Ocean Shore Holding 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

OR

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

For the transition period from                           to                           

Commission file number: 0-53856

OCEAN SHORE HOLDING CO.

(Exact name of registrant as specified in its charter)

New Jersey	80-0282446
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1001 Asbury Avenue, Ocean City, New Jersey	08226
(Address of principal executive offices)	(Zip Code)

(609) 399-0012

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes TNo £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes TNo £

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 Filer T
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 £No T

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

At November 1, 2013, the registrant had 6,964,952 shares of $0.01 par value common stock outstanding.

 

OCEAN SHORE HOLDING CO.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Financial Condition at September 30, 2013 and December 31, 2012	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2013 and 2012	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
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	36
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

	September 30,		December 31,
	2013		2012
	(Dollars in thousands)
ASSETS
Cash and amounts due from depository institutions	$	9,171	$	8,504
Interest-earning bank balances		116,353		154,918
Cash and cash equivalents		125,524		163,422
Investment securities held to maturity (estimated fair value—$7,253 at September 30, 2013; $10,702 at December 31, 2012)		7,158		10,568
Investment securities available for sale (amortized cost—$126,693 at September 30, 2013; $105,978 at December 31, 2012)		123,335		106,206
Loans—net of allowance for loan losses of $4,211 at September 30, 2013 and $3,997 at December 31, 2012		727,618		703,898
Accrued interest receivable:
Loans		2,303		2,390
Investment securities		213		191
Federal Home Loan Bank stock—at cost		6,320		6,390
Office properties and equipment—net		13,037		13,435
Prepaid expenses and other assets		2,661		5,574
Real estate owned		909		906
Cash surrender value of life insurance		23,032		22,531
Net deferred tax asset		6,112		4,672
Goodwill		4,630		4,630
Other intangible assets		645		675
TOTAL ASSETS	$	1,043,497	$	1,045,488
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Non-interest bearing deposits	$	106,174	$	108,612
Interest bearing deposits		697,876		693,153
Advances from Federal Home Loan Bank		110,000		110,000
Junior subordinated debenture		10,309		15,464
Advances from borrowers for taxes and insurance		3,629		3,708
Accrued interest payable		805		1,257
Other liabilities		8,581		8,566
Total liabilities		937,374		940,760
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued		—		—
Common stock, $.01 par value, 25,000,000 shares authorized, 7,307,590 shares issued; 6,964,952 shares outstanding at September 30, 2013; 6,936,733 shares outstanding at December 31, 2012		73		73
Additional paid-in capital		65,213		64,842
Retained earnings - partially restricted		51,132		48,518
Treasury stock—at cost: 342,638 shares at September 30, 2013; 370,857 shares at December 31, 2012		(4,425)		(4,777)
Common stock acquired by employee benefits plans		(3,067)		(3,323)
Deferred compensation plans trust		(583)		(561)
Accumulated other comprehensive loss		(2,220)		(44)
Total stockholders’ equity		106,123		104,728
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,043,497	$	1,045,488

See notes to unaudited condensed consolidated financial statements.

1

 

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Dollars in thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
Taxable interest and fees on loans	$	7,964	$	8,470	$	23,968	$	26,202
Taxable interest on mortgage-backed securities		360		270		1,016		698
Non-taxable interest on municipal securities		18		(2)		55		70
Taxable interest and dividends on other investment securities		341		337		1,073		1,130
Total interest and dividend income		8,683		9,075		26,112		28,100
INTEREST EXPENSE:
Interest on deposits		737		1,056		2,353		3,377
Interest on borrowings		1,365		1,511		4,169		4,532
Total interest expense		2,102		2,567		6,522		7,909
NET INTEREST INCOME		6,581		6,508		19,590		20,191
PROVISION FOR LOAN LOSSES		186		148		580		574
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,395		6,360		19,010		19,617
OTHER INCOME:
Service charges		520		440		1,580		1,274
Cash surrender value of life insurance		169		160		501		458
Gain on call of securities		3		50		3		65
Other		436		379		1,270		1,103
Total other income		1,128		1,029		3,354		2,900
OTHER EXPENSE:
Salaries and employee benefits		3,084		3,090		9,384		9,270
Occupancy and equipment		1,287		1,265		3,812		3,760
Federal insurance premiums		140		122		405		379
Advertising		86		121		306		369
Professional services		334		307		1,005		834
Real estate owned expense		20		30		55		33
Charitable contributions		38		38		113		113
Other operating expenses		514		474		1,342		1,482
Total other expenses		5,503		5,447		16,422		16,240
INCOME BEFORE INCOME TAXES		2,020		1,942		5,942		6,277
INCOME TAX EXPENSE		696		750		2,079		2,434
NET INCOME	$	1,324	$	1,192	$	3,863	$	3,843
Other comprehensive income, net of tax:
Unrealized gain(loss) on available for sale securities		(220)		491		(2,146)		714
Unrealized gain(loss) on post retirement life benefit		8		6		(31)		(153)
COMPREHENSIVE INCOME	$	1,112	$	1,689	$	1,686	$	4,404
Earnings per share, basic:	$	0.20	$	0.18	$	0.59	$	0.57
Earnings per share, diluted:	$	0.20	$	0.18	$	0.58	$	0.57

See notes to unaudited condensed consolidated financial statements.

2

 

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2013		2012
	(Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	3,863	$	3,843
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		429		1,033
Provision for loan losses		580		574
Stock based compensation expense		643		578
Gain on call of AFS securities		(3)		(65)
Premium paid on partial retirement of junior subordinated debt		112		-
Cash surrender value of life insurance		(501)		(458)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		65		264
Prepaid expenses and other assets		2,913		1,156
Accrued interest payable		(452)		(358)
Other liabilities		(15)		963
Net cash provided by operating activities		7,634		7,530
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities available for sale		5,497		3,270
Mortgage-backed securities held to maturity		342		439
Loans originated, net of repayments		(25,318)		34,402
Purchases of:
Life insurance contracts		-		(3,085)
Loans		-		(342)
Federal Home Loan Bank stock		-		45
Investment securities held to maturity		(2,328)		(7,393)
Investment securities available for sale		(45,878)		(76,256)
Office properties and equipment		(315)		(319)
Proceeds from sale/ maturities/ calls of:
Federal Home Loan Bank stock		70		-
Investment securities held to maturity		5,393		6,020
Investment securities available for sale		20,032		33,485
Real estate owned		963		188
Net cash used in investing activities		(41,542)		(9,546)
FINANCING ACTIVITIES:
Increase in deposits		2,285		67,023
Dividends paid		(1,249)		(1,306)
Partial retirement of junior subordinated debt		(5,264)		-
Exercise of incentive stock options		424		122
Purchase of treasury stock		(86)		(4,315)
Purchase of shares by deferred compensation plans trust		(21)		(20)
Increase in advances from borrowers for taxes and insurance		(79)		(367)
Net cash (used in ) provided by financing activities		(3,990)		61,137
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(37,898)		59,121
CASH AND CASH EQUIVALENTS—Beginning of period		163,422		155,653
CASH AND CASH EQUIVALENTS—End of period	$	125,524	$	214,774
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION—Cash paid during the period for:
Interest	$	6,965	$	8,336
Income Taxes	$	2,152	$	1,950
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Transfers of loans to real estate owned	$	966	$	1,058

See notes to unaudited condensed consolidated financial statements.

3

 

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts presented in the tables, except share and per share amounts, are in thousands)

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, 2012.The results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013 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, goodwill and intangible impairment, deferred income taxes and the fair value measurement for investment securities available for sale.Actual results could differ from those estimates.

New Accounting Pronouncements – In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

In February 2013, the FASB issued ASU 2013-02, Other Comprehensive Income, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 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.

