2,572,949. Such loans were carried at the value of $2,729,522 immediately prior to remeasurement, resulting in the recognition of impairment through earnings for the life of the loans in the amount of $156,573. At June 30, 2011, total loans remeasured at fair value were $4,186,838. Such loans were carried at the value of $4,577,517 immediately prior to remeasurement, resulting in the recognition of impairment through earnings for the life of the loans in the amount of $390,679.

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 observable inputs, and therefore, the fair value measurement has been categorized as a Level 2 measurement.At June 30, 2012, total real estate owned remeasured at fair value was $474,699. These properties were carried at the value of $525,375 immediately prior to remeasurement, resulting in the recognition of impairment through earnings in the amount of $50,676.At June 30, 2011, the Company did not have any remeasurement to fair value to its foreclosed real estate and repossessed assets since the original recording. At June 30, 2012 the company had four properties totaling $572,199 as compared to one property at December 31, 2011 totaling $97,500.

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:

			Category Used For Fair Value
June 30, 2012	Carrying Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	173,860,886	$	173,860,886	$	─	$	─
Investment securities:
Held to maturity		5,582,189		─		5,736,033		─
Available for sale		86,903,344		12,777		86,890,367		200
Loans receivable, net		701,749,954		─		718,288,346		─
Federal Home Loan Bank stock		6,389,800		─		6,389,800		─

Liabilities:
NOW and other demand deposit accounts		404,153,165		─		412,243,165		─
Passbook savings and club accounts		140,702,681		─		147,277,681		─
Certificates		237,494,828		─		240,491,877		─
Advances from Federal Home Loan Bank		110,000,000		─		125,365,044		─
Junior subordinated debenture		15,464,000		─		12,371,200		─

			Category Used For Fair Value
December 31, 2011	Carrying Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	155,652,941	$	155,652,941	$	─	$	─
Investment securities:
Held to maturity		5,964,393		─		6,147,579		─
Available for sale		46,767,668		12,542		46,754,926		200
Loans receivable, net		727,626,278		─		742,868,929		─
Federal Home Loan Bank stock		6,434,800		─		6,434,800		─

Liabilities:
NOW and other demand deposit accounts		378,271,640		─		386,987,640		─
Passbook savings and club accounts		130,324,313		─		137,074,313		─
Certificates		243,858,957		─		242,343,751		─
Advances from Federal Home Loan Bank		110,000,000		─		131,036,958		─
Junior subordinated debenture		15,464,000		─		10,824,800		─

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 June 30, 2012. 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 June 30, 2012 and December 31, 2011. 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 June 30, 2012 and December 31, 2011, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

10.

GOODWILL AND INTANGIBLE ASSETS

Goodwill totaled $4,629,503 at June 30, 2012 as compared to $4,544,121 at December 31, 2011.An adjustment of $735,488 was made to goodwill during the measurement period, which is now closed, for additional information that was received regarding taxes. This adjustment was also made to the December 31, 2011 reported balance to retrospectively adjust the provisional amount of goodwill recognized at the acquisition date.Goodwill was not impaired at June 30, 2012 as no impairment indicators have been noted. The Company is in the process of performing its annual goodwill impairment test as of August 1, 2012 and will complete this process during the third quarter.

The core deposit intangible totaled $678,000 at June 30, 2012 as compared to $677,000 at December 31, 2011. The core deposit intangible is being amortized over its estimated useful life of approximately 15 years commencing August 1, 2011.

11.

REAL ESTATE OWNED

Summary of Real Estate Owned (“REO”):

	2012						2011
	Residential		Commercial				Residential
	Property		Property		Total		Property		Total

Balance, January 1,	$	97,500		$ ─	$	97,500	$	97,500	$	97,500
Transfers into Real Estate Owned		206,320		268,379		474,699		─		─
Sales of Real Estate Owned		─		─		─		─		─
Balance, June 30,	$	303,820	$	268,379	$	572,199	$	97,500	$	97,500

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-Kfor the year ended December 31, 2011 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.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2012 AND DECEMBER 31, 2011

Total assets of the Company increased $31.5 million to $1,026.3 million at June 30, 2012 from $994.7 million at December 31, 2011. Loans receivable, net, decreased $25.9 million, investment and mortgage-backed securities increased $39.8 million and cash and cash equivalents increasedby $18.2 million. Asset growth was funded by an increase in deposits of $29.9 million while borrowings were unchanged at $125.5 million.