4

In July 2013, the FASB issued ASU 2013-11, an update to ASC 740, Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists: a consensus of the FASB Emerging Issues Task Force.This ASU provides explicit guidance on the presentation of unrecognized tax benefits, particularly the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The provisions of this update are effective January 1, 2014 for the Company and should be applied prospectively; however retrospective application is also permissible. Early adoption of the guidance is permitted. The disclosure impact of this guidance is currently being evaluated by the Company, but is not expected to have a significant impact on the Company's consolidated financial statements.

2.INVESTMENT SECURITIES

Investment securities are summarized as follows:

	September 30, 2013
				Gross		Gross		Estimated
	Amortized			Unrealized		Unrealized		Fair
	Cost			Gain		Loss		Value
	(Dollars in thousands)
Held to Maturity
Debt Securities - Municipal	$	6,078	$	—	$	—	$	6,078
US Treasury and government sponsored entity mortgage-backed securities		1,080		95		—		1,175
Totals	$	7,158	$	95	$	—	$	7,253
Available for Sale
Debt securities:
Corporate	$	11,535	$	173	$	(934)	$	10,774
U.S. Treasury and federal agencies		35,035		—		(1,638)		33,397
Equity securities		3		19		—		22
US treasury and government sponsored entity mortgage-backed securities		80,120		392		(1,370)		79,142
Totals	$	126,693	$	584	$	(3,942)	$	123,335

	December 31, 2012
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value
	(Dollars in thousands)
Held to Maturity
Debt Securities - Municipal	$	9,143	$	—	$	—	$	9,143
US Treasury and government sponsored entity mortgage-backed securities		1,425		134		—		1,559
Totals	$	10,568	$	134	$	—	$	10,702
Available for Sale
Debt securities:
Corporate	$	11,487	$	174	$	(1,195)	$	10,466
US Treasury and federal agencies		40,068		28		(5)		40,091
Equity securities		3		12		(2)		13
US Treasury and government sponsored entity mortgage-backed securities		54,420		1,230		(14)		55,636
Totals	$	105,978	$	1,444	$	(1,216)	$	106,206

5

The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2013 and December 31, 2012:

	September 30, 2013
	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
	(Dollars in thousands)
Debt securities -
U.S. Agencies	$	33,362	$	(1,638)	$	—	$	—	$	33,362	$	(1,638)
Corporate		—		—		3,771		(934)		3,771		(934)
US treasury and government sponsored entity mortgage- backed securities		72,775		(1,364)		514		(6)		73,289		(1,370)
Equity securities		—		—		—		—		—		—
Totals	$	106,137	$	(3,002)	$	4,285	$	(940)	$	110,422	$	(3,942)

	December 31, 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
	(Dollars in thousands)
Debt securities -
U.S. Treasury	$	5,995	$	(5)	$	32	$	—	$	6,027	$	(5)
Corporate		—		—		3,509		(1,195)		3,509		(1,195)
US treasury and government sponsored entity mortgage- backed securities		1,659		(7)		600		(7)		2,259		(14)
Equity securities		—		—		1		(2)		1		(2)
Totals	$	7,654	$	(12)	$	4,142	$	(1,204)	$	11,796	$	(1,216)

Management has reviewed its investment securities as of September 30, 2013 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.

6

	2013		2012
	(Dollars in thousands)
Credit component of OTTI as of January 1,	$	3,000	$	3,000
Additions for credit related OTTI charges on previously unimpaired securities		—		—
Reductions for securities sold during the period		—		—
Reductions for increases in cash flows expected to be collected and recognized over     the remaining life of the security		—		—
Additional increases as a result of impairment charges recognized on investments     for which an OTTI was previously recognized		—		—
Credit component of OTTI as of September 30,	$	3,000	$	3,000

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 ratings below investment grade at September 30, 2013.Each of the securities is in the mezzanine levels of credit subordination.The underlying collateral consists of the bank trust capital securities of over 50 institutions.A summary of key assumptions utilized to forecast future expected cash flows on the securities determined to have OTTI were as follows as of September 30, 2013 and 2012:

	September 30, 2013	September 30, 2012
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	28 years	29 years

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

At September 30, 2013, one debt security and 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 19.8% from the Company’s amortized cost basis.The decline is primarily attributable to the depressed pricing of private placement single issuer trust preferred securities and the increased credit spread in the financial markets for all of these investments. These securities were performing in accordance with their contractual terms as of September 30, 2013, and had paid all contractual cash flows since the Company’s initial investment and that the Company expects to receive all contractual principal and interest payments related to those investments.Management believes these unrealized losses are not other-than-temporary based upon the Company’s analysis that the securities will perform in accordance with their terms and the Company’s intent not to sell these investments for a period of time sufficient to allow for the anticipated recovery of fair value, which may be maturity.

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 September 30, 2013 the Company had four agency mortgage-backed securities with unrealized losses for 12 months or longer.Those securities had aggregate depreciation of 1.1% from the Company’s amortized cost basis.These securities were performing in accordance with their contractual terms as of September 30, 2013, and had paid all contractual cash flows since the Company’s initial investment and that the Company expects to receive all contractual principal and interest payments related to those investments.Management believes these unrealized losses are not other-than-temporary based upon the Company’s analysis that the securities will perform in accordance with their terms and the Company’s intent not to sell these investments for a period of time sufficient to allow for the anticipated recovery of fair value, which may be maturity.

7

The amortized cost and estimated fair value of debt securities available for sale and held to maturity at September 30, 2013 by contractual maturity are shown below.

	September 30, 2013
	Held to Maturity				Available for Sale Securities
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in thousands)
Due within 1 year	$	6,078	$	6,078	$	—	$	—
Due after 1 year through 5 years		—		—		6,865		7,038
Due after 5 years through 10 years		—		—		15,000		14,490
Due after 10 years		—		—		24,705		22,643
Total	$	6,078	$	6,078	$	46,570	$	44,171

Not reflected in the table above, are equity securities and mortgage-backed securities. Equity securities do not have stated contractual maturities while mortgage-backed securities may have expected maturities different than those contractually stated.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.Equity securities had a cost of $3 thousand and a fair value of $22 thousand as of September 30, 2013.Mortgage-backed securities had a cost of $81.2 million and a fair value of $80.3 million as of September 30, 2013.

3.LOANS RECEIVABLE - NET

Loans receivable consist of the following:

	September 30, 2013		December 31, 2012
	(Dollars in thousands)
Real estate - mortgage:
One-to-four family residential	$	536,946	$	522,206
Commercial and multi-family		85,318		80,013
Total real estate-mortgage		622,264		602,219
Real estate - construction:
Residential		19,653		12,709
Commercial		4,848		4,821
Total real estate - construction		24,501		17,530
Commercial		23,823		22,932
Consumer:
Home equity		57,245		61,328
Other consumer loans		861		879
Total consumer loans		58,106		62,207
Total loans		728,694		704,888
Net deferred loan cost		3,135		3,007
Allowance for loan losses		(4,211)		(3,997)
Net total loans	$	727,618	$	703,898

Loans pledged as collateral for FHLB borrowings totaled $123.6 million at September 30, 2013 and December 31, 2012.

8

Changes in the allowance for loan losses are as follows:

	Nine months Ended September 30,
	2013		2012
	(Dollars in thousands)
Balance, beginning of period	$	3,997	$	3,762
Provision for loan loss		580		574
Charge-offs		(379)		(669)
Recoveries		13		29
Balance, end of period	$	4,211	$	3,696

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 $580 thousand for the nine months ended September 30, 2013 as compared to $574 thousand for the comparable period in 2012.

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 September 30, 2013 and December 31, 2012, the impairment was measured based on the fair value of the loans’ collateral, adjusted for cost to dispose. Loans collectively evaluated for impairment include residential real estate loans, consumer loans, and smaller balance commercial and commercial real estate loans.

Non-performing loans at September 30, 2013 and December 31, 2012 consisted of non-accrual loans that amounted to $5.4 million and $5.8 million, respectively.The reserve for delinquent interest on loans totaled $301 thousand and $321 thousand, at September 30, 2013 and December 31, 2012, respectively.

Non-performing assets segregated by classification are as follows:

	September 30, 2013		December 31, 2012
	(Dollars in thousands)
Real estate
One-to-four family residential	$	3,914	$	3,850
Commercial and multi-family		466		1,275
Construction Loans		84		84
Commercial		525		200
Consumer		457		342
Total non-accrual loans		5,446		5,751
Real estate owned		909		906
Total non-performing assets	$	6,355	$	6,657

9

A rollforward of the Company’s nonaccretable and accretable yield on loans accounted for under ASU 310-30, Loans and Debts Securities Acquired with Deteriorated Credit Quality, is shown below for the nine month period ended September 30, 2013:

	Contractual  Receivable  Amount		Nonaccretable  (Yield)/Premium		Accretable  (Yield)/Premium		Carrying  Amount
	(Dollars in thousands)
Balance at January 1, 2013	$	63,690	$	(3,423)	$	983	$	61,250
Principal reductions		(9,591)		—		—		(9,591)
Charge-offs, net		(229)		229		—		—
Amortization of loan premium		—		—		(179)		(179)
Settlement adjustments		—		—		—		—
Balance at September 30, 2013	$	53,870	$	(3,194)	$	804	$	51,480

An age analysis of past due loans, segregated by class of loans, as of September 30, 2013 and December 31, 2012 are as follows:

	30-59 Days  Past Due		60-89 Days   Past Due		Greater  Than  90 Days		Total Past  Due		Current		Total Loans  Receivable
	(Dollars in thousands)
September 30, 2013
Real Estate
1-4 Family Residential	$	918	$	—	$	3,914	$	4,832	$	532,114	$	536,946
Commercial and Multi-Family		—		—		466		466		84,852		85,318
Construction		—		—		84		84		24,417		24,501
Commercial		—		—		525		525		23,298		23,823
Consumer		131		69		457		657		57,449		58,106
Total	$	1,049	$	69	$	5,446	$	6,564	$	722,130	$	728,694
December 31, 2012
Real Estate
1-4 Family Residential	$	1,988	$	—	$	3,850	$	5,838	$	516,368	$	522,206
Commercial and Multi-Family		240		—		1,275		1,515		78,498		80,013
Construction		—		—		84		84		17,446		17,530
Commercial		524		—		200		724		22,208		22,932
Consumer		404		124		342		870		61,337		62,207
Total	$	3,156	$	124	$	5,751	$	9,031	$	695,857	$	704,888

10

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

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
	(Dollars in thousands)
September 30, 2013
With no related allowance recorded
Real Estate
1-4 Family Residential	$	3,288	$	3,325	$	—	$	173
Commercial and Multi-Family		466		466		—		466
Construction		—		—		—		—
Commercial		—		—		—		—
Consumer		308		308		—		62
With an allowance recorded
Real Estate
1-4 Family Residential		2,465		2,651		287		274
Commercial and Multi-Family		—		—		—		—
Construction		84		84		33		84
Commercial		525		525		13		262
Consumer		272		272		58		91
Total
Real Estate
1-4 Family Residential	$	5,753	$	5,976	$	287	$	205
Commercial and Multi-Family		466		466		—		466
Construction		84		84		33		84
Commercial		525		525		13		262
Consumer		580		580		58		73
December 31, 2012
With no related allowance recorded
Real Estate
1-4 Family Residential	$	2,429	$	2,429	$	—	$	202
Commercial and Multi-Family		1,275		1,275		—		425
Construction		84		84		—		84
Commercial		—		—		—		—
Consumer		342		342		—		57
With an allowance recorded
Real Estate
1-4 Family Residential		3,307		3,438		369		331
Commercial and Multi-Family		—		—		—		—
Construction		—		—		—		—
Commercial		200		200		69		200
Consumer		128		128		27		128
Total
Real Estate	$	5,736	$	5,867	$	369	$	533
1-4 Family Residential		1,275		1,275		—		425
Commercial and Multi-Family		84		84		—		84
Construction		200		200		69		200
Commercial		470		470		27		185

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.As of September 30, 2013, the Company entered into six TDR agreements with a total carrying value of $2.0 million, all of which were performing.

11

Included in impaired loans at September 30, 2013 were two TDRs, which had a specific reserve of $155 thousand.The following table presents an analysis of the Company’s TDR agreements existing as of September 30, 2013 and December 31, 2012, respectively.

	As of September 30, 2013					As of December 31, 2012
			Outstanding Recorded Investment				Outstanding Recorded Investment
	Number of  Contracts		Pre-  Modification		Post-  Modification	Number of  Contracts		Pre-   Modification		Post-  Modification
	(Dollars in thousands)					(Dollars in thousands)
1-4 Family Residential	5	$	1,846	$	1,846	3	$	1,548	$	1,548
Consumer	1		125		125	1		128		128
Total	6	$	1,971	$	1,971	4	$	1,676	$	1,676

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.

12

The following table presents classified loans by class of loans as of September 30, 2013 and December 31, 2012.

	Real Estate
	1-4 Family  Residential				Commercial  and Multi-Family				Construction				Commercial				Consumer
	9/30/2013		12/31/2012		9/30/2013		12/31/2012		9/30/2013		12/31/2012		9/30/2013		12/31/2012		9/30/2013		12/31/2012
	(Dollars in thousands)
Grade:
Special Mention	$	3,911	$	2,394	$	381	$	3,582	$	—	$	84	$	93	$	62	$	834	$	429
Substandard		7,761		7,367		3,676		4,213		84		—		753		1,188		949		729
Doubtful and Loss		—		—		—		—		—		—		—		—		—		—
Total	$	11,672	$	9,761	$	4,057	$	7,795	$	84	$	84	$	846	$	1,250	$	1,783	$	1,158

The following table presents the credit risk profile of loans based on payment activity as of September 30, 2013 and December 31, 2012.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	9/30/2013		12/31/2012		9/30/2013		12/31/2012		9/30/2013		12/31/2012		9/30/2013		12/31/2012		9/30/2013		12/31/2012
	(Dollars in thousands)
Performing	$	533,032	$	518,356	$	84,852	$	78,738	$	24,417	$	17,446	$	23,298	$	22,732	$	57,649	$	61,865
Non-Performing		3,914		3,850		466		1,275		84		84		525		200		457		342
Total	$	536,946	$	522,206	$	85,318	$	80,013	$	24,501	$	17,530	$	23,823	$	22,932	$	58,106	$	62,207