Investments

Investments and mortgage-backed securities increased $39.8 million to $92.5 million at June 30, 2012 from $52.7 million at December 31, 2011. The increase was the result of purchases of $61.3 million of agency investments offset by normal repayments, calls and maturities of $21.5 million.

Loans

Loans receivable, net, decreased $25.9 million to $701.7 million at June 30, 2012 from $727.6 million at December 31, 2011. Loan originations totaled $82.8 million for the six months ended June 30, 2012 compared to $72.6 million originated in the six months ended June 30, 2011. Real estate mortgage loan originations totaled $57.5 million, real estate construction loan originations totaled $9.9 million, consumer loan originations totaled $7.5 million and commercial loan originations totaled $7.9 million for the first half of 2012. Origination activity was offset by $107.8 million of normal loan payments and payoffs.

The following table summarizes changes in the loan portfolio in the six months ended June 30, 2012.

	June 30, 2012			December 31, 2011			$ change			% change
	(Dollars in thousands)
Real estate – mortgage:
One-to-four-family residential	$	517,510		$	547,906		$	(30,396	)		(5.5	)%
Commercial and multi-family		78,758			77,073			1,685			2.2
Total real estate – mortgage		596,268			624,979			(28,711	)		(4.6	)

Real estate – construction:
Residential		11,623			8,057			3,566			44.3
Commercial		5,106			3,791			1,315			34.7
Total real estate – construction		16,729			11,848			4,881			41.2

Commercial		24,221			23,937			284			1.2

Consumer
Home equity		64,212			66,788			(2,576	)		(3.9	)
Other consumer loans		867			810			57			7.1
Total consumer loans		65,079			67,598			(2,519	)		(3.7	)

Total loans		702,297			728,362			(26,065	)		(3.6	)

Net deferred loan cost		3,151			3,026			125			4.1
Allowance for loan losses		(3,698	)		(3,762	)		64			(1.7	)

Net total loans	$	701,750		$	727,626		$	(25,876	)		(3.6	)%

Non-Performing Assets

Non-performing assets totaled $5.3 million, or 0.52% of total assets, at June 30, 2012 compared to $6.6 million or 0.66% of total assets at December 31, 2011 and $6.0 million, or 0.90% of total assets, at June 30, 2011. Thedecrease from December 31, 2011 was the result of a lower balance of non-performing loans replacing higher balance non-performing loans. Non-performing assets consisted of sixteen residential mortgages totaling $3.0 million, three commercial mortgages totaling $1.2 million, one commercial loan totaling $200 thousand, four consumer equity loans totaling $283 thousand and four real estate owned property totaling $572 thousand. Specific reserves were recorded for nine of the loans included above in the amount of $208 thousand at June 30, 2012 as compared to eleven loans with specific reserves of $386 thousand at December 31, 2011. Real estate owned increased three properties and $475 thousand at June 30, 2012 to $572 thousand from December 31, 2011. Net charge-offs totaled $490 thousand in 2012 compared to $123 thousand for the same period in 2011.

The allowance for loan losses decreased $64 thousand to $3.7 million, or 0.53% of total net loans, from $3.8 million at December 31, 2011, or 0.52% of total net loans. Thedecrease in the allowance for loan losses resulted from net charge offs of $490 thousand offset by the provision for the period of $426 thousand. The provision increase was primarily to maintain a reserve level deemed appropriate by management in light of factors such as the level of non-performing loans and the current economic conditions. The loss factors used to calculate the allowance at June 30, 2012 were slightly higher than those used at December 31, 2011 due to increases in delinquencies. At June 30, 2012, the specific allowance on loans individually evaluated for impairment was $391 thousand and the pooled allowance on the remainder of the loan portfolio was $3.3 million as compared to specific allowance on loans individually evaluated for impairment of $386 thousand and pooled allowance on the reminder of the loan portfolio of $3.3 million at December 31, 2011.