13

The following table details activity in the allowance for possible loan losses by portfolio segment for the periods ended September 30, 2013 and December 31, 2012.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
	(Dollars in thousands)
September 30, 2013
Allowance for credit losses:
Beginning Balance	$	2,585	$	509	$	187	$	286	$	430	$	3,997
Charge-offs		(298)		(78)		—		—		(3)		(379)
Recoveries		—		—		—		—		13		13
Provision for loan losses		584		178		(110)		(115)		43		580
Ending balance	$	2,871	$	609	$	77	$	171	$	483	$	4,211
Ending balance: individually evaluated for impairment	$	287	$	—	$	33	$	13	$	58	$	391
Ending balance: collectively evaluated for impairment	$	2,584	$	609	$	44	$	158	$	425	$	3,820
Loan Receivables:
Ending balance	$	536,946	$	85,318	$	24,501	$	23,823	$	58,106	$	728,694
Ending balance: individually evaluated for impairment	$	5,753	$	466	$	84	$	525	$	580	$	7,408
Ending balance: collectively evaluated for impairment	$	531,193	$	84,852	$	24,417	$	23,298	$	57,526	$	721,286
December 31, 2012
Allowance for credit losses:
Beginning Balance	$	2,513	$	460	$	98	$	229	$	462	$	3,762
Charge-offs		(557)		—		—		(29)		(105)		(691)
Recoveries		13		—		—		20		—		33
Provision for loan losses		616		49		89		66		73		893
Ending balance	$	2,585	$	509	$	187	$	286	$	430	$	3,997
Ending balance: individually evaluated for impairment	$	369	$	—	$	—	$	69	$	27	$	465
Ending balance: collectively evaluated for impairment	$	2,216	$	509	$	187	$	217	$	403	$	3,532
Loan Receivables:
Ending balance	$	522,206	$	80,013	$	17,530	$	22,932	$	62,207	$	704,888
Ending balance: individually evaluated for impairment	$	5,736	$	1,275	$	84	$	200	$	470	$	7,765
Ending balance: collectively evaluated for impairment	$	516,470	$	78,738	$	17,446	$	22,732	$	61,737	$	697,123

14

 

4.DEPOSITS

Deposits consist of the following major classifications:

	September 30, 2013				December 31, 2012
			Weighted				Weighted
			Average				Average
	Amount		Interest Rate		Amount		Interest Rate
	(Dollars in thousands)
NOW and other demand deposit accounts	$	436,501	0.12	%	$	417,401	0.12	%
Passbook savings and club accounts		170,446	0.20	%		166,861	0.20	%
Subtotal		606,947				584,262
Certificates with original maturities:
Within one year		71,222	0.40	%		69,620	0.41	%
One to three years		100,554	1.13	%		119,467	1.39	%
Three years and beyond		25,327	2.06	%		28,416	2.56	%
Total certificates		197,103				217,503
Total	$	804,050			$	801,765

The aggregate amount of certificate accounts in denominations of $100 thousand or more at September 30, 2013 and December 31, 2012 amounted to $72.4 million and $79.6 million, respectively.Currently, deposits in excess of $250 thousand are generally not federally insured.

Municipal demand deposit accounts in denominations of $100 thousand or more at September 30, 2013 and December 31, 2012 amounted to $163.6 million and $157.6 million, 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 September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Dollars in thousands, except per share data)
Numerator – Net Income	$	1,324	$	1,192	$	3,863	$	3,843
Denominators:
Basic average shares outstanding		6,533,760		6,625,221		6,514,699		6,715,043
Effect of dilutive common stock equivalents		111,658		55,942		119,055		70,758
Diluted average shares outstanding		6,645,418		6,681,163		6,633,754		6,785,801
Earnings per share:
Basic	$	0.20	$	0.18	$	0.59	$	0.57
Diluted	$	0.20	$	0.18	$	0.58	$	0.57

At September 30, 2013 and 2012, there were 541,112 and 639,272 outstanding anti-dilutive options, respectively, and 40,590 and 60,390 outstanding dilutive non-vested shares, respectively.

15

 

6.STOCK-BASED COMPENSATION

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

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

A summary of the status of the Company’s stock options under the Equity Plans as of September 30, 2013 and 2012 and changes during the nine months ended September 30, 2013 and 2012 are presented below:

	Nine Months Ended September 30, 2013			Nine Months Ended September 30, 2012
	Number of shares	Weighted average exercise price		Number of shares	Weighted average exercise price
Outstanding at the beginning of the period	649,313	$	11.90	650,804	$	11.90
Granted	—		—	—		—
Exercised	34,013	$	12.38	11,532	$	10.61
Forfeited	—		—	—		—
Outstanding at the end of the period	615,300	$	11.92	639,272	$	11.90
Exercisable at the end of the period	468,986	$	12.23	441,322	$	13.16
Stock options vested or expected to vest (1)	553,770	$	11.92	575,345	$	11.90

(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 September 30, 2013:

	Options Outstanding
Date Issued	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
August 10, 2005	270,729	$	13.19	1.9 years
November 21, 2006	17,586	$	14.78	3.2 years
November 20, 2007	19,919	$	11.32	4.2 years
August 18, 2010	224,628	$	10.21	6.9 years
March 15, 2011	13,600	$	12.06	7.5 years
August 17, 2011	51,338	$	11.53	7.9 years
November 19, 2012	17,500	$	13.10	9.2 years
Total	615,300	$	11.92	4.7 years

16

The compensation expense recognized for the three and nine months ended September 30, 2013 was $38 thousand and $114 thousand as compared to $37 thousand and $110 thousand for the three and nine months ended September 30, 2012.

At September 30, 2013, there was $481 thousand 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 1.9 years.

Summary of Non-vested Stock Award Activity:

	Nine Months ended September 30, 2013			Nine Months ended September 30, 2012
	Number of shares	Weighted avg grant date fair value		Number of shares	Weighted avg grant date fair value
Beginning of period	60,390	$	10.33	80,190	$	10.32
Issued	—		—	—		—
Forfeited	—		—	—		—
Vested	19,800	$	10.30	19,800	$	10.30
Outstanding at September 30, 2013	40,590	$	10.35	60,390	$	10.33

The compensation expense recognized for the three and nine months ended September 30, 2013 was $51 thousand and $153 thousand as compared to $51 thousand and $153 thousand for the three and nine months ended September 30, 2012.

As of September 30, 2013, there was $376 thousand of total unrecognized compensation costs related to nonvested stock awards.That cost is expected to be recognized over a weighted average period of 1.9 years.

7.INCOME TAXES

Income tax expense was $2.1 million for an effective tax rate of 35.0% for the nine months ended September 30, 2013 compared to $2.4 million for an effective tax rate of 38.8% for the same period in 2012.The decrease in the effective rate was based upon a reduction in state income tax expense as a result of forming a subsidiary real estate investment trust in the second quarter.

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 September 30, 2013 and December 31, 2012, no valuation allowance has been recorded for any portfolio of the outstanding deferred tax asset.

The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. As of September 30, 2013, the tax years ended December 31, 2009 through 2012 were subject to examination by the Internal Revenue Service, while the tax years ended December 31, 2008 through 2012 were subject to New Jersey examination.

17

 

8.STOCKHOLDERS’ EQUITY

During the third quarter of 2013, the Board of Directors of the Company declared a cash dividend of $0.06 per share, which was paid on August 23, 2013 to stockholders of record as of the close of business on August 2, 2013.

No reclassification adjustments were recognized in Accumulated Other Comprehensive Income during the three and nine months ended September 30, 2013 and 2012.A summary of the changes in components of Accumulated Other Comprehensive Income for the three and nine months ended September 30, 2013 and 2012 are presented below:

	2013						2012
	Unrealized  Gain (Loss) on  Available for  Sale Securities		Loss on Post  Retirement  Life Benefit		Accumulated  Other  Comprehensive  Income		Unrealized  Gain (Loss) on  Available for  Sale Securities		Loss on Post  Retirement  Life Benefit		Accumulated  Other  Comprehensive  Income
	(Dollars in thousands)						(Dollars in thousands)
July 1,	$	(1,822)	$	(186)	$	(2,008)	$	(348)	$	(159)	$	(507)
Current period change		(411)		8		(403)		801		6		807
Tax benefit		191		-		191		(310)		-		(310)
September 30,	$	(2,042)	$	(178)	$	(2,220)	$	143	$	(153)	$	(10)

	2013						2012
	Unrealized  Gain (Loss) on  Available for  Sale Securities		Loss on Post  Retirement  Life Benefit		Accumulated  Other  Comprehensive  Income		Unrealized  Gain (Loss) on  Available for  Sale Securities		Loss on Post  Retirement  Life Benefit		Accumulated  Other  Comprehensive  Income
	(Dollars in thousands)						(Dollars in thousands)
January 1,	$	104	$	(148)	$	(44)	$	(571)	$	-	$	(571)
Current period change		(3,586)		(31)		(3,617)		1,164		(153)		1,011
Tax benefit		1,440		-		1,440		(450)		-		(450)
September 30,	$	(2,042)	$	(178)	$	(2,220)	$	143	$	(153)	$	(10)

9.FAIR VALUE MEASUREMENTS

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

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

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

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

18

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

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

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

Those assets at September 30, 2013 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
	(Dollars in thousands)
Securities available for sale:
U.S. government sponsored entity mortgage-backed securities	$	—	$	79,142	$	—
U.S. Treasury and federal agencies		—		33,397		—
State and municipal obligations		—		—		—
Corporate securities		—		10,774		—
Equity securities		22		—		—
Totals	$	22	$	123,313	$	—

Those assets at December 31, 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
	(Dollars in thousands)
Securities available for sale:
U.S. government sponsored entity mortgage-backed securities	$	—	$	55,636	$	—
U.S. Treasury and federal agencies		—		40,091		—
State and municipal obligations		—		—		—
Corporate securities		—		10,466		—
Equity securities		13		—		—
Totals	$	13	$	106,193	$	—

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. The Company concluded that there was not a significant decrease in the volume and level of activity with respect to certain investments included in the corporate debt securities and classified as level 2 in accordance with the framework for fair value measurements. Fair value for such 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.

19

Summary of Non-Recurring Fair Value Measurements

			Category Used for Fair Value  Measurement
Nine Month   Period Ended	Total		Level 1		Level 2		Level 3		Total Losses
	(Dollars in thousands)
September 30, 2013
Assets:
Impaired loans	$	3,111	$	–	$	2,958	$	153	$	(97)
Real estate owned		525		–		525		–		(143)
September 30, 2012
Assets:
Impaired loans	$	2,834	$	–	$	2,634	$	200	$	(190)
Real estate owned		870		–		870		–		(99)

Impaired Loans

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, less cost to sell.Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties, which are considered Level 2 inputs. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. In some cases, adjustments are made to the appraised values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. Total loans remeasured at fair value for the nine months ended September 30, 2013 were $3.1 million.Such loans were carried at the value of $3.2 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings in the amount of $97 thousand.Total loans remeasured at fair value for the nine months ended September 30, 2012 were $2.8 million.Such loans were carried at the value of $3.0 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings in the amount of $190 thousand.

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. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties, which are considered Level 2 inputs. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. In some cases, adjustments are made to the appraised values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral.These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. The Company had no real estate owned remeasured at fair value for the three months ended September 30, 2013.Total real estate owned remeasured at fair value for the three months ended September 30, 2012 was $583 thousand, of which $188 thousand were sold.These properties were carried at a value of $631 thousand immediately prior to remeasurement, resulting in $48 thousand of impairment through earnings. Total real estate owned remeasured at fair value for the nine months ended September 30, 2013 was $525 thousand.These properties were carried at a value of $668 thousand immediately prior to remeasurement, resulting in $143 thousand of impairment through earnings.Total real estate owned remeasured at fair value for the nine months ended September 30, 2012 was $1.1 million, of which $188 thousand were sold.These properties were carried at a value of $968 thousand immediately prior to remeasurement, resulting in $99 thousand of impairment through earnings.

20

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
September 30, 2013	Carrying Amount		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	125,524	$	125,524	$	—	$	—
Investment securities:
Held to maturity		7,158		—		7,253		—
Available for sale		123,335		22		123,313		—
Loans receivable, net		727,618		—		755,973		—
Federal Home Loan Bank stock		6,320		—		6,320		—
Liabilities:
NOW and other demand deposit accounts		436,501		—		451,552		—
Passbook savings and club accounts		170,466		—		178,990		—
Certificates		197,103		—		196,727		—
Advances from Federal Home Loan Bank		110,000		—		120,492		—
Junior subordinated debenture		10,309		—		9,278		—

			Category Used For Fair Value
December 31, 2012	Carrying Amount			Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	163,422	$	163,422	$	—	$	—
Investment securities:
Held to maturity		10,568		—		10,702		—
Available for sale		106,206		13		106,193		—
Loans receivable, net		703,898		—		731,546		—
Federal Home Loan Bank stock		6,390		—		6,390		—
Liabilities:
NOW and other demand deposit accounts		417,401		—		427,510		—
Passbook savings and club accounts		166,861		—		171,848		—
Certificates		217,503		—		215,638		—
Advances from Federal Home Loan Bank		110,000		—		124,140		—
Junior subordinated debenture		15,464		—		12,371		—

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

21

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

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

FHLB Stock—Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. While certain conditions are noted that required management to evaluate the stock for impairment, it is currently probable that the Company will realize its cost basis. Management concluded that no impairment existed as of September 30, 2013.The estimated fair value approximates the carrying amount.

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

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

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

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2013 and December 31, 2012.Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since September 30, 2013 and December 31, 2012, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

10.GOODWILL AND INTANGIBLE ASSETS

Goodwill totaled $4.6 million at September 30, 2013 as compared to $4.6 million at December 31, 2012.The Company completed its annual goodwill impairment test as of August 1, 2013 and concluded that goodwill was not impaired.

The core deposit intangible totaled $645 thousand at September 30, 2013 as compared to $675 thousand at December 31, 2012. The core deposit intangible is being amortized over its estimated useful life of approximately 15 years from August 1, 2011.

22

 

11.REAL ESTATE OWNED

Summary of Real Estate Owned (“REO”):

	2013						2012
	Residential		Commercial				Residential		Commercial
	Property		Property		Total		Property		Property		Total
	(Dollars in thousands)						(Dollars in thousands)
Balance, January 1,	$	412	$	494	$	906	$	98	$	-	$	98
Transfers into Real Estate Owned		438		528		966		564		494		1,058
Sales of Real Estate Owned		(610)		(353)		(963)		(188)		-		(188)
Balance, September 30,	$	240	$	669	$	909	$	474	$	494	$	968

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

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

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

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain.These factors include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Company’s loan or investment portfolios.Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2012 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 SEPTEMBER 30, 2013 AND DECEMBER 31, 2012

Total assets of the Company decreased $2.0 million to $1,043.5 million at September 30, 2013 from $1,045.5 million at December 31, 2012.Loans receivable, net, increased $23.7 million, investment and mortgage-backed securities increased $13.7 million and cash and cash equivalents decreased by $37.9 million as excess liquidity was deployed into loans, investments and for the redemption of debt.Deposits increased $2.3 million while borrowings decreased $5.2 million.

23

Investments

Investments and mortgage-backed securities increased $13.7 million to $130.5 million at September 30, 2013 from $116.8 million at December 31, 2012.The increase was the result of purchases of $48.2 million of agency investments offset by repayments, calls and maturities of $30.8 million and a decline in the unrealized holding loss on investment securities of $3.7 million.

Loans

Loans receivable, net, increased $23.7 million to $727.6 million at September 30, 2013 from $703.9 million at December 31, 2012.The majority of this increase was in the real estate mortgage portfolio, which increased $20.0 million.Loan originations totaled $143.9 million for the nine months ended September 30, 2013 compared to $116.6 million originated in the nine months ended September 30, 2012.Real estate mortgage loan originations totaled $92.9 million, real estate construction loan originations totaled $24.3 million, consumer loan originations totaled $12.7 million and commercial loan originations totaled $14.0 million for the first nine months of 2013.Origination activity was offset by $119.0 million of normal loan payments and payoffs, compared to payments and payoffs of $152.5 million in the same period of the prior year. The higher than normal percentage increase in residential construction loans of 54.6% resulted from seasonal organic growth.