	Six Months Ended June 30,
	2012			2011
	(Dollars in thousands)
Allowance for loan losses:
Allowance at beginning of period	$	3,762		$	3,988
Provision for loan losses		426			203

Recoveries		14			—
Charge-offs		504			123
Net (charge-offs) recoveries		(490	)		(123	)

Allowance at end of period	$	3,698		$	4,068
Allowance for loan losses as a percent of total loans		0.53	%		0.61	%
Allowance for loan losses as a percent of non-performing loans		77.8	%		68.6	%

	June 30, 2012			December 31, 2011
Nonaccrual loans:	(Dollars in thousands)
Real estate - residential	$	3,039		$	4,768
Real estate - commercial		1,229			392
Commercial		200			318
Consumer		283			198
Total		4,751			5,676
Troubled debt restructurings - nonaccrual		─			805
Total nonaccrual loans		4,751			6,481
Real estate owned		572			98
Total non-performing assets	$	5,323		$	6,579

Total non-performing loans to total loans		0.68	%		0.89	%
Total non-performing loans to total assets		0.46	%		0.65	%
Total non-performing assets to total assets		0.52	%		0.66	%

Deposits

Deposits increased by $29.9 million, or 4.0%, to $782.4 million at June 30, 2012 from $752.5 million at December 31, 2011. Interest bearing demand deposits increased $11.1 million, non-interest bearing checking increased $14.8 million, savings accounts increased by $10.4 million and certificates of depositdecreased by $6.4 million. The Company continued its focus on attracting core deposits, which increased $36.3 million to $544.9 million.

The following table summarizes changes in deposits in the six months ended June 30, 2012.

	June 30,		December 31,
	2012		2011		$ change			% change
	(Dollars in thousands)
Non-interest-bearing demand deposits	$	90,339	$	75,551	$	14,788			19.6	%
Interest-bearing demand deposits		313,814		302,721		11,093			3.7
Savings accounts		140,703		130,324		10,379			8.0
Time deposits		237,495		243,859		(6,364	)		(2.6	)
Total	$	782,351	$	752,455	$	29,896			4.0	%

Borrowings

Federal Home Loan Bank advances were unchanged at $110.0 million at June 30, 2012 from December 31, 2011. Other borrowings were unchangedat $15.5 million at June 30, 2012 compared to December 31, 2011.

Stockholders’ Equity

Stockholders’ equity increased $927 thousand to $105.6 million at June 30, 2012, from $104.7 million at December 31, 2011, primarily as a result of net income of $2.7 million offset by treasury stock purchases of $1.3 million and dividends paid of $874 thousand.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

Net income was $1.3 million for the three months ended June 30, 2012 as compared to $1.2 million for the three months ended June 30, 2011. The increase of $139 thousand, or 12.0%, in 2012 from 2011 was due primarily to increases in net interest income and other income offset by increases in other expenses and provision for loan losses.

Net income was $2.7 million for the six months ended June 30, 2012 as compared to $2.4 million for the six months ended June 30, 2011. The $289 thousand, or 12.2%, increase in 2012 from 2011 was due primarily to increases in net interest income and other income offset by increases in other expenses and provision for loan losses.

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands, except per share data)						(Dollars in thousands, except per share data)

Net income	$	1,297		$	1,158		$	2,651		$	2,362
Basic and diluted earnings per share	$	0.19		$	0.17		$	0.39		$	0.35
Return on average assets (annualized)		0.50	%		0.53	%		0.52	%		0.54	%
Return on average equity (annualized)		4.90	%		4.51	%		4.99	%		4.62	%

Net Interest Income

The following table summarizes changes in interest income and interest expense for the three-month periods ended June 30, 2012 and 2011.

	Three Months Ended June 30,
	2012		2011		$ change			% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	8,732	$	8,629	$	103			1.2	%
Investment securities		681		538		143			26.6
Total interest income	$	9,413	$	9,167	$	246			2.7

INTEREST EXPENSE:
Deposits	$	1,106	$	1,495	$	(389	)		(26.0	)
Borrowings		1,510		1,510		─			─
Total interest expense		2,616		3,005		(389	)		(12.9	)
Net interest income	$	6,797	$	6,162	$	635			10.3	%

Interest income increasedby $246 thousand, or 2.7%, for the quarter ended June 30, 2012 compared to June 30, 2011. The increase resulted from an increase in the average balance of loans and investments offset by a decrease in the average rate earned on loans and investments.

Interest expensedecreasedby $389 thousand, or 12.9%, for the quarter ended June 30, 2012 over the same period last year due to a decrease in the average rate paid on deposits offset by an increase in the average balance of interest-bearing deposits.

The interest rate spread and net interest margin of the Company were 3.47% and 3.42% respectively, for the three months ended June 30, 2012, compared to 3.47% and 3.49% for the same period in 2011. The interest rate spread was unchanged as a decrease in the average rate paid on interest-bearing liabilities of 45 basis points offset by a decrease in the rate earned on interest-earning assets of 45 basis points. The decrease in cost of interest bearing liabilities resulted from a decrease in the average rate paid on interest-bearing deposits of 41 basis points offset by an increase in the average balance of interest-bearing deposits of $128.6 million. The decrease in rate on interest earnings assets resulted from decrease in the average rate on loans of 29 basis points and a decrease in the average rate on investments of 156 basis points offset by an increase in the average balance loans of $48.0 million and an increase in the average balance of investments of $40.4 million.

The following table summarizes changes in interest income and interest expense for the six-month periods ended June 30, 2012 and 2011.

	Six Months Ended June 30,
	2012		2011		$ Change			% Change
	(Dollars in thousands)

INTEREST INCOME:
Loans	$	17,732	$	17,184	$	548			3.2	%
Investment securities		1,292		1,021		271			26.5
Total interest income	$	19,024	$	18,205	$	819			4.5
INTEREST EXPENSE:
Deposits	$	2,321	$	3,061	$	(740	)		(24.2	)
Borrowings		3,020		3,008		12			0.4
Total interest expense		5,341		6,069		(728	)		(12.0	)
Net interest income	$	13,683	$	12,136	$	1,547			12.7	%

Interest incomeincreased by $819 thousand, or 4.5%, for the six months ended June 30, 2012 compared to the same period ended June 30, 2011. The increase resulted from an increase in the average balance of loans and investments offset by a decrease in the average rate earned on loans and investments.

Interest expensedecreased by $728 thousand, or 12.0%, for the six months ended June 30, 2012 over the same period last year due to a decrease in the average rate paid on deposits offset by an increase in the average balance of interest-bearing deposits.

The interest rate spread and net interest margin of the Company were 3.53% and 3.47% respectively, for the six months ended June 30, 2012, compared to 3.48% and 3.48% for the same period in 2011. The increase in the interest rate spread of 5 basis points and an unchanged margin resulted from a decrease in the average rate paid on interest-bearing liabilities of 43 basis points offset by a decrease in the rate earned on interest-earning assets of 39 basis points. The decrease in cost of interest bearing liabilities resulted from a decrease in the average rate paid on interest-bearing deposits of 40 basis points offset by an increase in the average balance of interest-bearing deposits of $119.9 million. The decrease in rate on interest earnings assets resulted from decrease in the average rate on loans of 24 basis points and a decrease in the average rate on investments of 184 basis points offset by an increase in the average balance of loans of $54.4 million and an increase in the average balance of investments of $35.3 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 June 30, 2012						Three Months Ended June 30, 2011
	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	$	709,651		$	8,732	4.92%	$	661,680		$	8,629	5.22%
Investment securities		85,765			681	3.18%		45,409			538	4.74%
Total interest-earning assets		795,416			9,413	4.73%		707,089			9,167	5.19%
Noninterest-earning assets		233,971						171,934
Total assets	$	1,029,387					$	879,023

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	325,802			220	0.27%	$	262,258			418	0.64%
Savings accounts		138,915			102	0.29%		110,178			192	0.70%
Certificates of deposit		238,830			784	1.31%		202,473			885	1.75%
Total interest-bearing deposits		703,547			1,106	0.63%		574,909			1,495	1.04%
FHLB advances		110,000			1,175	4.27%		110,000			1,175	4.27%
Subordinated debt		15,464			335	8.67%		15,464			335	8.67%
Total borrowings		125,464			1,510	4.82%		125,464			1,510	4.82%
Total interest-bearing liabilities		829,011			2,616	1.26%		700,373			3,005	1.72%
Noninterest-bearing demand accounts		83,371						66,246
Other liabilities		11,158						9,636
Total liabilities		923,540						776,255
Stockholders’ equity		105,847						102,768
Total liabilities and stockholders’ equity	$	1,029,387					$	879,023

Net interest income				$	6,797					$	6,162
Interest rate spread						3.47%						3.47%
Net interest margin						3.42%						3.49%
Average interest-earning assets to average interest-bearing liabilities		95.95	%					100.96	%

Average Balance Tables	Six Months Ended June 30, 2012						Six Months Ended June 30, 2011
	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	$	714,266		$	17,732	4.97%	$	659,842		$	17,184	5.21%
Investment securities		73,384			1,292	3.52%		38,073			1,021	5.36%
Total interest-earning assets		787,650			19,024	4.83%		697,915			18,205	5.22%
Noninterest-earning assets		228,646						178,143
Total assets	$	1,016,296					$	875,958