The following table summarizes changes in the loan portfolio in the nine months ended September 30, 2013.

	September 30,  2013		December 31,  2012		$ change		% change
	(Dollars in thousands)
Real estate – mortgage:
One-to-four-family residential	$	536,946	$	522,206	$	14,740	2.8	%
Commercial and multi-family		85,318		80,013		5,305	6.6
Total real estate – mortgage		622,264		602,219		20,045	3.3
Real estate – construction:
Residential		19,653		12,709		6,944	54.6
Commercial		4,848		4,821		27	0.6
Total real estate – construction		24,501		17,530		6,971	39.7
Commercial		23,823		22,932		891	3.9
Consumer
Home equity		57,245		61,328		(4,083)	(6.7)
Other consumer loans		861		879		(18)	(2.0)
Total consumer loans		58,106		62,207		(4,101)	(6.6)
Total loans		728,694		704,888		23,806	3.4
Net deferred loan cost		3,135		3,007		128	4.3
Allowance for loan losses		(4,211)		(3,997)		(214)	5.4
Net total loans	$	727,618	$	703,898	$	23,720	3.4	%

24

Non-Performing Assets

Non-performing assets totaled $6.4 million, or 0.61% of total assets, at September 30, 2013 compared to $6.7 million or 0.64% of total assets at December 31, 2012 and $5.7 million, or 0.53% of total assets, at September 30, 2012.The decrease from December 31, 2012 was the result of lower balance non-performing loans replacing higher balance non-performing loans.Non-performing assets consisted of 23 residential mortgages totaling $3.9 million, one real estate commercial mortgage totaling $466 thousand, one real estate construction mortgage totaling $84 thousand, two commercial loans totaling $525 thousand, seven consumer equity loans totaling $458 thousand and six real estate owned properties totaling $909 thousand.Specific reserves recorded for these loans totaled $391 thousand at September 30, 2013 as compared to $465 thousand at December 31, 2012.Real estate owned increased by one property while the total balance increased $3 thousand at September 30, 2013 to $909 thousand from $906 thousand at December 31, 2012.

The allowance for loan losses increased $214 thousand to $4.2 million, or 0.58% of total net loans, from $4.0 million at December 31, 2012, or 0.57% of total net loans. The increase in the allowance for loan losses resulted from net charge offs of $366 thousand offset by an addition to the allowance of $580 thousand.Net charge-offs totaled $366 thousand in 2013 compared to $640 thousand for the same period in 2012.The allowance increase was primarily to maintain a reserve level deemed appropriate by management in light of factors such as the level of non-performing loans, growth in the loan portfolio and the current economic conditions.The loss factors used to calculate the allowance were unchanged in September 2013 from December 2012.At September 30, 2013, the specific allowance on loans individually evaluated for impairment was $391 thousand and pooled allowance on the remainder of the loan portfolio was $3.8 million as compared to specific allowance on loans individually evaluated for impairment of $465 thousand and pooled allowance on the reminder of the loan portfolio of $3.5 million at December 31, 2012.

	Nine months Ended September 30,
	2013			2012
	(Dollars in thousands)
Allowance for loan losses:
Allowance at beginning of period	$	3,997		$	3,762
Provision for loan losses		580			574
Recoveries		13			29
Charge-offs		(379)			(669)
Net (charge-offs) recoveries		(366)			(640)
Allowance at end of period	$	4,211		$	3,696
Allowance for loan losses as a percent of total loans		0.58	%		0.53	%
Allowance for loan losses as a percent of non-performing loans		77.33	%		78.91	%

	September 30,   2013			December 31,   2012
	(Dollars in thousands)
Nonaccrual loans:
Real estate - residential	$	3,914		$	3,850
Real estate - commercial		466			1,275
Real estate - construction		84			84
Commercial		525			200
Consumer		457			342
Total nonaccrual loans		5,446			5,751
Real estate owned		909			906
Total non-performing assets	$	6,355		$	6,657
Total non-performing loans to total loans		0.75	%		0.82	%
Total non-performing loans to total assets		0.52	%		0.55	%
Total non-performing assets to total assets		0.61	%		0.64	%

Deposits

Deposits increased $2.3 million, or 0.3%, to $804.1 million at September 30, 2013 from $801.8 million at December 31, 2012.Interest bearing demand deposits increased $21.5 million, non-interest bearing checking decreased $2.4 million, savings accounts increased by $3.6 million and certificates of deposit decreased by $20.4 million.The Company continued its focus on attracting core deposits which totaled $606.9 million or 75.5% of total deposits.

25

The following table summarizes changes in deposits in the nine months ended September 30, 2013.

	September 30,		December 31,
	2013		2012		$ change		% change
	(Dollars in thousands)
Non-interest-bearing demand deposits	$	106,174	$	108,612	$	(2,438)		(2.2)	%
Interest-bearing demand deposits		330,327		308,789		21,538		7.0
Savings accounts		170,446		166,861		3,585		2.1
Time deposits		197,103		217,503		(20,400)		(9.4)
Total	$	804,050	$	801,765	$	2,285		0.3	%

Borrowings

Federal Home Loan Bank advances were unchanged at $110.0 million at September 30, 2013 from December 31, 2012.On August 30, 2013, the Company partially redeemed $5.2 million principal amount of its 8.67% Capital Securities issued by Ocean Shore Capital Trust I, a wholly-owned subsidiary of the Company.The Company paid a redemption premium of $111,800.As a result, other borrowings decreased $5.2 million to $10.3 million at September 30, 2013 from $15.5 million at December 31, 2012.

Stockholders’ Equity

Stockholders’ equity increased $1.4 million to $106.1 million at September 30, 2013, from $104.7 million at December 31, 2012, primarily as a result of $3.9 million of net income, $352 thousand increase in treasury stock and increases in contra benefit plans of $388 thousand offset by a decrease in other comprehensive income of $2.2 million and dividends paid of $1.2 million.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

Net income was $1.3 million for the three months ended September 30, 2013 as compared to $1.2 million for the three months ended September 30, 2012.The increase of $132 thousand, or 11.1%, in 2013 from 2012 was due primarily to increases in net interest income and other income and a decrease in income taxes, which were offset by increases in provisions for loan losses and other expenses.

Net income was $3.9 million for the nine months ended September 30, 2013 as compared to $3.8 million for the nine months ended September 30, 2012.The $20 thousand, or 0.5%, increase in 2013 from 2012 was due primarily to an increase in other income and a decrease in income taxes offset by a decrease in net interest income and increases in provisions for loan losses and other expenses.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Dollars in thousands, except per share data)
Net income	$	1,324		$	1,192		$	3,863		$	3,843
Basic earnings per share	$	0.20		$	0.18		$	0.59		$	0.57
Diluted earnings per share	$	0.20		$	0.18		$	0.58		$	0.57
Return on average assets (annualized)		0.50	%		0.46	%		0.49	%		0.50	%
Return on average equity (annualized)		5.00	%		4.50	%		4.84	%		4.83	%

26

Net Interest Income

The following table summarizes changes in interest income and interest expense for the three month periods ended September 30, 2013 and 2012.