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	318,329		$	473	0.30%	$	261,955		$	850	0.65%
Savings accounts		135,692			213	0.31%		107,364			399	0.74%
Certificates of deposit		240,426			1,635	1.36%		205,188			1,812	1.77%
Total interest-bearing deposits		694,447			2,321	0.67%		574,507			3,061	1.07%
FHLB advances		110,000			2,350	4.27%		110,000			2,338	4.25%
Subordinated debt		15,464			670	8.67%		15,464			670	8.67%
Total borrowings		125,464			3,020	4.81%		125,464			3,008	4.80%
Total interest-bearing liabilities		819,911			5,341	1.30%		699,971			6,069	1.73%
Noninterest-bearing demand accounts		79,550						64,380
Other		10,792						9,417
Total liabilities		910,253						773,768
Stockholders’ equity		106,043						102,190
Total liabilities and stockholders’ equity	$	1,016,296					$	875,958

Net interest income				$	13,683					$	12,136
Interest rate spread						3.53%						3.48%
Net interest margin						3.47%						3.48%
Average interest-earning assets to average interest-bearing liabilities		96.07	%					99.71	%

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 $253 thousand and $426 thousand in the three and six months ended June 30, 2012 compared to $128 thousand and $203 thousand in the three and six months ended June 30, 2011.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 and the current economic environment.

Other Income

The following table summarizes other income for the three months ended June 30, 2012 and 2011 and the changes between the periods.

	Three Months Ended June 30,
	2012		2011		% Change
	(Dollars in thousands)
OTHER INCOME:

Service charges	$	423	$	395		7.1	%
Cash surrender value of life insurance		150		130		15.4
Other		392		337		16.3
Total other income	$	965	$	862		12.0	%

Other income increased$103 thousand, or 12.0%, to $965 thousand for the three-month period ended June 30, 2012 from the same period in 2011.The increase in service charges income of $28 thousand resulted from higher service charges collected on deposit accounts. The increase in cash surrender value of life insurance income of $20 thousand resulted from an increase in the balance in the policies. Other income increased $55 thousand primarily from increased debit card commissions received.

The following table summarizes other income for the six months ended June 30, 2012 and 2011 and the changes between the periods.

	Six Months Ended June 30,
	2012		2011		% Change
	(Dollars in thousands)
OTHER INCOME:

Service charges	$	834	$	754		10.6	%
Cash surrender value of life insurance		298		259		15.1
Other		738		651		13.4
Total other income	$	1,870	$	1,664		12.4	%

Other income increased$206 thousand, or 12.4%, to $1.9 million for the six-month period ended June 30, 2012 from the same period in 2011.The increase in service charges income of $80 thousand resulted from higher service charges collected on deposit accounts. The increase in cash surrender value of life insurance income of $39 thousand resulted from an increase in the balance in the policies. Other income increased $87 thousand primarily from increased debit card commissions received.

Other Expense

The following table summarizes other expense for the three months ended June 30, 2012 and 2011 and the changes between periods.

	Three Months Ended June 30,
	2012		2011		% Change
OTHER EXPENSE:	(Dollars in thousands)

Salaries and employee benefits	$	3,051	$	2,568		18.8	%
Occupancy and equipment		1,259		1,134		11.0
Federal insurance premiums		129		186		(30.7	)
Advertising		131		145		(10.0	)
Professional services		274		310		(11.6	)
Real estate owned expense		1		1		─
Other operating expense		546		466		17.2
Total other expense	$	5,391	$	4,810		12.1	%

Other expenses increased $581 thousand, or 12.1%, to $5.4 million for the three-month period ended June 30, 2012 from the same period in 2011. Costs associated with locations added from the 2011 acquisition of Select Bank totaled $329,000 for the second quarter of 2012. Additionally, increases in salaries and benefits, occupancy and equipment and other expenses of $324,000 were offset by decreases in FDIC insurance and marketing expenses of $72,000 for the second quarter of 2012.

The following table summarizes other expense for the six months ended June 30, 2012 and 2011 and the changes between the periods.

	Six Months Ended June 30,
	2012		2011		% Change
	(Dollars in thousands)
OTHER EXPENSE:

Salaries and employee benefits	$	6,181	$	5,181		19.3	%
Occupancy and equipment		2,495		2,118		17.8
Federal insurance premiums		257		373		(31.1	)
Advertising		248		251		(1.2	)
Professional services		526		605		(13.1	)
Real estate owned expense		3		3		─
Other operating expense		1,082		935		15.7
Total other expense	$	10,792	$	9,466		14.0	%

Other expenses increased$1.3 million, or 14.0%, to $10.8 million for the six-month period ended June 30, 2012 from the same period in 2011. Costs associated with locations added from the 2011 acquisition of Select Bank totaled $650,000 for the first six months of 2012. Additionally, increases in salaries and benefits, occupancy and equipment and other expenses of $770,000 were offset by decreases in FDIC insurance and marketing expenses of $120,000 and first six months of 2012.