	Three Months Ended September 30,
	2013		2012		$ change		% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	7,964	$	8,470	$	(506)	(6.0)	%
Investment securities		719		605		114	18.8
Total interest income		8,683		9,075		(392)	(4.3)
INTEREST EXPENSE:
Deposits		737		1,056		(319)	(30.2)
Borrowings		1,365		1,511		(146)	(9.7)
Total interest expense		2,102		2,567		(465)	(18.1)
Net interest income	$	6,581	$	6,508	$	73	1.1	%

Interest income decreased by $392 thousand, or 4.3%, for the quarter ended September 30, 2013 compared to September 30, 2012.The decrease resulted from a decrease in yield on earning assets of 57 basis points offset in part by an increase in interest-earning assets of $70.8 million.

Interest expense decreased by $465 thousand, or 18.1%, for the quarter ended September 30, 2013 over the same period last year due to decreases in the average rate paid on deposits and borrowings of 19 basis points and decreases in the average balance of interest-bearing deposits and borrowings of $25.3 million.

The interest rate spread and net interest margin of the Company were 3.04% and 3.08% respectively, for the three months ended September 30, 2013, compared to 3.42% and 3.32% for the same period in 2012.The net decrease in the interest rate spread of 38 basis points and margin of 24 basis points resulted from a decrease in the rate earned on interest-earning assets of 57 basis points partially offset by a decrease in the average rate paid on interest-bearing liabilities of 19 basis points.The decrease in rate on interest earnings assets resulted from a decrease in the average rate on loans of 45 basis points, a decrease in the average rate on investments of 60 basis points offset by an increase in the average balance of loans of $25.3 million and an increase in the average balance of investments of $45.5 million.The decrease in cost of interest-bearing liabilities resulted from decreases in the average rate paid on interest-bearing deposits of 16 basis points, the average rate paid on borrowings of 40 basis points as well as decreases in the average balance of interest-bearing deposits of $23.5 million and the average balance of borrowings of $1.8 million.

The following table summarizes changes in interest income and interest expense for the nine month periods ended September 30, 2013 and 2012.

27

	Nine Months Ended September 30,
	2013		2012			$ change	% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	23,968	$	26,202	$	(2,234)	(8.6)	%
Investment securities		2,144		1,898		246	13.0
Total interest income		26,112		28,100		(1,988)	(7.1)
INTEREST EXPENSE:
Deposits		2,353		3,377		(1,024)	(30.3)
Borrowings		4,169		4,532		(363)	(8.0)
Total interest expense		6,522		7,909		(1,387)	(17.5)
Net interest income	$	19,590	$	20,191	$	(601)	(3.0)	%

Interest income decreased by $2.0 million, or 7.1%, for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.The decrease resulted from a decrease in yield on earning assets of 62 basis points offset in part by an increase in interest-earning assets of $53.7 million.

Interest expense decreased by $1,387 thousand, or 17.5%, for the nine months ended September 30, 2013 over the same period last year due a decrease in the average rate paid on deposits and borrowings of 23 basis points offset by an increase in the average balance of interest-bearing deposits and borrowings of $1.1 million.

The interest rate spread and net interest margin of the Company were 3.10% and 3.11% respectively, for the nine months ended September 30, 2013, compared to 3.49% and 3.42% for the same period in 2012.The net decrease in the interest rate spread of 39 basis points and margin of 31 basis points resulted from a decrease in the rate earned on interest-earning assets of 62 basis points offset by a decrease in the average rate paid on interest-bearing liabilities of 23 basis points.The net decrease in rate on interest- earnings assets resulted from a decrease in the average rate on loans of 44 basis points and a decrease in the average rate on investments of 99 basis points partially offset by an increase in the average balance of loans of $4.3 million and an increase in the average balance of investments of $49.4 million. The decrease in cost of interest-bearing liabilities resulted from decreases in the average rate paid on interest-bearing deposits of 20 basis points, the average rate paid on borrowings of 37 basis points as well as a decrease in the average balance of borrowings of $604 thousand offset by an increase in the average balance of interest-bearing deposits of $1.7 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.

28

Average Balance Tables
	Three Months Ended September 30, 2013							Three Months Ended September 30, 2012
	Average  Balance			Interest  and  Dividends		Yield/  Cost		Average  Balance			Interest  and  Dividends		Yield/  Cost
	(Dollars in thousands)							(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	721,487		$	7,964	4.42	%	$	696,198		$	8,470	4.87	%
Investment securities		133,628			719	2.15	%		88,117			606	2.75	%
Total interest-earning assets		855,115			8,683	4.06	%		784,315			9,075	4.63	%
Noninterest-earning assets		194,151							273,022
Total assets	$	1,049,266						$	1,057,337
Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	328,774			127	0.16	%	$	348,205			237	0.27	%
Savings accounts		172,381			87	0.20	%		148,115			96	0.26	%
Certificates of deposit		199,889			523	1.05	%		228,206			723	1.27	%
Total interest-bearing deposits		701,044			737	0.42	%		724,526			1,056	0.58	%
FHLB advances		110,000			1,067	3.88	%		110,000			1,176	4.28	%
Subordinated debt		13,671			298	8.72	%		15,464			335	8.67	%
Total borrowings		123,671			1,365	4.42	%		125,464			1,511	4.82	%
Total interest-bearing liabilities		824,715			2,102	1.02	%		849,990			2,567	1.21	%
Noninterest-bearing demand accounts		107,571							90,918
Other liabilities		11,084							11,406
Total liabilities		943,370							952,314
Stockholders’ equity		105,896							105,023
Total liabilities and stockholders’ equity	$	1,049,266						$	1,057,337
Net interest income				$	6,581						$	6,508
Interest rate spread						3.04	%						3.42	%
Net interest margin						3.08	%						3.32	%
Average interest-earning assets to average interest-bearing liabilities		103.69	%						92.27	%

29

Average Balance Tables
	Nine Months Ended September 30, 2013							Nine Months Ended September 30, 2012
	Average  Balance			Interest  and Dividends		Yield/  Cost		Average Balance			Interest  and  Dividends		Yield/   Cost
	(Dollars in thousands)							(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	712,500		$	23,968	4.49	%	$	708,200		$	26,202	4.93	%
Investment securities		127,746			2,144	2.24	%		78,330			1,898	3.23	%
Total interest-earning assets		840,246			26,112	4.14	%		786,530			28,100	4.76	%
Noninterest-earning assets		212,785							243,827
Total assets	$	1,053,031						$	1,030,357
Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	327,758		$	384	0.16	%	$	328,360		$	710	0.29	%
Savings accounts		172,243			256	0.20	%		139,864			310	0.30	%
Certificates of deposit		206,208			1,713	1.11	%		236,323			2,358	1.33	%
Total interest-bearing deposits		706,209			2,353	0.44	%		704,547			3,378	0.64	%
FHLB advances		110,000			3,201	3.88	%		110,000			3,526	4.27	%
Subordinated debt		14,860			968	8.69	%		15,464			1,006	8.67	%
Total borrowings		124,860			4,169	4.45	%		125,464			4,532	4.82	%
Total interest-bearing liabilities		831,069			6,522	1.04	%		830,011			7,909	1.27	%
Noninterest-bearing demand accounts		104,263							83,367
Other		11,220							10,998
Total liabilities		946,552							924,376
Stockholders’ equity		106,479							105,981
Total liabilities and stockholders’ equity	$	1,053,031						$	1,030,357
Net interest income				$	19,590						$	20,191
Interest rate spread						3.10	%						3.49	%
Net interest margin						3.11	%						3.42	%
Average interest-earning assets to average interest-bearing liabilities		101.10	%						94.76	%

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 collectability of the loan portfolio.The provision for loan losses was $186 thousand and $580 thousand in the three and nine months ended September 30, 2013 compared to $148 thousand and $574 thousand in the three and nine months ended September 30, 2012. 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.

30

Other Income

The following table summarizes other income for the three months ended September 30, 2013 and 2012 and the changes between the periods.

	Three Months Ended September 30,
	2013		2012		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	520	$	440	18.2	%
Cash surrender value of life insurance		169		160	5.6
Other		439		429	2.3
Total other income	$	1,128	$	1,029	9.6	%

Other income increased $99 thousand, or 9.6%, to $1.1 million for the three-month period ended September 30, 2013 from the same period in 2012.  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 $9 thousand resulted from an increase in the balance in the policies. Other income increased $10 thousand primarily from increased debit card commissions received and other income.

The following table summarizes other income for the nine months ended September 30, 2013 and 2012 and the changes between the periods.

	Nine Months Ended September 30,
	2013		2012		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	1,580	$	1,274	24.02	%
Cash surrender value of life insurance		501		458	9.4
Other		1,273		1,168	9.0
Total other income	$	3,354	$	2,900	15.7	%

Other income increased $454 thousand, or 15.7%, to $3.4 million for the nine-month period ended September 30, 2013 from the same period in 2012.  The increase in service charges income of $306 thousand resulted from higher service charges collected on deposit accounts. The increase in cash surrender value of life insurance income of $43 thousand resulted from an increase in the balance in the policies. Other income increased $105 thousand primarily from increased debit card commissions received.

Other Expense

The following table summarizes other expense for the three months ended September 30, 2013 and 2012 and the changes between periods.

31

	Three Months Ended September 30,
	2013		2012		% Change
	(Dollars in thousands)
OTHER EXPENSE:
Salaries and employee benefits	$	3,084	$	3,090	(0.2)	%
Occupancy and equipment		1,287		1,265	1.7
Federal insurance premiums		140		122	14.8
Advertising		86		121	(28.9)
Professional services		334		307	8.8
Real estate owned expense		20		30	(33.3)
Other operating expense		552		512	7.8
Total other expense	$	5,503	$	5,447	1.0	%

N/M – not measurable

Other expenses increased $56 thousand, or 1.0%, to $5.5 million for the three-month period ended September 30, 2013 from the same period in 2012. Results for the third quarter of 2013 include a one-time expense of $112 thousand for the premium paid for the early redemption of $5.2 million of junior subordinated debentures in connection with the concurrent redemption of trust preferred securities. Apart from this one-time expense, decreases in salaries and benefits, marketing, REO and other expenses of $95 thousand were partially offset by increases in occupancy and equipment and FDIC insurance expenses of $39 thousand for the third quarter of 2013 compared to 2012.

The following table summarizes other expense for the nine months ended September 30, 2013 and 2012 and the changes between the periods.

	Nine Months Ended September 30,
	2013		2012		% Change
	(Dollars in thousands)
OTHER EXPENSE:
Salaries and employee benefits	$	9,384	$	9,270	1.2	%
Occupancy and equipment		3,812		3,760	1.4
Federal insurance premiums		405		379	6.9
Advertising		306		369	(17.1)
Professional services		1,005		834	20.5
Real estate owned expense		55		33	66.7
Other operating expense		1,455		1,595	(8.8)
Total other expense	$	16,422	$	16,240	1.1	%

N/M – not measurable

Other expenses increased $183 thousand, or 1.1%, to $16.4 million for the nine-month period ended September 30, 2013 from the same period in 2012. Results for the nine months of 2013 include a one-time expense of $112 thousand for the premium paid for the early redemption of $5.2 million of junior subordinated debentures in connection with the concurrent redemption of trust preferred securities. Apart from this one-time expense, increases in salaries and benefits, occupancy and equipment, FDIC insurance and REO expenses of $213 thousand were partially offset by decreases in marketing and other expenses of $143 thousand. 

Income Taxes

Income taxes decreased $54 thousand to $696 thousand for an effective tax rate of 34.5% for the three months ended September 30, 2013, compared to $750 thousand for an effective tax rate of 38.6% from the same period in 2012. The decrease in the effective rate was based upon a reduction in state income tax expense as a result of the Company forming a new subsidiary OCHB Preferred Corp., a New Jersey corporation, with the intent for it to qualify as a mortgage Real Estate Investment Trust (“REIT”). Simultaneously the Company also established OCHB Investment Co., a Delaware corporation. Ocean City Home Bank contributed a portfolio of approximately $178 million in qualifying loans to the REIT and acquired equity interest in the investment company. In connection with the transaction, the Bank will act as a servicer for the REIT and the manager for the investment company.  The purpose of the transaction is to exercise a tax planning strategy to reduce state tax liability on qualifying assets. The structure gives rise to an uncertain tax position, however no reserve is currently required.

32

Income taxes decreased $355 thousand to $2.1 million for an effective tax rate of 35.0% for the nine months ended September 30, 2013, compared to $2.4 million for an effective tax rate of 38.8% from the same period in 2012. The decrease in the effective rate was based upon a reduction in state income tax expense as a result of forming a subsidiary real estate investment trust in the second quarter.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2013, cash and cash equivalents totaled $125.5 million and securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $12.9 million. In addition, at September 30, 2013, we had the ability to borrow a total of approximately $268.5 million from the Federal Home Loan Bank of New York.

At September 30, 2013, we had $81.5 million in loan commitments outstanding, which included $33.8 million in undisbursed loans, $30.2 million in unused home equity lines of credit and $17.5 million in commercial lines and letters of credit. Certificates of deposit due within one year of September 30, 2013 totaled $135.0 million, or 68.5% of certificates of deposit. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

At September 30, 2013, the Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $99.4 million, or 9.64% of total adjusted assets, which is above the required level of $41.3 million or 4.0%; Tier 1 risk-based capital of $99.4 million, or 19.3% of total adjusted assets which is above the required level of $20.6 million or 4.0%; and total risk-based capital of $103.3 million, or 20.01% of risk-weighted assets, which is above the required level of $41.3 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.

33

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 September 30, 2013 Percentage Change in Estimated Net Interest Income Over
	12 Months		24 Months
200 basis point increase in rates	10.39	%	12.94	%
100 basis point decrease in rates	(2.61)		(4.43)

N/M – not measurable

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

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 September 30, 2013 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	$	95,721	$	(40,168)	(29.56)	%	9.92	%	(297)bp
200		109,541		(26,348)	(19.39)		11.01		(189)
100		122,247		(13,642)	(10.04)		11.92		(97)
50		128,287		(7,602)	(5.59)		12.34		(56)
0		135,889		—	—		12.89		—
(50)		139,102		3,213	2.36		13.05		16
(100)		141,683		5,794	4.26		13.19		29

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.

34

OFF-BALANCE SHEET ARRANGEMENTS

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

For the three and nine months ended September 30, 2013 and 2012, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2013 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.

35

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, 2012.

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 July 1, 2013 through July 31, 2013	-		-	-	-
Month #2 August 1, 2013 through August 31, 2013	5,794	$	14.88	-	-
Month #3 September 1, 2013 through September 30, 2013	-		-	-	-
Total	5,794	$	14.88	-	-

_______________

(1) On August 18, 2013, the Company’s Board of Directors approved the repurchase of shares of the Company’s common stock to pay taxes due on vested restricted stock. The repurchase is not part of a publicly announced plan or program.

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.

36

32.0

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.

101.0

The following materials from the Ocean Shore Holding Co. Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 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.

37

SIGNATURES

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

	OCEAN SHORE HOLDING CO.
	(Registrant)
Date: November 8, 2013	/s/ Steven E. Brady
	Steven E. Brady
	President and Chief Executive Officer
Date: November 8, 2013	/s/ Donald F. Morgenweck
	Donald F. Morgenweck
	Chief Financial Officer and Senior Vice President

38