Income Taxes

Income taxes decreased $107 thousand to $822 thousand for an effective tax rate of 38.8% for the three months ended June 30, 2012, compared to $929 thousand for an effective tax rate of 42.8% from the same period in 2011. Thedecrease in the tax rate was a result of a higher tax rate in 2011 due to nondeductible merger expenses.

Income taxes decreased $85 thousand to $1.7 million for an effective tax rate of 38.9% for the six months ended June 30, 2012, compared to $1.8 million for an effective tax rate of 42.8% from the same period in 2011. Thedecrease in the tax rate was a result of a higher tax rate in 2011 due to nondeductible merger expenses.

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 June 30, 2012, cash and cash equivalents totaled $173.9 million. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $66.9 million at June 30, 2012. In addition, at June 30, 2012, we had the ability to borrow a total of approximately $268.4 million from the Federal Home Loan Bank of New York.

At June 30, 2012, we had $63.1 million in loan commitments outstanding, which included $16.2 million in undisbursed loans, $28.1 million in unused home equity lines of credit and $18.8 million in commercial lines and letters of credit. Certificates of deposit due within one year of June 30, 2012 totaled $145.6 million, or 61.3% 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 June 30, 2012, the Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $97.3 million, or 9.60% of total adjusted assets, which is above the required level of $40.5 million or 4.0%; Tier 1 risk based capital of $97.3 million, or 19.46% of total adjusted assets which is above the required level of $20.0 million or 4.0%; and total risk-based capital of $100.6 million, or 20.13% of risk-weighted assets, which is above the required level of $40.0 million or 8.0%. 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 March 31, 2012 Percentage Change in Estimated Net Interest Income Over
	12 Months	24 Months

200 basis point increase in rates	9.56%	13.75%
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 bepositively affected (within our internal guidelines) in the 12-month and 24-month periods 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.

Economic Value of Equity Analysis

In addition to a net interest income simulation analysis, we use an interest rate sensitivity analysis to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in economic value of equity 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. Economic value of equity (EVE) 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 presents the change in our net portfolio value at March 31, 2012 that would occur in the event of an immediate change in interest rates based on management’s assumptions, with no effect given to any steps that we might take to counteract that change.

	Economic Value of Equity (Dollars in Thousands)								Economic Value of Equity as % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates	$ Amount		$ Change			% Change			EVE Ratio		Change
300 bp	110,986		(24,673)			(18.19)			11.71		(150.39)bp
200		121,160		(14,499	)		(10.69	)		12.42		(79.65	)
100		129,208		(6,451	)		(4.76	)		12.89		(32.00	)
50		132,543		(3,117	)		(2.30	)		13.06		(14.96	)
0		135,659		─			─			13.21		─
(50)		134,792		(867	)		(0.64	)		13.00		(21.53	)
(100)		138,281		2,622			1.93			13.23		1.73

The Company uses certain assumptions in assessing its interest rate risk. 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 six ended June 30, 2012 and June 30, 2011, 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 June 30, 2012 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, 2011.

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

Period	(a) Total number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number (or Appropriate Dollar Value) of Shares (or units) that May Yet Be Purchased Under the Plans or Programs
Month #1 April 1, 2012 through April 30, 2012	─	─	─	365,000
Month #2 May 1, 2012 through May 31, 2012	75,700	$12.01	75,700	289,300
Month #3 June 1, 2012 through June 30, 2012	30,100	$12.10	30,100	259,200

Total

_______________

(1)

On March 20, 2012, the Company’s Board of Directors approved the repurchase of up to 365,000 shares of the Company’s common stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosure

Not applicable.

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 June 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Financial Condition, (ii) the Condensed Consolidated Statements of Income and Comprehensive 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: August 9, 2012	/s/ Steven E. Brady
	Steven E. Brady
	President and Chief Executive Officer


Date: August 9, 2012	/s/ Donald F. Morgenweck
	Donald F. Morgenweck
	Chief Financial Officer and Senior Vice President

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Ocean Shore Holding Inactive 10-Q2012 Q2 Quarterly report

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